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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended:
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ________________
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
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Large Accelerated Filer |
☐ |
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Non-Accelerated Filer |
☐ |
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Smaller Reporting Company |
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Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
At February 2
, 2024, there were outstanding
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
2
Cautionary Note Regardin g Forward-Looking Statements
Our discussion and analysis in this Quarterly Report on Form 10-Q ("Quarterly Report"), our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (the “2023 Form 10-K”), our other reports that we file with the SEC, our press releases and in public statements of our officers and corporate spokespersons contain “forward-looking” statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our or our officers’ current expectations or forecasts of future events. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management. We have tried, wherever possible, to identify such statements by using words 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” or the negative thereof or variations thereon or similar terminology relating to the uncertainty of future events or outcomes. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors. Some factors that could cause actual results to differ materially from those anticipated include, among others, future economic conditions, including changes in the markets in which we operate; changes in demand for our services and products; our revenue and operating performance; difficulties in successfully executing our growth initiatives; difficulties in executing on our strategic initiatives with respect to our material and substrate business segment; our ability to effectively integrate our acquisition of Entrepix, Inc., which we acquired in January 2023; the effects of competition in the markets in which we operate, including the adverse impact of competitive product announcements or new entrants into our markets and transfers of resources by competitors into our markets; the cyclical nature of the semiconductor industry; pricing and gross profit pressures; control of costs and expenses; risks associated with new technologies and the impact on our business; legislative, regulatory, and competitive developments in markets in which we operate; possible future claims, litigation or enforcement actions and the results of any such claim, litigation proceeding, or enforcement action; business interruptions, and any future pandemic on our business operations, financial results and financial position; risks of future cybersecurity incidents; adverse developments affecting financial institutions, including bank failures; failure to comply with financial and other covenants under our credit agreement with UMB Bank; and other circumstances and risks identified in this Quarterly Report or referenced from time to time in our filings with the SEC. The occurrence of the events described, and the achievement of expected results, depend on many events, some or all of which are not predictable or within our control. These and many other factors could affect Amtech’s future operating results and financial condition and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by Amtech or on its behalf.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our or our officers’ current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to certain risks and uncertainties. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Annual Report on Form 10-K will in fact transpire or prove to be accurate. You should not place undue reliance on these forward-looking statements, which speak only as of the date they were made.
The Company undertakes no obligation to update or publicly revise any forward-looking statement whether as a result of new information, future developments or otherwise after the date of this Annual Report on Form 10-K. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this cautionary statement. You are advised, however, to consult any further disclosures we make on related subjects in our subsequently filed Form 10-Q and Form 8-K reports and our other filings with the SEC. Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business under “Item 1A. Risk Factors” of this Annual Report on Form 10-K. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand it is not possible to predict or identify all such factors.
Unless the context indicates otherwise, the terms “Amtech,” the “Company,” “we,” “us” and “our” refer to Amtech Systems, Inc., an Arizona corporation, together with its subsidiaries.
3
PART I. FINANCI AL INFORMATION
Item 1. Condensed Consolidated Financial Statements
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolida ted Balance Sheets
(in thousands, except share data)
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December 31,
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September 30,
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Assets |
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(Unaudited) |
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Current Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable (less allowance for credit losses of $
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Inventories |
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Income taxes receivable |
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Other current assets |
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Total current assets |
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Property, Plant and Equipment - Net |
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Right-of-Use Assets - Net |
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Intangible Assets - Net |
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Goodwill |
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Deferred Income Taxes - Net |
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Other Assets |
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Total Assets |
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$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Current Liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued compensation and related taxes |
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Accrued warranty expense |
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Other accrued liabilities |
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Current maturities of finance lease liabilities and long-term debt |
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Current portion of long-term operating lease liabilities |
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Contract liabilities |
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Total current liabilities |
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Finance Lease Liabilities and Long-Term Debt |
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Long-Term Operating Lease Liabilities |
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Income Taxes Payable |
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Other Long-Term Liabilities |
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Total Liabilities |
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Shareholders’ Equity |
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Preferred stock;
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Common stock; $
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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(
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) |
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(
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) |
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Retained deficit |
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(
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) |
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(
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) |
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Total Shareholders’ Equity |
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Total Liabilities and Shareholders’ Equity |
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$ |
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$ |
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|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated S tatements of Operations
(Unaudited)
(in thousands, except per share data)
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Three Months Ended December 31, |
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|||||
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2023 |
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2022 |
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Revenues, net |
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$ |
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$ |
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Cost of sales |
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Intangible asset impairment |
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— |
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Gross profit |
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Selling, general and administrative |
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Research, development and engineering |
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Goodwill impairment |
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— |
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Intangible asset impairment |
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— |
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Severance expense |
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Operating loss |
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(
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) |
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(
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) |
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Interest income |
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Interest expense |
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(
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) |
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(
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) |
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Foreign currency loss |
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(
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) |
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(
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) |
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Other |
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- |
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(
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) |
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Loss before income tax provision |
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|
(
|
) |
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(
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) |
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Income tax provision (benefit) |
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(
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) |
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Net loss |
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$ |
(
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) |
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$ |
(
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) |
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Loss Per Share: |
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Net loss per basic share |
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$ |
(
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) |
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$ |
(
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) |
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Net loss per diluted share |
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$ |
(
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) |
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$ |
(
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) |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement s of Comprehensive Income (Loss)
(Unaudited)
(in thousands)
|
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Three Months Ended December 31, |
|
|||||
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2023 |
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2022 |
|
||
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Net loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Foreign currency translation adjustment |
|
|
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|
|
|
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|
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Comprehensive loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
(Unaudited)
(in thousands)
|
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Common Stock |
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Accumulated
|
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Total |
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|||||||||
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Shares |
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Par Value |
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Additional Paid-
|
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Comprehensive
|
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Retained
|
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Shareholders'
|
|
||||||
|
Balance at September 30, 2022 |
|
|
|
|
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$ |
|
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|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
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— |
|
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
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|
|
Stock compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
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— |
|
|
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— |
|
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|
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|
Stock options exercised |
|
|
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— |
|
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|
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— |
|
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— |
|
|
|
|
|
|
Balance at December 31, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
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||||||
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|
||||||
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Balance at September 30, 2023 |
|
|
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|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
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— |
|
|
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— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
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— |
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|
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|
Stock compensation expense |
|
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— |
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— |
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|
|
|
|
|
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— |
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— |
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Stock options exercised |
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— |
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— |
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— |
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|
Balance at December 31, 2023 |
|
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$ |
|
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$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated S tatements of Cash Flows
(Unaudited)
(in thousands)
|
|
|
Three Months Ended December 31, |
|
|||||
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2023 |
|
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2022 |
|
||
|
Operating Activities |
|
|
|
|
|
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||
|
Net loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Adjustments to reconcile net loss to net cash provided by (used in)
|
|
|
|
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||
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Depreciation and amortization |
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Write-down of inventory |
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Goodwill impairment |
|
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|
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|
— |
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|
Intangible asset impairment |
|
|
|
|
|
|
— |
|
|
Deferred income taxes |
|
|
(
|
) |
|
|
(
|
) |
|
Non-cash share-based compensation expense |
|
|
|
|
|
|
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|
Loss on sale of property, plant and equipment |
|
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|
|
|
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— |
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|
(Reversal of) provision for allowance for credit losses |
|
|
(
|
) |
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
(
|
) |
|
Other assets |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(
|
) |
|
|
(
|
) |
|
Accrued income taxes |
|
|
(
|
) |
|
|
(
|
) |
|
Accrued and other liabilities |
|
|
(
|
) |
|
|
(
|
) |
|
Contract liabilities |
|
|
|
|
|
|
(
|
) |
|
Net cash provided by (used in) operating activities |
|
|
|
|
|
|
(
|
) |
|
Investing Activities |
|
|
|
|
|
|
||
|
Purchases of property, plant and equipment |
|
|
(
|
) |
|
|
(
|
) |
|
Net cash used in investing activities |
|
|
(
|
) |
|
|
(
|
) |
|
Financing Activities |
|
|
|
|
|
|
||
|
Proceeds from the exercise of stock options |
|
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(
|
) |
|
|
(
|
) |
|
Net cash (used in) provided by financing activities |
|
|
(
|
) |
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
|
|
|
|
(
|
) |
|
Cash and Cash Equivalents, Beginning of Period |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period |
|
$ |
|
|
|
$ |
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
||
|
Income tax payments, net |
|
$ |
|
|
|
$ |
|
|
|
Interest paid |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLI DATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2023 AND 2022
(UNAUDITED)
1. Basis of Presentation and Significant Accounting Policies
Nature of Operations and Basis of Presentation – Amtech is a leading, global manufacturer of capital equipment, including thermal processing, wafer polishing and cleaning, and related consumables used in fabricating semiconductor devices, such as silicon carbide ("SiC") and silicon power devices, analog and discrete devices, electronic assemblies and light-emitting diodes ("LEDs"). We sell these products to semiconductor device and module manufacturers worldwide, particularly in Asia, North America and Europe.
