Amtech Systems, Inc.

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 Erika 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 Janke, Chief Financial Officer. After 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 .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, change in volatility and the demand for products, the effect of changing worldwide political and economic 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 10K and Form 10Q. 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 9th, 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 reinforced 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 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 node 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 backend 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 reoccurring 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 reoccurring 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 this 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 -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 temp and belt furnace business. Also, we have seen stabilization in the semiconductor fabrication solutions segment with the -to-bill ratio slightly above 1. Gap 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 inventory write-downs during Q2 2025 driven by sustained weak demand from mature node semiconductor customers. On a non-GAP 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 solution segment and $5 million in goodwill impairment charges in our thermal processing solution 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 $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 timing of purchases related to specific projects. The decrease from prior year is attributable to development efforts in our semiconductor fabrication solution segment that did not recur. GAP, net loss for the second quarter of fiscal 2025 was $31.8 million or $2.23 per share. This compared to GAP net income of $0.3 million or $0.02 per share for the preceding quarter and GAP net income of $1 million or $0.07 per share for the second quarter of fiscal 2024. Non-GAP net loss for the second quarter of fiscal 2025 was $2.3 million or $0.16 per share. This compares to non-GAP net income of $0.8 million or $0.06 per share for the preceding quarter and non-GAP net loss of $0.2 million or $0.01 per share for the second quarter of fiscal 2024. Our adjusted EBITDA was $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 account 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-fabulous 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 the 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 AMTEC's results is denominated in Renimbiz, a Chinese currency. The outlook provided in this press release is based on an assumed exchange rate between the United States dollar and the Renumbi. Changes in the value of Renumbi 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.

Operator. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number 1 on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. If you're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of Craig Irwin from Roth Capital Partners. Your line is now open.

Good evening and thank you for taking my questions. So I apologize if you handled this in the first couple of minutes of the call. I missed juggling multiple calls tonight. Two key things at the top of my mind really both related to tariffs. With the outlook for maybe a positive resolution on the U.S.-China trade disputes, it seems that some of the business activity can normalize and your significant exposure to the Chinese market maybe looks like it will face a little bit less of a headwind. I was hoping you could comment a little bit about that. And then the flip side of this is U.S. obvious push for repatriation of manufacturing for us to make our own semiconductors seems like it could set up a larger long-term opportunity for you here particularly in the United States. If you could maybe talk about how these major policy actions out of the White House could possibly benefit business activity for Amtech over the next couple of years.

All right. Thanks for the questions. Yes, let me tackle the first part in tariffs. So basically in the front end of our business, so semiconductor fabrication solutions, we're basically producing the well pretty much all those products are produced in the U.S. for the U.S. and our exports to China historically have been relatively small in that area. So even with the tariffs, we didn't see a tremendous amount of impact on the SFS business. In the case of the back end equipment where we're producing our reflow equipment, again for advanced packaging and electronic assembly, those products are manufactured in our Shanghai facility in China. And that's where we saw some basically very, very weak orders during the quarter as a result of the situation. So hopefully if tariffs get to some very reasonable level in the future, we should be able to pick up additional strength in the U.S. markets. But fortunately, to be frank, what drives that reflow business is electronic packaging, basically advanced packaging, as well as in the U.S. we saw very strong demand in other parts of Asia. To get to the second part of your question, I do believe, I hope Craig, that we start to see some tailwinds associated with repatriating more manufacturing to the U.S. And in that case, given the fact that especially at the U.S. today, we would expect to see some nice tailwinds associated with that. We're also, I should mention, trying to reduce our risk also in terms of in the future shipping to the U.S. If it turns out that Terrasada China stay at a pretty elevated level relative to other parts of the world, we're looking, I don't think it's practical for us to manufacture some of this back end equipment in the U.S., but it is very feasible for us to manufacture in other parts of Asia, for example, or potentially Mexico, where we would expect tariffs hopefully land in a much, much lower place. So I think over time, I do think it's going to be a net positive, I think in the near term. Just because of the structure of our business, it really hasn't been that negative for us, frankly, to deal with the tariff situation, assuming the uncertainty doesn't create bigger headwinds in the economy, of course.

Understood. Thank you for that. 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. And people look at your R&D spending and just 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 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 sort of 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, the industry over the next many years?

