Amtech Systems Inc Q2 FY2025 Earnings Call

Good day and welcome to Amtech Systems Fiscal Second Quarter 2025 Conference Call. Please note that this event is being recorded. I would now like to turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.

Good afternoon and thank you for joining us for Amtech Systems fiscal second quarter 2025 conference call. With me today on the call are Bob Daigle, Chairman and Chief Executive Officer; and Wade Jenke, Chief Financial Officer. After the close of market today, Amtech released its financial results for the fiscal second quarter of 2025. The earnings release is posted on the company's website at www.amtechsystems.com in the Investors section. Before we begin, I'd like to remind everyone that the Safe Harbor disclaimer in our public filings covers this call and the webcast. Some of the comments to be made during this call today will contain forward-looking statements and assumptions that are subject to risks and uncertainties, including but not limited to those contained in our SEC filings, all of which are posted within the Investors section of our corporate website. The company assumes no obligation to update any such forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements which speak only as of today. These statements are not a guarantee of future performance and actual results could differ materially from current expectations. Among the important factors which could cause actual results to differ materially from those in the forward-looking statements are changes in the technologies used by customers and competitors; changes in volatility and the demand for products; the effect of overall market conditions, including trade sanctions, the effect of overall market conditions, including the equity and credit markets and market acceptance risks, ongoing logistics, supply chain and labor challenges and capital allocation plans. Other risk factors are detailed in our SEC filings, including our Form 10-K and Forms 10-Q. Additionally, in today's conference call, we will be referring to non-GAAP financial measures as we discuss the fiscal second quarter financial results. You'll find a reconciliation of these non-GAAP measures to our actual GAAP results included in this press release today. I will now turn the call over to Amtech's Chief Executive Officer, Bob Daigle.

Thank you, Erica. Good afternoon and thank you for joining us today. As previously disclosed, on April 9, revenue for the second fiscal quarter came in below our guidance range. This shortfall was primarily driven by a shipment delay in our Thermal Processing Solutions segment related to a customer dispute involving a previously canceled order. The situation resulted in a delay of a separate shipment valued at approximately $4.9 million. While the matter remains ongoing, we are in contact with the customer and continue to expect that the equipment will ship once the issue is resolved. Outside of this dispute, during the second quarter, we began to see a broader softening in demand within the mature node semiconductor market, affecting both equipment and consumables. The softness contributed to the overall revenue shortfall which in turn impacted profitability, resulting in an adjusted EBITDA loss of $1.4 million for the quarter. While operating expenses were in line with expectations, the ongoing demand headwinds in select markets reinforce the importance of focusing on what we can control, namely driving operational efficiency and broadening our customer and application base. Expanding on the dynamics within our end markets, as we indicated last quarter, demand for the front-end equipment and consumables tied to mature node applications including industrial and automotive remains weak. These trends are consistent with broader commentary from the semiconductor OEMs and reflect the sustained downturn in capital investment across these sectors. Given the prolonged softness, we recorded an impairment charge of $22.9 million and an inventory write-off of $6 million in the second fiscal quarter. The equipment product lines associated with the charges and write-offs serve mature nodes and EV-related applications. While disappointing, these actions were necessary to align our asset base with the capital equipment demand environment in these market segments. The charge is non-cash in nature and has been excluded from our non-GAAP financial results. Despite these near-term challenges in the mature node market, we continue to be very encouraged by demand trends in back-end semiconductor markets. Orders for our advanced packaging equipment, particularly those supporting AI applications remain very strong. Notably, in the second quarter, our bookings for this product line exceeded our total bookings for all of fiscal 2024. This momentum is being driven by secular investments in AI infrastructure and provides meaningful tailwinds for our advanced packaging equipment. As we look ahead, we are closely monitoring the evolving tariff and macroeconomic landscape. Orders for reflow equipment in the U.S. during the quarter were weak due to high tariffs. However, tariff-related headwinds were more than offset by strength in Asia for AI-related advanced packaging equipment. We continue to invest in market development initiatives, particularly within our Semiconductor Fabrication Solutions segment. Our focus is on expanding recurring revenue streams, including consumables, parts, and services which offer higher margins and more stable, less cyclical revenue. We are working to grow our footprint with existing customers, capture share at additional sites, and introduce our products to new customers. In addition, we are leveraging our proven technologies to address similar challenges in adjacent applications. While these efforts will take time to contribute meaningfully to our top line, we believe they are fundamental to long-term growth. In parallel, we continue to optimize our cost structure in response to the demand environment. During the third fiscal quarter, we executed additional site consolidations and workforce adjustments. These efforts are expected to yield incremental EBITDA savings of $1 million per quarter starting in the fourth fiscal quarter. Combined with the cost reduction actions we've already implemented, we now anticipate total annualized savings of $11 million on a run rate basis as we exit the fiscal year. Fortunately, we are navigating this dynamic environment from a position of financial strength. We ended the quarter with a solid cash position of $13.4 million and no outstanding debt, providing us with the flexibility to continue to invest in our strategic initiatives. Looking forward, we remain optimistic about our long-term outlook. First, our streamlined cost structure positions us to benefit from strong operating leverage as market demand recovers. Over the past year, we have taken meaningful steps to reduce fixed costs, consolidate operations, and improve manufacturing efficiency. These actions not only enhance our ability to generate positive EBITDA at lower revenue levels but also allow us to scale profitably as demand returns. Second, investments in AI infrastructure continue to drive increased demand for advanced packaging. We are experiencing very strong demand for our advanced packaging equipment. The strength in the second quarter bookings reinforces our belief that this trend is durable and continues to present a significant growth opportunity for our business. Finally, within our Semiconductor Fabrication Solutions segment, we are focusing on driving sustainable higher-margin growth by expanding recurring revenue streams. Consumables, parts, and services not only provide more predictable revenue but also support deeper customer relationships and reduce exposure to capital spending cycles. Our efforts to broaden our footprint with existing customers, expand into new sites, and apply proven solutions to adjacent opportunities are expected to strengthen our long-term competitive position and enhance our margin profile. While the near-term environment remains dynamic, we are confident with the structural changes we've made over the past year and we believe they position us well to navigate the cycle and capitalize on the growth opportunities ahead. With that, I'll turn it over to Wade for further details on our financial results.

