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 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; change in volatility and the demand for products; the effective 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 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 reflects 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…

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 temp 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 noncash 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…

[Operator Instructions] Your first question comes from the line of Craig Irwin from ROTH Capital Partners.

So I apologize if you handled this in the first couple of minutes of the call. So I missed -- juggling multiple calls tonight. Two key things at 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 the U.S. obvious push for repatriation of manufacturing for us to make our own semiconductors. It 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 question, Craig. Yes, let me tackle the first part in tariffs. So you basically in the front end of our business. So Semiconductor Fabrication Solutions. We're basically producing -- 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 tariff 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, what drive -- to be frank, what drives that reflow business is electronic packaging, basically advanced packaging as well as electronic assembly which is primarily an Asia market. So even in that case, where we saw a little bit of decline in orders in the U.S., we saw very strong demand in other parts of Asia. To get to the second part of your question, yes, 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 the front end, all our manufacturing is in 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 tariffs out of 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 lower place. So I think over time, I do think it's going to be a net-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. 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 of the industry over the next many years?

Yes. 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, 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 1 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 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 -- we're the technology leader, market leader for providing a lot of the templates, the -- 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 -- the Entrepix operation. And we're pretty actively engaged with customers who are trying to solve leading-edge problems which we think -- and again, it's a medium, longer-term play but we think bodes well for generating some new growth drivers that are beyond. 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.

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

[Operator Instructions] 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 went back a couple of years, frankly, had less than stellar margins well below our corporate average. And we're in the mode now where things are booking with margin profiles that are kind of near the historic levels, frankly. So I do think, as we see some additional volume and are able to leverage 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 has done an outstanding job there. migrating to the semi-fabless 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.

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. So we're the -- we're basically the primary supplier of the reflow equipment that's used for advanced packaging at the major 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 the 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 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.

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

Yes. So we're probably roughly speaking, 25% or so of that segment would be parts/service revenue.

I'm sorry, of which service?

Thermal process solutions and then right now on semiconductor fab solutions. 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 1%. That's almost exclusively consumables parts service now.

Okay. So was semi basically all parts and services. All right.

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.