We serve niche markets in industries that are experiencing technological advances, and which historically have been very cyclical. Therefore, our future profitability and growth depend on our ability to develop or acquire and market profitable new products and on our ability to adapt to cyclical trends.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), and consequently do not include all disclosures normally required by accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal and recurring nature, to present fairly our financial position, results of operations and cash flows. Certain information and note disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. The condensed consolidated balance sheet at September 30, 2023, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
Our fiscal year is from October 1 to September 30. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years ending or ended September 30, and the associated quarters, months, and periods of those fiscal years.
The consolidated results of operations for the three months ended December 31, 2023 , are not necessarily indicative of the results to be expected for the full fiscal year.
Principles of Consolidation – The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates – The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Accounts Receivable and Allowance for Credit Losses – Accounts receivable are recorded at the sales price of products sold to customers on trade credit terms. We establish a valuation allowance to reflect our best estimate of expected losses inherent in our accounts receivable balance. The allowance is based on our evaluation of the aging of the receivables, historical write-offs, the current economic environment and communications with the customer. We write off individual accounts against the allowance when we no longer believe that it is probable that we will collect the receivable because we become aware of a customer’s inability to meet its financial obligations.
Intangible Assets – Intangible assets acquired in business combinations are capitalized and subsequently amortized on a straight-line basis over their estimated useful life. We regularly perform reviews to determine if facts and circumstances exist which indicate that the useful lives of our intangible assets are shorter than originally estimated
9
or the carrying amount of these assets may not be recoverable. When indicators exist, recoverability of assets is measured by a comparison of the carrying value of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset group. If the asset group is determined not to be recoverable, the Company performs an analysis of the fair value of the individual long-lived assets and will recognize an impairment loss when the fair value is less than the carrying value of such long-lived assets. Patent costs consist primarily of legal and filing fees incurred to file patents on proprietary methods and technology we developed. Patent costs are expensed when incurred, as they are insignificant. Additional information on impairment testing of intangible assets can be found in Notes 1 and 9 of our Annual Report on Form 10-K for the year ended September 30, 2023.
In the first quarter of fiscal year 2024, we recorded an impairment of definite lived intangible assets in our Material and Substrate segment. See Note 7 for a description of the facts and circumstances leading to the intangible asset impairment.
Goodwill – Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is not subject to amortization but is tested for impairment annually or when it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is concluded that there is impairment, we would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value (although the loss would not exceed the total amount of goodwill allocated to the reporting unit). Additional information on impairment testing of goodwill can be found in Notes 1 and 10 of our Annual Report on Form 10-K for the year ended September 30, 2023.
In the first quarter of fiscal year 2024, we recorded an impairment of goodwill in our Material and Substrate segment. See Note 7 for a description of the facts and circumstances leading to goodwill impairment.
Contract Liabilities – Contract liabilities are reflected in current liabilities on the Condensed Consolidated Balance Sheets as all performance obligations are expected to be satisfied within the next 12 months. Contract liabilities relate to payments invoiced or received in advance of completion of performance obligations under a contract. Contract liabilities are recognized as revenue upon the fulfillment of performance obligations. Contract liabilities consist of customer deposits and deferred revenue as of December 31, 2023 and September 30, 2023.
The following is a summary of activity for contract liabilities, in thousands:
|
|
|
Three Months Ended December 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
Beginning balance |
|
$ |
|
|
|
$ |
|
|
|
New deposits |
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
|
|
|
|
— |
|
|
Revenue recognized |
|
|
(
|
) |
|
|
(
|
) |
|
Adjustment |
|
|
— |
|
|
|
(
|
) |
|
Ending balance |
|
$ |
|
|
|
$ |
|
|
As of December 31, 2023, we had approximately $
Warranty
–
10
The following is a summary of activity in accrued warranty expense, in thousands:
|
|
|
Three Months Ended December 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
Beginning balance |
|
$ |
|
|
|
$ |
|
|
|
Additions for warranties issued during the period |
|
|
|
|
|
|
|
|
|
Costs incurred during the period |
|
|
(
|
) |
|
|
(
|
) |
|
Changes related to pre-existing warranties |
|
|
(
|
) |
|
|
(
|
) |
|
Ending balance |
|
$ |
|
|
|
$ |
|
|
Shipping Expense
– Shipping and handling fees associated with outbound freight are expensed as incurred and included in selling, general and administrative expenses. Shipping expense was
$
Concentrations of Credit Risk – Our customers are primarily manufacturers of semiconductor substrates and devices and electronic assemblies. Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and trade accounts receivable. Credit risk is managed by performing credit evaluations of the customers’ financial condition, by requiring significant deposits where appropriate, and by actively monitoring collections. Letters of credit are required of certain customers depending on the size of the order, type of customer or its creditworthiness, and country of domicile.
As of December 31, 2023
, two Semiconductor segment customers individually represented
We maintain our cash and cash equivalents in multiple financial institutions. Balances in the United States, which account for approximatel
y
Refer to Note 12 to Condensed Consolidated Financial Statements for information regarding major customers, foreign sales and revenue in other countries subject to fluctuation in foreign currency exchange rates.
Fair Value of Financial Instruments – We group our financial assets and liabilities measured at fair value on a recurring basis into three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1 – Valuation is based upon quoted market price for identical instruments traded in active markets.
Level 2 – Valuation is based on quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. Valuation techniques include use of discounted cash flow models and similar techniques.
It is our policy to use observable inputs whenever reasonably practicable in order to minimize the use of unobservable inputs when developing fair value measurements. When available, we use quoted market prices to measure fair value. If market prices are not available, the fair value measurement is based on models that use primarily market-based parameters including interest rate yield curves, option volatilities and currency rates. In certain cases, where market rate assumptions are not available, we are required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument. Changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect current or future valuations.
11
Cash, Cash Equivalents and Restricted Cash – Included in cash and cash equivalents and restricted cash in the Consolidated Balance Sheets are money market funds and time deposit accounts. Cash equivalents are classified as Level 1 in the fair value hierarchy.
Receivables and Payables – The recorded amounts of these financial instruments, including accounts receivable and accounts payable, approximate their fair value because of the short maturities of these instruments.