Thank you, Bob. For the fiscal second quarter of 2025, net revenue was $15.6 million, representing a decrease of 36% from fiscal Q1 and a decrease of 39% from the second quarter of fiscal 2024. The decrease in both periods is primarily due to a customer dispute that delayed shipment of a $4.9 million order. In addition, we have had prolonged weakness in the mature node semiconductor market driving reduced sales for wafer cleaning equipment, diffusion, and high-temperature furnaces, partially offset by higher sales of advanced packaging solutions. For Q2, the book-to-bill ratio was slightly above 1, and we have worked through the majority of the lower margin legacy backlog, except for the delayed $4.9 million order mentioned previously. The bookings in Q2 were significantly stronger with AI packaging equipment, partially offsetting lower bookings in the high-temperature and belt furnace business. Also, we have seen stabilization in the Semiconductor Fabrication Solutions segment with a book-to-bill ratio slightly above 1. GAAP gross profit decreased by $9.7 million sequentially compared to last year and decreased by $8.8 million compared to the same prior year period. The decrease across both periods is primarily due to lower sales volume and $6 million in non-cash inventory write-downs during Q2 2025, driven by sustained weak demand from mature node semiconductor customers. On a non-GAAP basis, gross margin for the second quarter was 36% compared with 34% in the same prior year period, driven by fixed cost reductions and product mix. During the second quarter of fiscal 2025, we recorded $22.9 million in impairment charges due to $15.3 million in goodwill and $2.6 million in intangible asset impairment charges in our Semiconductor Fabrication Solutions segment and $5 million in goodwill impairment charges in our Thermal Processing Solutions segment. The impairment charges were due primarily to recent events in our markets, indicating that the current demand weakness is expected to last a prolonged period for the mature node semiconductor market. Selling, general and administrative expenses decreased by $0.9 million sequentially from last year and decreased by $1.1 million compared to the same prior year period. The decrease across both periods is primarily due to fixed cost reductions attributed to actions we have taken and lower commissions from the lower sales volume we experienced. Research, development and engineering expenses decreased $44,000 sequentially from last quarter and decreased $0.1 million compared to the same prior year period. The sequential decrease is due primarily to the timing of purchases related to specific projects. The decrease from the prior year is attributable to development efforts in our Semiconductor Fabrication Solutions segment that did not recur. GAAP net loss for the second quarter of fiscal 2025 was $31.8 million or $2.23 per share. This compared to GAAP net income of $0.3 million or $0.02 per share for the preceding quarter and GAAP net income of $1 million or $0.07 per share for the second quarter of fiscal 2024. Non-GAAP net loss for the second quarter of fiscal 2025 was $2.3 million or $0.16 per share. This compares to non-GAAP net income of $0.8 million or $0.06 per share for the preceding quarter and a non-GAAP net loss of $0.2 million or $0.01 per share for the second quarter of fiscal 2024. Our adjusted EBITDA was negative $1.4 million for the fiscal Q2 2025 compared to $1.9 million for the preceding quarter and $0.8 million for the second quarter of fiscal 2024. Unrestricted cash and cash equivalents at March 31, 2025, were $13.4 million compared to $11.1 million at September 30, 2024, due primarily to strong accounts receivable collections from customers. Now, turning to our outlook. For the third quarter ending June 30, 2025, we expect revenues in the range of $16.9 million with adjusted EBITDA nominally neutral. Although the near-term revenue and earnings outlook remains challenging, I remain confident in the disciplined financial strategy we've employed throughout this downturn. We have proactively streamlined our cost structure and aligned our operations with market realities resulting in significant annualized savings. In our U.S. operations, we have completed our strategy for a semi-fabless operating model. This includes additional headcount reductions, contract manufacturing, optimized resourcing, manufacturing footprint reduction and we are pursuing opportunities to sublet. Our strategic optimization efforts are expected to deliver an additional $1 million per quarter in future cost reductions starting in Q4 of 2025. Our streamlined new cost structure will further enhance our ability to generate positive adjusted EBITDA. Once additional cost reductions are fully realized, we expect our adjusted EBITDA breakeven to be approximately $16 million in revenue with a similar product mix. We ended the quarter with $13.4 million in cash and our teams are maintaining a strong focus on cash generation. I believe these strategic measures will significantly strengthen our financial performance and enhance long-term profitability across varying market conditions. Operating results can be significantly impacted positively or negatively by the timing of orders, systems, shipments, logistical challenges and the financial results of semiconductor manufacturers. Additionally, semiconductor equipment industries can be cyclical and inherently impacted by changes in market demand. Actual results may differ materially in the weeks and months ahead. A portion of Amtech's results is denominated in Renminbis, a Chinese currency. The outlook provided in this press release is based on an assumed exchange rate between the United States dollar and the Renminbi. Changes in the value of Renminbi in relation to the United States dollar could cause actual results to differ from expectations. I will now turn the call over to the operator for questions.