Yeah, 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, basically the AI GPUs, is the thermal management challenges and the packaging, the density challenges for advanced packaging are basically, we think are going to drive the industry towards more of the some of the more traditional semiconductor fabrication process, like chemical mechanical planarization, which is one of our key technology areas. So I do believe that we're going to see basically the addressable market for some of the areas we've been playing in in terms of CMP really expand to the packaging area as well, where again, the type of business we're in, volumes matter, the size of the basically the square, the square inches or square millimeters of substrate matter. So I think in some ways, if we start to see broader utilization of some of these technologies and advanced packaging, that could be a very strong secular driver, I think, for the industry. What we're doing, we obviously have a strong presence in areas like, for example, you referenced it earlier, Craig, we're by far the technology leader, market leader, for providing a lot of the templates, basically some of the processing consumables that are used for chemical mechanical planarization. But what we've been doing more recently is really leveraging the fact that we can help customers using our foundry service. So we have our CMP foundry service that was part of our, you know, the Intrepix operation. And we're pretty actively engaged with customers who are trying to solve leading edge problems, which we think, you know, and again, it's a medium, longer term play, but we think bodes well for generating some new growth drivers that are beyond, you know, we've typically played more in this mature node and I'd say the silicon carbide world. We're looking to frankly to try to see if we can play more in the emerging area of advanced packaging with this type of technology.

Well, that absolutely makes sense. Thank you for taking my questions and congratulations on, you know, the continued gross margin strength. It shows you guys are managing things, you know, tight and we like that. Well,

thank you, Craig. As a reminder, if you have a question, please press star one on your telephone keypad. Your next question comes from the line of Mark Miller from Benchmark Company. Your line is now open. Thank you for the

question. 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 seen recently?

Yeah, absolutely. Everything, as we've pointed out before, a lot of that legacy backlog, some of which went back a couple of years, frankly, had less than stellar margins well below our corporate average. And, you know, we're in the mode now where things are booking with margin profiles that are, you know, kind of near the historic levels, frankly. So I do think as we see some additional volume and are able to leverage, you know, our fixed cost structure, which we've obviously brought down quite a bit, that we should start to see some meaningful margin accretion as well, gross margin, and at the EBITDA line. We just need the volume right now because we've done an awful lot on getting our cost efficiency in a good place from a manufacturing standpoint. The team's done an outstanding job there. Migrating to the semi-fabulous model has basically put us in a much better position to scale with demand. And now that we've kind of weaned ourselves off a lot of this legacy, I think we're really well positioned. We just need to grow those volumes, Mark, and I think we should see some nice results.

Mark Benthien, ESA Okay, you indicated that AI is driving strong demand for advanced packaging. Can you be specific about what products you're seeing the strong demand for?

Mark Benthien, ESA Yes, so we're basically the primary supplier of the reflow equipment that's used for advanced packaging at the major, you know, Taiwan and beyond in terms of AI packaging. So it's primarily been on the equipment side, Mark, and primarily in our thermal process solutions business. If you look at that business, which is again, primarily it's equipment, but we do have a fairly substantial parts service business as well. But that is what's driving that business right now. The legacy, back to the legacy backlog, some of that equipment that, you know, the furnaces and the both diffusion and for things like ceramic to metal bonds has been weak, but that's been offset or is being offset by strong demand for advanced packaging.

Mark Benthien, ESA Finally, I just wanted to give us a feeling for the revenue from spares and service.

Mark Benthien, ESA Yeah, so we're probably roughly speaking 25% or so of that segment would be parts service revenue.

Mark Benthien, ESA Which service?

Mark Benthien, ESA Thermal process solutions and then right now on semiconductor fab solutions, Mark Benthien, ESA That's primarily consumables, parts and service today. The equipment component of that is really small now because of, again, the mature node fabricators are running at very high or very low utilization rates of their fabs. So until their capacity utilization goes up, I don't expect they're going to be buying more equipment in that segment. So right now where we're sitting with that business and as Wade mentioned, we've seen stabilization, book to bill was about one. That's almost exclusively consumables, parts, service now.

Mark Benthien, ESA Okay, so SEMI was basically all parts and services. All right. Thank you very much.

Mark Benthien, ESA All right. Thank you, Mark.

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

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

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