Debt
– The carrying value of debt under our amended Loan Agreement is based on a floating per annum rate of interest equal to the Prime Rate, adjusted daily, plus a margin. At December 31, 2023, the carrying value of the Company's total debt was $
Impact of Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which enhances the transparency and decision usefulness of income tax disclosures. Adjustments to the annual disclosure of income taxes include: a tabular rate reconciliation comprised of eight specific categories. Incomes taxes paid, disaggregated between significant federal, state, and foreign jurisdictions. Eliminating requirements to disclose the nature and estimate of reasonably possible changes to unrecognized tax benefits in the next 12 months or that an estimated range cannot be made. Adds a requirement to disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) from continuing operations disaggregated between domestic and foreign. The ASU is effective for public business entities for fiscal years beginning on or after December 15, 2024, with early adoption permitted. The amendments in ASU 2023-09 should be applied on a prospective basis. Retrospective application is permitted. This ASU is not expected to have a material effect on our financial condition or results of operations.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The ASU is effective for public business entities for fiscal years beginning after December 15, 2023, and for interim reporting periods within fiscal years beginning after December 15, 2024. Early adoption permitted. The amendments in ASU 2023-07 should be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
There were no other new accounting pronouncements issued or effective as of December 31, 2023 that had or are expected to have a material impact on our consolidated financial statements.
2. Long-Term Debt
Our finance lease liabilities and long-term debt consists of the following, in thousands:
|
|
|
December 31,
|
|
|
September 30,
|
|
||
|
Revolving credit facility |
|
$ |
|
|
|
$ |
— |
|
|
Term loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
Less: current portion of finance lease liabilities
|
|
|
(
|
) |
|
|
(
|
) |
|
Finance Lease Liabilities and Long-Term Debt |
|
$ |
|
|
|
$ |
|
|
12
Interest expense on finance lease liabilities and long-term debt was
$
Loan and Security Agreement
On January 17, 2023, we entered into a Loan and Security Agreement (the “Loan Agreement”) among Amtech, its U.S. based wholly owned subsidiaries Bruce Technologies, Inc., a Massachusetts corporation, BTU International, Inc., a Delaware corporation, Intersurface Dynamics, Incorporated, a Connecticut corporation, P.R. Hoffman Machine Products, Inc., an Arizona corporation, and Entrepix, Inc., (collectively the “Borrowers”) and UMB Bank, N.A., national banking association (the “Lender”). The Loan Agreement provides for (i) a term loan (the “Term Loan”) in the amount of $
The Term Loan and Revolver are secured by a first priority lien on substantially all of the Borrowers’ assets (other than certain customary excluded assets) and the Loan Agreement contains customary events of default, representations and warranties, and covenants that restrict the Borrowers’ ability to, among other things, incur additional indebtedness, other than permitted indebtedness, enter into mergers or acquisitions, sell or otherwise dispose of assets, or pay dividends, subject to customary exceptions.
At September 30, 2023, we were not in compliance with the Debt to EBITDA and Fixed Charge Coverage Ratio financial covenants under our Loan Agreement. On December 5, 2023, we entered into a Forbearance & Modification Agreement (the “Forbearance Agreement”) with UMB Bank related to such non-compliance, pursuant to which UMB Bank agreed to forbear from exercising its rights and remedies available to it as a result of such defaults. We will be operating under the terms of such Forbearance Agreement through January 17, 2025 (the “Forbearance Period”).
The Forbearance Agreement also amends the Loan Agreement to, among other things, (i) increase the availability under the revolving line of credit from $
13
borrowed
against the Revolver, and there was an outstanding letter of credit in the amount of $
Future borrowings, if any, under the Loan Agreement are subject to, among other things, having sufficient unencumbered Eligible Accounts, Eligible Foreign Accounts and Eligible Inventory (as such terms are defined in the Loan Agreement) to meet the borrowing base requirements included in the amended Loan Agreement.
Under the amended Loan Agreement, the Company is required to comply with the following financial covenants:
If the Lender does not extend the Forbearance Period or otherwise grant a waiver in the future for the covenant defaults described above, an event of default under the Loan Agreement would exist. To the extent the Lender so elects, the outstanding indebtedness under the Loan Agreement could be accelerated following the expiration of any applicable cure periods, causing such debt to be immediately due and payable. In addition, should the Company default in its obligation to comply with any of the covenants described immediately above during the Forbearance Period, an event of default would then exist, and, absent a further forbearance agreement or waiver granted by the Lender, the Lender would have the right to accelerate the indebtedness following the expiration of any applicable cure periods, causing such debt to be immediately due and payable. Both of the foregoing events would also result in the termination of all commitments to extend further credit under the Loan Agreement. There is no guarantee we will have sufficient liquidity to repay our outstanding debt under the Loan Agreement in full if such debt were accelerated. As of December 31, 2023, we had $
Finance Lease Obligations
Our
totaled
$
The current and long-term portions of our finance leases are included in the current and long-term portions of finance lease liabilities and long-term debt in the table above and in our Condensed Consolidated Balance Sheets as of December 31, 2023 and September 30, 2023. Further, see Note 6 for additional information.
14
3. Acquisition
Entrepix Merger
On January 17, 2023 (the “Closing Date”), the Company acquired
On the Closing Date, in connection with the Merger Agreement and in contemplation of the Transaction, the Company entered into a Loan and Security Agreement with UMB Bank, N.A., under which the Lender provided the Company with (i) a $
The Acquisition is accounted for using the acquisition method of accounting for business combinations under FASB Accounting Standard Codification Topic No. 805, Business Combinations (“ASC 805”), with Amtech representing the accounting acquirer under this guidance. The Company elected to apply pushdown accounting per ASC 805-50-50-5.
Summary of Consideration Transferred
The total consideration for the Acquisition was $
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Such assets include synergies the Company expects to achieve, such as deeper penetration into an overlapping customer base, complementary product offerings, and cost redundancy reductions. In accordance with the measurement principles in FASB Accounting Standard Codification Topic No. 820, Fair Value Measurement, the purchase consideration for the Acquisition has been allocated under the acquisition method of accounting to the estimated fair market value of the net assets acquired, including a residual amount of goodwill, none of which is deductible for tax purposes.
Amtech’s acquisition costs incurred were $
15
Consolidated
Statements of Operations.
|
|
|
January 17, 2023 |
|
Measurement Period Adjustments |
|
September 30, 2023 |
|
|||
|
Fair value of total cash consideration transferred |
|
$ |
|
|
$ |
(
|
) |
$ |
|
|
|
Estimated fair value of identifiable assets acquired and liabilities assumed: |
|
|
|
|
|
|
|
|||
|
Cash and cash equivalents |
|
$ |
|
|
$ |
— |
|
$ |
|
|
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
— |
|
|
|
|
|
Other current assets |
|
|
|
|
|
— |
|
|
|
|
|
Property, plant, and equipment |
|
|
|
|
|
(
|
) |
|
|
|
|
Right-of-use assets |
|
|
|
|
|
— |
|
|
|
|
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
(
|
) |
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired |
|
|
|
|
|
(
|
) |
|
|
|
|
Accounts payable |
|
|
|
|
|
— |
|
|
|
|
|
Other accrued liabilities |
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities |
|
|
|
|
|
|
|
|
|
|
|
Income taxes payable |
|
|
|
|
|
(
|
) |
|
|
|
|
Current portion of long-term operating lease liabilities |
|
|
|
|
|
— |
|
|
|
|
|
Long-term operating lease liabilities |
|
|
|
|
|
— |
|
|
|
|
|
Deferred tax liability |
|
|
|
|
|
(
|
) |
|
|
|
|
Total liabilities assumed |
|
|
|
|
|
(
|
) |
|
|
|
|
Net assets acquired |
|
$ |
|
|
$ |
(
|
) |
$ |
|
|
The establishment of the allocation to goodwill requires the extensive use of accounting estimates and management judgment. In accordance with ASC 805, the Company has up to one year from the acquisition date (referred to as the measurement period) to account for changes in the fair values of the identifiable assets acquired and the liabilities assumed in the acquired entity. As of the issuance of the condensed consolidated financial statements for the quarter ended December 31, 2023, the Company has not finalized its calculation of deferred tax assets or liabilities, income taxes payable, and the resulting adjustments to goodwill. The tax-related items will be finalized pending a consolidated analysis of the combined tax attributes of the Acquisition. If a change in any of these items is identified during the measurement period, the Company will record the cumulative impact of measurement period adjustments in the period the adjustment is identified.