Your first question comes from Craig Irwin from ROTH Capital Partners.

I apologize if this was covered earlier in the call. I was managing multiple calls tonight. Two key points are on my mind, both concerning tariffs. With a potentially positive resolution to the U.S.-China trade disputes, it seems that some business activity can return to normal, and your significant exposure to the Chinese market may encounter less of a challenge. I would appreciate your thoughts on this. Additionally, the U.S. push for bringing manufacturing back home for semiconductor production could present a larger long-term opportunity for you, especially in the United States. Could you discuss how these major policy actions from the White House might benefit Amtech's business activities in the coming years?

Thank you for the question, Craig. Regarding tariffs, in our Semiconductor Fabrication Solutions segment, most of our products are manufactured in the U.S. for the U.S. market, and our exports to China in this area have historically been quite limited. Thus, the impact of tariffs on our SFS business has been minimal. For our back-end equipment, including reflow equipment produced in our Shanghai facility, we experienced significantly weak orders this quarter due to the tariff situation. If tariffs stabilize at a reasonable level in the future, we should see improved strength in the U.S. markets. However, our reflow business is primarily driven by demand for electronic packaging and assembly in Asia, so even though U.S. orders declined, we experienced robust demand in other parts of Asia. In response to your second question, I hope we will see benefits from bringing more manufacturing back to the U.S. Since our front-end manufacturing is already located in the U.S., we anticipate positive effects from this trend. We are also looking to mitigate risks associated with shipping to the U.S. If tariffs from China remain high compared to other regions, while it may not be practical to manufacture some back-end equipment in the U.S., we could consider production in other parts of Asia or Mexico, where we expect lower tariffs. Overall, I believe this could result in a net positive effect in the long run. In the short term, our business structure has not faced significant negative impacts from the tariff situation, provided that uncertainty does not create larger economic headwinds.

