AMTECH SYSTEMS INC

Results of Operations

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

Net Revenue

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

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

Total net revenue for the three months ended June 30, 2024 and 2023 was $26.7 million and $30.7 million, respectively, a decrease of approximately $4.0 million or 13%. Our Semiconductor results for the third quarter of fiscal 2024 reflect decreases in shipments of our high-temperature furnaces, surface-mount technology (“SMT”) and packaging equipment, partially offset by increases in shipments of our horizontal diffusion furnaces. 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 decreased due primarily to lower sales of our wafer cleaning equipment.

Total net revenue for the nine months ended June 30, 2024 and 2023 was $77.1 million and $85.6 million, respectively, a decrease of approximately $8.5 million or 10%. Revenue from the Semiconductor segment decreased $5.8 million compared to the prior year period. This change is primarily attributable to fewer shipments of our horizontal diffusion furnaces, SMT and packaging equipment partially offset by an increase in shipments of our belt furnaces. Revenue from our Material and Substrate segment decreased $2.7 million due primarily to decreased shipments of wafer cleaning equipment.

Orders and Backlog

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

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

As of June 30, 2024, two of our Semiconductor segment customers individually accounted for 28% and 10% of our backlog. Additionally, one customer of both our Semiconductor and Material and Substrate segments accounted for 16% of our backlog. No other customer accounted for more than 10% of our backlog as of June 30, 2024. The orders included in our backlog are generally credit approved customer purchase orders believed to be firm and are generally expected to ship within the next twelve months. Our backlog at any point in time is not necessarily representative of actual sales for succeeding periods, nor is backlog any assurance that we will realize profit from completing these orders. During the three months ended June 30, 2024, a horizontal diffusion customer notified us of the cancelation of a furnace project for $4.5 million, which we believe is due to the slow-down in electric vehicle adoption. Also during this period, the improvement in lead times across all of our product lines favorably contributed to the decline in our backlog.

Gross Profit and Gross Margin

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

Our gross margins can be affected by capacity utilization, material costs, and the type and volume of machines and consumables sold each quarter. Gross profit for the three months ended June 30, 2024 and 2023 was $9.8 million (36% of net revenue) and $11.0 million (36% of net revenue), respectively, a decrease of $1.2 million. Gross margin on products from our Semiconductor segment increased compared to the three months ended June 30, 2023, due to changes in our product mix. Gross margin on products from our Material and Substrate segment increased compared to the three months ended June 30, 2023, primarily due to a more favorable product mix, with increased consumable sales partially offset by lower equipment sales. 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 on these increased costs to our customers where possible; however, we continue to experience pricing pressure from our customers. Additionally, there is the potential that our backlog could be negatively affected due to rising material costs. We are also exploring and implementing 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.

Gross profit for the nine months ended June 30, 2024 and 2023 was $26.4 million (34% of net revenue) and $32.8 million (38% of net revenue), respectively, a decrease of $6.3 million. Gross margin on products from our Semiconductor segment decreased compared to the nine months ended June 30, 2023 primarily due to changes in our product mix and increased material costs. Gross margin on products from our Material and Substrate segment decreased compared to the nine months ended June 30, 2023 primarily due to an impairment charge of $0.8 million for intangible assets and decreased utilization at our facilities.

Selling, General and Administrative

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

SG&A expenses for the three months ended June 30, 2024 and 2023 were $8.2 million and $10.3 million, respectively. SG&A decreased compared to the prior year quarter due primarily to decreased shipping expense on lower sales and decreased labor and employee-related expenses primarily as a result of fixed cost reductions across all of our divisions.

SG&A expenses for the nine months ended June 30, 2024 and 2023 were $25.0 million and $30.9 million, respectively. SG&A decreased compared to the prior year period primarily due to decreased shipping expense on lower sales, decreased labor and employee-related expenses primarily as a result of fixed cost reductions across all of our divisions, and lower consulting fees. Additionally, the nine months ended June 30, 2023 included $3.2 million of transaction expenses related to the acquisition of Entrepix.

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 June 30, 2024 and 2023 were $0.7 million and $1.8 million, respectively, and $3.2 million and $4.7 million in the nine months ended June 30, 2024 and 2023, respectively. The decrease in RD&E is due to the timing of purchases related to specific strategic-development projects at our Semiconductor and Material and Substrate segments. Additionally, the prior year period included expenditures related to new product development projects at our Material and Substrate segment, which were terminated in the fourth quarter of 2023. Grants earned are immaterial in all periods presented.

Goodwill Impairment

During the nine months ended June 30, 2024, 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 first quarter.

Intangible Asset Impairment

During the nine months ended June 30, 2024, 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

Severance expense was $40,000 for the three months ended June 30, 2024. There was no severance expense recorded in the three months ended June 30, 2023. Severance expense was $0.4 million for both of the nine months ended June 30, 2024 and 2023. For the three and nine months ended June 30, 2024, the amount relates to staff reductions across all our divisions. Severance expense for the nine months ended June 30, 2023 relates to the retirement of our founder.

Income Taxes

Our effective tax rate was (10.2%) and 82.8% for the nine months ended June 30, 2024 and 2023, respectively. The effective tax rate for the nine months ended June 30, 2024 differs from the U.S. statutory tax rate of 21% primarily due to goodwill and intangible impairment losses for which no tax benefit can be recognized. The effective tax rate for the nine months ended June 30, 2023 differs from the U.S. statutory tax rate of 21% primarily due to the release of a portion of our valuation allowance in connection with a deferred tax liability related to the Entrepix acquisition resulting in recognition of previously recorded deferred tax assets. For the three months ended June 30, 2024 and 2023, we recorded income tax expense of $0.5 million and an income tax expense of $0.2 million, respectively. For the nine months ended June 30, 2024 and 2023, we recorded income tax expense of $0.7 million and income tax benefit of $2.7 million, respectively. The quarterly income tax provision is calculated using an estimated annual effective tax rate, based upon expected annual income, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which we operate. However, losses in certain jurisdictions and discrete items are excluded from the determination of the estimated annual effective tax rate.

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