The fair value associated with acquired intangible assets and their associated weighted-average amortization periods consist of the following, in thousands:
|
|
|
Classification of Amortization |
|
Amount |
|
|
Weighted-Average
|
|
|
Developed technology |
|
Cost of sales |
|
$ |
|
|
|
|
|
Customer relationships |
|
Selling, general and administrative |
|
|
|
|
|
|
|
Backlog |
|
Selling, general and administrative |
|
|
|
|
|
|
|
Trade names |
|
Selling, general and administrative |
|
|
|
|
|
|
|
Noncompetition agreements |
|
Selling, general and administrative |
|
|
|
|
|
|
|
Total intangible assets |
|
|
|
$ |
|
|
|
|
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents the combined results of operations of Amtech and Entrepix, in thousands, as if the acquisition occurred on October 1, 2021. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on the date indicated or of results that may occur in the future.
16
|
|
|
Three Months Ended December 31, |
|
|
|
|
|
2022 |
|
|
|
Revenues, Net |
|
$ |
|
|
|
Net Loss |
|
$ |
(
|
) |
The unaudited pro forma financial information presented above include the following adjustments:
3 Months Ended December 31, 2022
The unaudited pro forma financial information includes adjustments to align accounting policies, which were materially similar to the Company’s accounting policies. Any differences in accounting policies were adjusted to reflect the accounting policies of the Company in the unaudited pro forma financial information presented.
4. Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly to basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued. Dilutive potential common shares include outstanding restricted stock units (“RSUs”) and stock options. In the case of a net loss, diluted earnings per share is calculated in the same manner as basic EPS.
For the three months ended December 31, 2023 and 2022
, options for
A reconciliation of the components of the basic and diluted EPS calculations follows, in thousands, except per share amounts:
|
|
|
Three Months Ended December 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
Numerator: |
|
|
|
|
|
|
||
|
Net loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
|
|
|
|
|
||
|
Denominator: |
|
|
|
|
|
|
||
|
Weighted-average shares used to compute basic EPS |
|
|
|
|
|
|
|
|
|
Dilutive potential common shares due to stock
|
|
|
— |
|
|
|
— |
|
|
Dilutive potential common shares due to RSUs (1) |
|
|
— |
|
|
|
— |
|
|
Weighted-average shares used to compute diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Loss per share: |
|
|
|
|
|
|
||
|
Net loss per basic share |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Net loss per diluted share |
|
$ |
(
|
) |
|
$ |
(
|
) |
17
5. Inventories
The components of inventories are as follows, in thousands:
|
|
|
December 31,
|
|
|
September 30,
|
|
||
|
Purchased parts and raw materials |
|
$ |
|
|
|
$ |
|
|
|
Work-in-process |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
6. Leases
The following table provides information about the financial statement classification of our lease balances reported within the Condensed Consolidated Balance Sheets, in thousands:
|
|
|
December 31,
|
|
|
September 30,
|
|
||
|
Assets |
|
|
|
|
|
|
||
|
Right-of-use assets - operating |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total right-of-use assets |
|
$ |
|
|
|
$ |
|
|
|
Liabilities |
|
|
|
|
|
|
||
|
Current |
|
|
|
|
|
|
||
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current portion of long-term lease liabilities |
|
|
|
|
|
|
|
|
|
Long-term |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term lease liabilities |
|
|
|
|
|
|
|
|
|
Total lease liabilities |
|
$ |
|
|
|
$ |
|
|
The following table provides information about the financial statement classification of our lease expenses reported in the Condensed Consolidated Statements of Operations, in thousands:
|
|
|
|
|
Three Months Ended December 31, |
|
|||||
|
Lease cost |
|
Classification |
|
2023 |
|
|
2022 |
|
||
|
Operating lease cost |
|
Cost of sales |
|
$ |
|
|
|
$ |
|
|
|
Operating lease cost |
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
Operating lease cost |
|
Research, development and engineering |
|
|
|
|
|
|
|
|
|
Finance lease cost |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
Finance lease cost |
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
Short-term lease cost |
|
Cost of sales |
|
|
— |
|
|
|
|
|
|
Total lease cost |
|
|
|
$ |
|
|
|
$ |
|
|
18
Future minimum lease payments under non-cancelable leases as of December 31, 2023 are as follows, in thousands:
|
|
|
Operating Leases |
|
|
Finance Leases |
|
|
Total |
|
|||
|
Remainder of 2024 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total lease payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of lease liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The following table provides information about the remaining lease terms and discount rates applied:
|
|
|
December 31,
|
|
|
September 30,
|
|
||
|
Weighted average remaining lease term |
|
|
|
|
|
|
||
|
Operating leases |
|
|
|
|
|
|
||
|
Finance leases |
|
|
|
|
|
|
||
|
Weighted average discount rate |
|
|
|
|
|
|
||
|
Operating leases |
|
|
|
% |
|
|
|
% |
|
Finance leases |
|
|
|
% |
|
|
|
% |
During the fourth quarter of fiscal 2023, we entered into a lease, which has not yet commenced. We expect to record $
7. Goodwill and Intangible Assets
The Company accounts for goodwill at acquisition-date fair value and other intangible assets at acquisition-date fair value less accumulated amortization. See Note 1 for a summary of the Company’s policies relating to goodwill and intangible assets.