Understood. So my next question again is very much a big picture question. A lot of investors have come to Amtech and been interested in learning more about Amtech for your involvement in the silicon carbide power semiconductor industry. People look at your R&D spending, around a few million dollars, and often overlook the significant technology contribution that you make to your customers. Can you maybe talk a little bit about some of the programs that are not front and center for investors right now, like diamond wafers? I know that you've done work there with all the leading diamond wafer producers and some of these other cutting-edge technologies that could come to market in the next handful of years, how do your customers lean on you as an expert in materials processing and polishing? And how important is this to the basic structure of the industry over the next many years?

Yes. I think my sense, Craig, and this is my opinion. What you're seeing in the advanced packaging area and the requirements, for example, the GPUs, specifically the thermal management challenges and the packaging density challenges for advanced packaging are driving the industry towards more of the traditional semiconductor fabrication processes like chemical-mechanical planarization, which is one of our key technology areas. I believe that we're going to see the addressable market for some of the areas we've been involved in expand into the packaging area as well. In some respects, if we start to see broader utilization of these technologies in advanced packaging, it could be a very strong secular driver for the industry. We obviously have a strong presence in areas like the chemical-mechanical planarization process. We're the technology leader and market leader, providing many of the templates and processing consumables used for this process. Recently, we have been leveraging our foundry service to help customers solve leading-edge problems, which we believe will bode well for generating new growth drivers beyond our traditional mature node operations. We're looking to enhance our involvement in the emerging area of advanced packaging with this technology.

Congratulations on the continued gross margin strength. It shows you guys are managing things tight, and we like that.

Your next question comes from the line of Mark Miller from Benchmark Company.

You mentioned during your remarks that you basically worked through your lower margin backlog. I'm just wondering if you could give us some insight or some color about the current profile, the margin profile of your existing backlog, is that above what we've been seeing recently?

Yes, absolutely. Everything, as we've pointed out before, a lot of that legacy backlog, some of which goes back a couple of years, frankly, had less than stellar margins that were well below our corporate average. Now, we are in the mode where things are booking with margin profiles that are near the historical levels. Therefore, as we see some additional volume and are able to leverage our fixed cost structure, which we've improved significantly, we should start to see meaningful margin accretion, both at the gross margin and the EBITDA line. We need the volume right now because we've done considerable work in enhancing our cost efficiency in manufacturing. The team has done an outstanding job in migrating to a semi-fabless model, which has put us in a much better position to scale with demand. We need to grow those volumes, and I believe we will see nice results.

Okay. You indicated that AI is driving strong demand for advanced packaging. Can you be specific about what products you're seeing a strong demand for?

Yes. We are the primary supplier of the reflow equipment used for advanced packaging at the major providers in Taiwan and beyond in terms of AI packaging. It's primarily on the equipment side, Mark, and primarily in our Thermal Process Solutions business. While we've seen some weakness in orders from our legacy backlog, that has been offset by strong demand for advanced packaging.

And finally, just wondering, can you give us a feeling for the revenue from spares and service?

Yes. Roughly speaking, about 25% of that segment would be parts and service revenue.

I'm sorry, of which service?

Thermal Process Solutions and then right now in Semiconductor Fab Solutions. That's primarily consumables, parts, and service today. The equipment component is small due to the mature node fabricators running at very low utilization rates of their fabs. Until their capacity utilization goes up, I do not expect they will be buying more equipment in that segment. Currently, we are seeing stabilization. The book-to-bill is approximately 1%, and that is almost exclusively consumables, parts, and service.

There are no further questions at this time. I will now turn the call back to Robert Daigle. Please continue.

All right. Well, thank you for your interest in Amtech and for joining our conference call today. We look forward to updating you on all of our progress in the months ahead. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.