19
Intangible Assets
T
|
|
|
|
|
December 31, |
|
|
September 30, |
|
||
|
|
|
Amortization Period |
|
2023 |
|
|
2023 |
|
||
|
Backlog |
|
|
|
$ |
|
|
|
$ |
|
|
|
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
Developed technology |
|
|
|
|
|
|
|
|
|
|
|
Noncompetition agreements |
|
|
|
|
|
|
|
|
|
|
|
Trade names |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Less asset impairments: |
|
|
|
|
|
|
|
|
||
|
Backlog |
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Customer relationships |
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Developed technology |
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Noncompetition agreements |
|
|
|
|
(
|
) |
|
|
— |
|
|
Trade names |
|
|
|
|
(
|
) |
|
|
— |
|
|
Intangible assets, net |
|
|
|
$ |
|
|
|
$ |
|
|
The estimated aggregate amortization expense for each of the five succeeding fiscal years as of December 31, 2023 is as follows, thousands:
|
Year ending September 30: |
|
Amount |
|
|
|
2024 |
|
$ |
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
2028 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total |
|
$ |
|
|
The aggregate amortization expense during the three months ended December 31, 2023 and 2022 were
$
During each fiscal year, we periodically assess whether any indicators of impairment existed related to our intangible assets. At the end of December 2023, we identified a triggering event. As a result of the decline in our stock price as of December 31, 2023, our book value materially exceeded our market value. This triggering event indicated we should test the related long-lived assets for impairment in our Material and Substrate segment. We tested each identified asset group within our Material and Substrate segment by first performing a recoverability test, comparing projected undiscounted cash flows from the use and eventual disposition of each asset group to its carrying value. This test indicated that the undiscounted cash flows were not sufficient to recover the carrying value of certain asset groups. We then compared the carrying value of the individual long-lived assets within those asset groups against their fair value in order to determine if impairment existed. Determining the fair value of those asset groups involves the use of significant estimates and assumptions, including projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends, and estimated discount rates based on the asset group's weighted average return on assets, as derived from various methods. The fair value of the intangible assets were estimated using various valuation methodologies, including the multi-period excess earnings method, the relief from royalty method and the distributor method. These fair value measurements fall under Level 3 of the fair value hierarchy. As a result, we recorded a total impairment charge for intangible assets in our Materials and Substrate
20
segment
of $
Goodwill
The Company evaluates goodwill at the reporting unit level, which, for the Company, is at the level of the reportable segments, semiconductor, material and substrate. The changes in carrying amount of goodwill allocated to each of the reporting units for the three months ended December 31, 2023 is as follows, in thousands:
|
|
|
Semiconductor |
|
|
Material and Substrate |
|
|
Total Goodwill |
|
|||
|
Goodwill |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Accumulated impairment losses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance at September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Impairment of goodwill |
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance at December 31, 2023 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Goodwill |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Accumulated impairment losses |
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance at December 31, 2023 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
During each fiscal year, we periodically assess whether any indicators of impairment exist which would require us to perform an interim impairment review. At the end of December 2023, we identified a triggering event. As a result of the decline in our stock price as of December 31, 2023, our book value materially exceeded our market value. This triggering event indicated we should test goodwill for impairment. The results of the goodwill impairment test indicated that the book value of our Material and Substrate reporting unit was in excess of the fair value, and, thus, was impaired. There was no impairment of goodwill identified for our Semiconductor reporting unit.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. Our goodwill impairment test uses a weighting of the income approach and the market approach to estimate a reporting unit’s fair value. The income approach is based on a discounted future cash flow analysis that uses certain assumptions including: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments and working capital requirements to sustain and grow the business; and estimated discount rates based on the reporting unit’s weighted average cost of capital as derived by the Capital Asset Pricing Model and other methods, which includes observable market inputs and other data from identified comparable companies. The same estimates are also used internally for our capital budgeting process, and for long-term and short-term business planning and forecasting. We test the reasonableness of the inputs and outcomes of our discounted cash flow analysis against available comparable market data, and we also perform a reconciliation of our total market capitalization to the estimated fair value of all of our reporting units. The market approach is based on the application of appropriate market-derived multiples selected from (i) comparable publicly-traded companies and/or (ii) the implied transaction multiples derived from identified merger and acquisition activity in the market. Multiples are then selected based on a comparison of the reviewed data to that of the reporting unit and applied to relevant historical and forecasted financial parameters such as levels of revenues, EBITDA, EBIT or other metrics. The calculation of fair value falls under Level 3 of the fair value hierarchy.
If the future performance of these reporting units fall short of our expectations, if there are significant changes in operations due to changes in market conditions or if our stock price continues to decline, we could be required to recognize additional material impairment charges in future periods.
8. Income Taxes
Income Tax (Benefit) Provision
Our effective tax rate was (
21
and 2022, we recorded income tax expense of $
Deferred Income Taxes and Valuation Allowance
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future income and tax planning strategies in making this assessment. We have established valuation allowances on all net U.S. deferred tax assets, after considering all of the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical objective evidence, and determined it is not more likely than not that these assets will be realized. We have established a partial valuation allowance on certain foreign deferred tax assets that we consider it is more likely than not will not be realized.
We expect to pay minimal U.S federal cash taxes for the foreseeable future as a result of our U.S. net operating losses and tax credits that are carried forward.
9. Equity and Stock-Based Compensation
Stock-based compensation expense was
$
The following table summarizes our stock option activity during the three months ended December 31, 2023:
|
|
|
Options |
|
|
Weighted
|
|
||
|
Outstanding at beginning of period |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(
|
) |
|
|
|
|
|
Forfeited |
|
|
(
|
) |
|
|
|
|
|
Outstanding at end of period |
|
|
|
|
|
$ |
|
|
|
Exercisable at end of period |
|
|
|
|
|
$ |
|
|
|
Weighted average fair value of options granted during the period |
|
$ |
|
|
|
|
|
|
The fair value of options was estimated at the applicable grant date using the Black-Scholes option pricing model with the following assumptions:
|
|
|
Three Months Ended December 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
Risk free interest rate |
|
|
|
% |
|
|
|
% |
|
Expected term |
|
|
|
|
|
|
||
|
Dividend rate |
|
|
— |
% |
|
|
— |
% |
|
Volatility |
|
|
|
% |
|
|
|
% |
22
The following table summarizes our RSU activity during the three months ended December 31, 2023:
|
|
|
Number |
|
|
Weighted
|
|
||
|
Nonvested at beginning of year |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
Released |
|
|
— |
|
|
|
— |
|
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
Nonvested at end of period |
|
|
|
|
|
$ |
|
|
2023 Stock Repurchase Plan
On February 7, 2023, our Board of Directors (the “Board”) approved a stock repurchase program, pursuant to which we may repurchase up to $
10. Commitments and Contingencies
Purchase Obligations
– As of December 31, 2023, we had unrecorded purchase obligations in the amount of
$
Legal Proceedings and Other Claims – From time to time, we are a party to claims and actions for matters arising out of our business operations. We regularly evaluate the status of the legal proceedings and other claims in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss, or an additional loss, may have been incurred and determine if accruals are appropriate. If accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of possible loss can be made for disclosure. Although the outcome of claims and litigation is inherently unpredictable, we believe that we have adequate provisions for any probable and estimable losses. It is possible, nevertheless, that our consolidated financial position, results of operations or liquidity could be materially and adversely affected in any period by the resolution of a claim or legal proceeding. Legal expenses related to defense, negotiations, settlements, rulings and advice of outside legal counsel are expensed as incurred.
Employment Contracts
– We have employment contracts and change in control agreements with, and severance plans covering, certain officers and management employees under which severance payments would become payable in the event of specified terminations without cause or terminations under certain circumstances after a change in control. If severance payments under the current employment contracts or severance plans were to become payable, the severance payments would generally range from
to
11. Reportable Segments
Amtech has
Semiconductor – We design, manufacture, sell and service thermal processing equipment and related controls for use by leading semiconductor manufacturers, and in electronics, automotive and other industries.
23
Material and Substrate – We produce consumables and machinery for lapping (fine abrading), polishing and cleaning of materials, such as sapphire substrates, optical components, silicon wafers, numerous types of crystal materials, ceramics and metal components.
Information concerning our reportable segments is as follows, in thousands:
|
|
|
Three Months Ended December 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
Net Revenues: |
|
|
|
|
|
|
||
|
Semiconductor |
|
$ |
|
|
|
$ |
|
|
|
Material and Substrate |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Operating income (loss): |
|
|
|
|
|
|
||
|
Semiconductor |
|
$ |
|
|
|
$ |
|
|
|
Material and Substrate |
|
|
(
|
) |
|
|
|
|
|
Non-segment related |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
December 31,
|
|
|
September 30,
|
|
||
|
Identifiable Assets: |
|
|
|
|
|
|
||
|
Semiconductor |
|
$ |
|
|
|
$ |
|
|
|
Material and Substrate |
|
|
|
|
|
|
|
|
|
Non-segment related* |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
* Non-segment related assets include cash, property, and other assets.
12. Major Customers and Foreign Sales
During the three months ended December 31, 2023, two Semiconductor segment
customers individually represented
Our net revenues were from customers in the following geographic regions:
|
|
|
Three Months Ended December 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
United States |
|
|
|
% |
|
|
|
% |
|
Canada |
|
|
|
% |
|
|
|
% |
|
Mexico |
|
|
|
% |
|
|
|
% |
|
Other |
|
|
|
% |
|
|
|
% |
|
Total Americas |
|
|
|
% |
|
|
|
% |
|
China |
|
|
|
% |
|
|
|
% |
|
Malaysia |
|
|
|
% |
|
|
|
% |
|
Taiwan |
|
|
|
% |
|
|
|
% |
|
Other |
|
|
|
% |
|
|
|
% |
|
Total Asia |
|
|
|
% |
|
|
|
% |
|
Germany |
|
|
|
% |
|
|
|
% |
|
Austria |
|
|
|
% |
|
|
|
% |
|
Other |
|
|
|
% |
|
|
|
% |
|
Total Europe |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
% |
|
|
|
% |
24
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FIN ANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2023 (the “2023 Form 10-K”).
Overv iew
We are a leading, global manufacturer of capital equipment, including thermal processing and wafer polishing and related consumables used in fabricating semiconductor devices, such as silicon carbide ("SiC") and silicon power devices, analog and discrete devices, electronic assemblies, and light-emitting diodes ("LEDs"). 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) Semiconductor and (ii) Material and Substrate. In our Semiconductor segment, we supply thermal processing equipment, including solder reflow ovens, horizontal diffusion furnaces, and custom high-temp belt furnaces for use by semiconductor, electronics and electro/mechanical assembly manufacturers. Our semiconductor customers are primarily manufacturers of integrated circuits and optoelectronic sensors and discrete ("O-S-D") components used in analog, power and radio frequency ("RF"). In our Material and Substrate segment, we produce wafer cleaning equipment as well as substrate consumables and chemicals for lapping (fine abrading) and polishing of materials, such as silicon wafers for semiconductor products, sapphire wafers for LED applications, and compound substrates, like SiC wafers, for power device applications.
The semiconductor industry is cyclical, but not seasonal, and historically has experienced fluctuations. Our revenue is impacted by these broad industry trends.
Strategy
We continue to focus on our plans to profitably grow our business and have developed a strategic growth plan and a capital allocation plan that we believe will support our growth objectives. Our Power Semiconductor strategic growth plan leverages our experience, products and capabilities in pursuit of growth, profitability and sustainability. Our core focus areas are:
We anticipate future investments will be required to meet the expected demand from our growing served markets to achieve our revenue growth targets, including investments in research and development as well as capital expenditures, which also includes further investments in talent and management information systems. In June 2022, we completed the sale of the real property where our manufacturing facility in Massachusetts is located. In connection with this sale, we entered into a two-year leaseback of the facility. This sale-leaseback transaction resulted in a net cash inflow of
25
approximately $14.9 million, after repayment of the existing mortgage and settlement of related sale expenses. In September 2023, we signed a lease for a new location more in line with the needs of our Semiconductor product lines. The new location has less square footage as we expand our use of contract manufacturers. We expect to complete the move to this new facility in the third quarter of fiscal 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:
|
|
|
Three Months Ended December 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
Revenues, net |
|
|
100 |
% |
|
|
100 |
% |
|
Cost of sales |
|
|
64 |
% |
|
|
61 |
% |
|
Intangible asset impairment |
|
|
3 |
% |
|
|
— |
% |
|
Gross margin |
|
|
33 |
% |
|
|
39 |
% |
|
Selling, general and administrative |
|
|
34 |
% |
|
|
43 |
% |
|
Research, development and engineering |
|
|
6 |
% |
|
|
6 |
% |
|
Goodwill impairment |
|
|
26 |
% |
|
|
— |
% |
|
Intangible asset impairment |
|
|
2 |
% |
|
|
— |
% |
|
Severance expense |
|
|
1 |
% |
|
|
2 |
% |
|
Operating loss |
|
|
(36 |
)% |
|
|
(12 |
)% |
|
Interest income |
|
|
— |
% |
|
|
1 |
% |
|
Interest expense |
|
|
(1 |
)% |
|
|
— |
% |
|
Foreign currency loss |
|
|
(1 |
)% |
|
|
(1 |
)% |
|
Other |
|
|
— |
% |
|
|
— |
% |
|
Loss before income taxes |
|
|
(38 |
)% |
|
|
(12 |
)% |
|
Income tax provision |
|
|
— |
% |
|
|
— |
% |
|
Net loss |
|
|
(38 |
)% |
|
|
(12 |
)% |
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:
|
|
|
Three Months Ended December 31, |
|
|
|
|
|
|
|
|||||||
|
Segment |
|
2023 |
|
|
2022 |
|
|
Change |
|
|
% Change |
|
||||
|
Semiconductor |
|
|
17,527 |
|
|
$ |
16,887 |
|
|
$ |
640 |
|
|
|
4 |
% |
|
Material and Substrate |
|
|
7,393 |
|
|
|
4,671 |
|
|
|
2,722 |
|
|
|
58 |
% |
|
Total net revenue |
|
$ |
24,920 |
|
|
$ |
21,558 |
|
|
$ |
3,362 |
|
|
|
16 |
% |
Total net revenue for the three months ended December 31, 2023 and 2022 was $24.9 million and $21.6 million, respectively, an increase of approximately $3.4 million or 16%. Our Semiconductor results for the first quarter of fiscal 2024 reflect increases in our belt furnace shipments partially offset by decreases in shipments of our horizontal diffusion furnaces, surface-mount technology (“SMT”), and packaging equipment. We continue to experience softness in shipments of our advanced packaging and SMT equipment, primarily related to a slowdown in global demand in the consumer markets. Material and Substrate revenue increased due to the addition of Entrepix, effective January 17, 2023, partially offset by a decrease in revenue due to lower sales of our consumable products. Entrepix accounted for
26
approximately $3.8 million of revenue in the Material and Substrate segment during the quarter ended December 31, 2023.
Orders and Backlog
New orders booked by reportable segment were as follows, dollars in thousands:
|
|
|
Three Months Ended December 31, |
|
|
|
|
|
|
|
|||||||
|
Segment |
|
2023 |
|
|
2022 |
|
|
Change |
|
|
% Change |
|
||||
|
Semiconductor |
|
$ |
17,129 |
|
|
$ |
21,084 |
|
|
$ |
(3,955 |
) |
|
|
(19 |
)% |
|
Material and Substrate |
|
|
5,976 |
|
|
|
4,145 |
|
|
|
1,831 |
|
|
|
44 |
% |
|
Total new orders |
|
$ |
23,105 |
|
|
$ |
25,229 |
|
|
$ |
(2,124 |
) |
|
|
(8 |
)% |
Our backlog by reportable segment was as follows, dollars in thousands:
|
|
|
December 31, |
|
|
|
|
|
|
|
|||||||
|
Segment |
|
2023 |
|
|
2022 |
|
|
Change |
|
|
% Change |
|
||||
|
Semiconductor |
|
$ |
44,835 |
|
|
$ |
52,209 |
|
|
$ |
(7,374 |
) |
|
|
(14 |
)% |
|
Material and Substrate |
|
|
5,144 |
|
|
|
2,243 |
|
|
|
2,901 |
|
|
|
129 |
% |
|
Total backlog |
|
$ |
49,979 |
|
|
$ |
54,452 |
|
|
$ |
(4,473 |
) |
|
|
(8 |
)% |
As of December 31, 2023, one customer of our Semiconductor segment customers individually accounted for 31% of our backlog. Additionally, one customer of both our Semiconductor and Material and Substrate segments accounted for 21% of our backlog. No other customer accounted for more than 10% of our backlog as of December 31, 2023. 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 particular 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.
Gross Profit and Gross Margin
Gross profit is the difference between net revenue and cost of goods sold. 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:
|
|
|
Three Months Ended December 31, |
|
|||||||||||||||||
|
Segment |
|
2023 |
|
|
Gross
|
|
|
2022 |
|
|
Gross
|
|
|
Change |
|
|||||
|
Semiconductor |
|
$ |
6,159 |
|
|
|
35 |
% |
|
$ |
6,172 |
|
|
|
37 |
% |
|
$ |
(13 |
) |
|
Material and Substrate |
|
|
2,060 |
|
|
|
28 |
% |
|
|
2,131 |
|
|
|
46 |
% |
|
|
(71 |
) |
|
Total gross profit |
|
$ |
8,219 |
|
|
|
33 |
% |
|
$ |
8,303 |
|
|
|
39 |
% |
|
$ |
(84 |
) |
Our gross margins can be affected by capacity utilization and the type and volume of machines and consumables sold each quarter. Gross profit for the three months ended December 31, 2023 and 2022 was $8.2 million (33% of net revenue) and $8.3 million (39% of net revenue), respectively, a decrease of $0.1 million. Gross margin on products from our Semiconductor segment decreased slightly due to changes in our product mix and lower utilization at our Shanghai facility. Gross margin on products from our Material and Substrate segment decreased compared to the three months ended December 31, 2022, primarily due to an impairment charge of $0.8 million for intangible assets. Additionally, we had higher equipment sales, primarily at Entrepix, which have lower margins than our consumables, and charges for slow-moving inventory. We are experiencing increased material costs across all our segments. In response to such increased costs, we continually review our pricing plans and supplier agreements, with the objective of passing these increased costs to our customers where possible; however, we continue to experience pricing pressure from our customers. We are also exploring partnerships with contract manufacturers, who can leverage their buying power on a larger scale. In the first quarter of fiscal 2024, we began making targeted labor reductions as a result of the shift to contract manufacturing and the continuing slowdown in the broader semiconductor industry.
27
Selling, General and Administrative
Selling, general and administrative expenses (“SG&A”) 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, 2023 and 2022 were $8.6 million and $9.2 million, respectively. SG&A for the three months ended December 31, 2023 included $1.2 million of additional expense from Entrepix. SG&A for the three months ended December 31, 2022 included $1.4 million of transaction expenses related to the acquisition of Entrepix, Inc.
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, 2023 and 2022 were $1.6 million and $1.4 million, respectively. The increase in RD&E in the three month period is due to the timing of purchases related to specific strategic-development projects at our Semiconductor segment. Grants earned are immaterial in all periods presented.
Goodwill Impairment
During the quarter ended December 31, 2023, we recognized impairment of our goodwill of $6.4 million at our Material and Substrate segment as a result of a triggering event identified at the end of the quarter.
Intangible Asset Impairment
During the quarter ended December 31, 2023, we recognized impairment of our definite lived intangible assets of $1.3 million at our Material and Substrate 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.
Severance Expense
We recorded severance expense of $0.2 million and $0.4 million in the three months ended December 31, 2023 and 2022, respectively. For the three months ended December 31, 2023, the amount relates to staff reductions in our Semiconductor and Material and Substrate segments. For the three months ended December 31, 2022, the amount relates to the retirement of our founder.
Income Taxes
Our effective tax rate was (0.6%) and 0.1% for the three months ended December 31, 2023 and 2022, respectively. The effective tax rate for the three months ended December 31, 2023 differs from the U.S. statutory tax rate of 21% primarily due to losses for which no tax benefit can be recognized. For the three months ended December 31, 2023 and 2022, we recorded income tax expense of $58,000 and an income tax benefit of $4,000, 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,
28
losses in certain jurisdictions and discrete items are excluded from the determination of the estimated annual effective tax rate.
Generally accepted accounting principles of the United States (“GAAP”) require that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates and the length of carryback and carryforward periods. According to those principles, it is difficult to conclude that a valuation allowance is not needed when the negative evidence includes cumulative losses in recent years. Based on the consideration of all available evidence, we have concluded that we will maintain a full valuation allowance for all net deferred tax assets related to the carryforwards of U.S. net operating losses and tax credits. We will continue to monitor our cumulative income and loss positions in the U.S. and foreign jurisdictions to determine whether full valuation allowances on U.S. net deferred tax assets are appropriate.
We expect to pay minimal U.S federal cash taxes for the foreseeable future as a result of our U.S. net operating losses and tax credits that are carried forward.
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 Ca pital Resources
Cash and Cash Flow
The following table sets forth for the periods presented certain consolidated cash flow information, in thousands:
|
|
|
Three Months Ended December 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
Net cash provided by (used in) operating activities |
|
$ |
4,971 |
|
|
$ |
(2,508 |
) |
|
Net cash used in investing activities |
|
|
(756 |
) |
|
|
(224 |
) |
|
Net cash (used in) provided by financing activities |
|
|
(528 |
) |
|
|
20 |
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
213 |
|
|
|
372 |
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
3,900 |
|
|
|
(2,340 |
) |
|
Cash and cash equivalents, beginning of period |
|
|
13,133 |
|
|
|
46,874 |
|
|
Cash and cash equivalents, end of period |
|
$ |
17,033 |
|
|
$ |
44,534 |
|
A summary of our cash position as of December 31, 2023 and September 30, 2023, is as follows, in thousands, except working capital ratio:
|
|
|
December 31, 2023 |
|
|
September 30, 2023 |
|
||
|
Cash and cash equivalents |
|
$ |
17,033 |
|
|
$ |
13,133 |
|
|
Restricted cash |
|
$ |
— |
|
|
$ |
— |
|
|
Working capital |
|
$ |
51,998 |
|
|
$ |
51,471 |
|
|
Current ratio (current assets to current liabilities) |
|
3:1 |
|
|
2.7:1 |
|
||
The increase in cash and cash equivalents from September 30, 2023 of $3.9 million was primarily due to increased customer down payments and collections from customers. 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. Our working capital was $52.0 million as of December 31, 2023 and $51.5 million as of September 30, 2023. The increase in working capital was primarily due to the increase in cash.
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. Additionally, in January 2023, we entered into the Loan Agreement with UMB
29
Bank, which included a revolving line of credit with availability up to $8.0 million. On December 5, 2023, we amended this credit facility to, among other things, increase the availability under the revolving line of credit to $14.0 million and extend the maturity date one year to January 17, 2025. Future borrowings, if any, under the Loan Agreement are subject to, among other things, having sufficient unencumbered Eligible Accounts, Eligible Foreign Accounts and Eligible Inventory (as such terms are defined in the Loan Agreement) to meet the borrowing base requirements included in the amended credit facility. There can be no assurance that we can raise such additional capital resources when needed or on satisfactory terms. We believe that our principal sources of liquidity discussed above are sufficient to support operations for at least the next twelve months.
Cash Flows from Operating Activities
Cash provided by our operating activities was $5.0 million for the three months ended December 31, 2023, compared to $2.5 million used in operating activities for the three months ended December 31, 2022. During the first three months of fiscal 2024, our accounts receivable collections exceeded new accounts receivable due to the timing of shipments and collections. Additionally, we received more down payments from customers for future shipments during the quarter. During the three months ended December 31, 2022, our accounts receivable collections exceeded new accounts receivable, primarily due to the slowdown at our Shanghai facility.
Cash Flows from Investing Activities
Cash used in investing activities was $0.8 million in the three months ended December 31, 2023, and cash used in investing activities was $0.2 million in the three months ended December 31, 2022. Both periods consist solely of capital expenditures. We expect capital expenditures to increase in the second and third quarters of fiscal 2024 as we relocate our Massachusetts operations to a smaller facility.
Cash Flows from Financing Activities
For the three months ended December 31, 2023, cash used in 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. For the three months ended December 31, 2022, cash provided by financing activities was less than $0.1 million, comprised of proceeds received from the exercise of stock options partially offset by payments on long-term debt.
Financing Facilities
Our debt balance as of December 31, 2023 was $10.1 million, including our finance lease obligations. As previously disclosed in our Form 10-K for the fiscal year ended September 30, 2023, at such date we were not in compliance with the Debt to EBITDA and Fixed Charge Coverage Ratio financial covenants under our Loan Agreement. On December 5, 2023, we entered into a Forbearance & Modification Agreement (the “Forbearance Agreement”) with UMB Bank related to such non-compliance, pursuant to which UMB Bank agreed to forbear from exercising its rights and remedies available to it as a result of such defaults. We will be operating under the terms of such Forbearance Agreement through January 17, 2025 (the “Forbearance Period”).
The Forbearance Agreement also amends the Loan Agreement to, among other things, (i) increase the availability under the revolving line of credit from $8.0 million to $14.0 million (the "Revolver"), and (ii) reduce the term loan commitment from $12.0 million to $4.4 million (the “Term Loan”). The Revolver maturity date was extended one year to January 17, 2025 and the Term Loan maturity date was extended one year to January 17, 2029. Both the Revolver and the Term Loan have a floating per annum rate of interest equal to the Prime Rate, adjusted daily, plus the Applicable Margin (as such terms are defined in the Loan Agreement). We are required to pay a non-utilization fee equal to 0.125% of any unused portion of the Revolver in excess of any letter of credit obligations. As of September 30, 2023, no amounts were borrowed against the Revolver and there were no letters of credit outstanding. As of the effective date of the Forbearance Agreement, $10.0 million will be drawn under the Loan Agreement, which includes $4.4 million under the Term Loan and $5.6 million under the Revolver. As of December 31, 2023, $5.6 million was
30
borrowed against the Revolver, and there was an outstanding letter of credit in the amount of $0.3 million. In January 2024, we made a $2.0 million principal payment on the Revolver.
Future borrowings, if any, under the Loan Agreement are subject to, among other things, having sufficient unencumbered Eligible Accounts, Eligible Foreign Accounts and Eligible Inventory (as such terms are defined in the Loan Agreement) to meet the borrowing base requirements included in the amended Loan Agreement.
Under the Loan Agreement, as amended by the Forbearance Agreement, the Company is required to comply with the following financial covenants:
If the Lender does not extend the Forbearance Period or otherwise grant a waiver in the future for the covenant defaults described above, an event of default under the Loan Agreement would exist. To the extent the Lender so elects, the outstanding indebtedness under the Loan Agreement could be accelerated following the expiration of any applicable cure periods, causing such debt to be immediately due and payable. In addition, should the Company default in its obligation to comply with any of the covenants described immediately above during the Forbearance Period, an event of default would then exist, and, absent a further forbearance agreement or waiver granted by the Lender, the Lender would have the right to accelerate the indebtedness following the expiration of any applicable cure periods, causing such debt to be immediately due and payable. Both of the foregoing events would also result in the termination of all commitments to extend further credit under the Loan Agreement. There is no guarantee we will have sufficient liquidity to repay our outstanding debt under the Loan Agreement in full if such debt were accelerated. As of December 31, 2023, we had $17.0 million in cash and cash equivalents, and $10.0 million in debt under the Loan Agreement. If we are unable to pay such debt as it comes due, or obtain waivers for such payments, our Lender could
31
foreclose on the assets securing such debt. These events could materially adversely affect our business, results of operations and financial condition.
The Loan Agreement also includes quarterly and annual reporting requirements and other customary affirmative and negative covenants and events of default for facilities of this type. At December 31, 2023, we were in compliance with all such covenants.
Off-Balance She et Arrangements
As of December 31, 2023, 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 $19.7 million as of December 31, 2023, compared to $24.3 million as of September 30, 2023, a decrease of $4.6 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 2023 Form 10-K.
Critical Accoun ting 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 2023 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 2023 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, 2023.
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.”
32
Item 3. QUANTITATIVE AND QUALITATIVE D ISCLOSURES ABOUT MARKET RISK
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.
Item 4. CONTROLS AND PROCEDURES
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, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at a reasonable assurance level, due to the material weaknesses previously identified and disclosed in our 2023 Annual Report and listed below. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting (“ICFR”) such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Changes in Internal Control over Financial Reporting
Other than as discussed below, there were no other changes to our internal control over financial reporting during the three months ended December 31, 2023, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
Remediation Plan for Existing Material Weaknesses
We are in the process of, and continue to focus on, designing and implementing effective measures to strengthen our ICFR and remediate the material weaknesses disclosed in our 2023 Form 10-K.
In relation to the material weakness identified in the areas of goodwill and intangible assets, we are evaluating the design of internal controls over non-routine and complex transactions, including the preparation and review of the third-party service provider valuation reports. Management has engaged a new valuation firm to perform the impairment assessment for goodwill and intangible assets for the quarter ending December 31, 2023.
With respect to the material weakness related to general information technology controls, our management, under the oversight of our Audit Committee, has begun evaluating the current processes to determine the need for new controls or redesigning existing controls to remediate the control deficiencies giving rise to this material weakness. Remediation efforts will include, but not limited to, the strengthening of user access reviews, enhancing procedures surrounding program change-management, and assessing segregation of duties within the Company’s business processes.
The material weaknesses will not be considered remediated, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We anticipate that the remediation of this material weakness will be completed during fiscal year 2024. We are committed to continuing to improve our internal control processes, and, as we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify certain of our remediation measures.
33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For discussion of legal proceedings, see Note 10 to our condensed consolidated financial statements under “Part I, Item 1. Financial Information” under “Commitments and Contingencies” of this Quarterly Report.
Item 1A. Risk F actors
We refer you to documents filed by us with the SEC, specifically “Item 1A. Risk Factors” in our 2023 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 2023 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. Except as set forth below, there have been no material changes to the risk factors previously disclosed in our 2023 Form 10-K.
The Company's share price has decreased since the end of its fiscal year ended September 30, 2023, and in the first quarter of fiscal year 2024, the Company recognized impairment of its intangible assets and goodwill. If the share price continues to decline and the decline is sustained, the Company may be required to test for goodwill and/or intangible asset impairment before the performance of its required annual testing and if so, may be at risk of recognizing additional expenses related to goodwill and/or intangible asset impairment.
On September 29, 2023, the Company's share price was $7.62 and has since declined to a share price of $4.08 as of January 31, 2024. Under the accounting standard, ASC 350-20, Goodwill, a Company is required to test for impairment on an annual basis, but in the presence of a triggering event, may need to test during an interim period. Under ASC 350, Goodwill, a sustained decline in share price represents a triggering event which would require the Company to test for impairment. As of December 31, 2023, there was a decline in the Company’s share price, which resulted in its book value materially exceeding its market value. This triggering event indicated the Company should test the related long-lived assets for impairment in the Material and Substrate segment. As a result, expenses related to goodwill and intangible asset impairment was recognized.
If the Company’s share price continues to decline, the Company may again be required to test goodwill and/or intangible assets for impairment. If the Company is required to perform this analysis, there may be a risk that the Company incurs additional expenses related to goodwill and/or intangible asset impairment.
Item 2. Unregistered Sales of Equi ty Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On February 7, 2023, the Board approved a stock repurchase program, pursuant to which the Company may repurchase up to $5 million of its outstanding Common Stock over a one-year period, commencing on February 10, 2023. Repurchases under the program will be made in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in compliance with the rules and regulations of the Securities and Exchange Commission; however, the Company has no obligation to repurchase shares and the timing, actual number, and value of shares to be repurchased is subject to management’s discretion and will depend on the Company’s stock price and other market conditions. The Company may, in the sole discretion of the Board, terminate the repurchase program at any time while it is in effect. Repurchased shares may be retired or kept in treasury for further issuance.
During the three months ended December 31, 2023, we did not repurchase any of our equity securities nor did we sell any equity securities that were not registered under the Securities Act of 1933, as amended.
34
Item 3. Defaults Upo n Senior Securities
None.
Item 4. Mine Saf ety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Securities Exchange Act of 1934, as amended)
35
Item 6. Exhibits
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INCORPORATED BY REFERENCE |
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HEREWITH |
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36
SIGNAT URES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMTECH SYSTEMS, INC.
|
By |
|
/s/ Lisa D. Gibbs |
|
Dated: |
|
February 9, 2024 |
|
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Lisa D. Gibbs |
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Vice President and Chief Financial Officer |
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(Principal Financial Officer and Duly Authorized Officer) |
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37