Business context and reporting period
Axcelis Technologies, Inc. designs and sells ion implantation and other semiconductor-processing equipment, and provides aftermarket parts, upgrades and services. This unaudited Form 10-Q covers the three months ended March 31, 2016; comparisons are with the three months ended March 31, 2015 unless noted. Amounts below are in U.S. dollars.
Key financial results
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Revenue | $67.5 million | $73.3 million | Down 7.9% |
| Gross profit / margin | $23.4 million / 34.7% | $23.4 million / 31.9% | Gross profit up $0.04 million; margin up 2.8 percentage points |
| Operating income / margin | $2.5 million / 3.8% | $3.4 million / 4.7% | Down $0.9 million |
| Net income | $1.9 million | $1.9 million | Up $0.08 million |
| Diluted earnings per share | $0.02 | $0.02 | No change |
| Operating cash flow | $(10.2) million | $8.7 million | Down $18.9 million |
| Capital expenditures | $1.3 million | $0.3 million | Up $1.0 million |
Product revenue fell 7.9% to $62.2 million, principally because fewer Purion systems were sold. New-system revenue declined to $37.0 million from $42.5 million. Aftermarket revenue was nearly flat at $30.5 million versus $30.8 million; services revenue declined 7.1% to $5.3 million.
Product gross margin rose to 35.2% from 33.1%, reflecting improved system margins partly offset by lower margins on parts and upgrades. Services gross margin increased to 28.1% from 18.0%, attributed to contract mix and lower service costs. Operating expenses rose 4.9% to $20.9 million, including higher R&D and sales and marketing costs and $0.3 million of restructuring charges.
Balance sheet, liquidity and financing
At March 31, 2016, cash and cash equivalents were $67.6 million, down from $78.9 million at December 31, 2015. Total current assets were $236.3 million and current liabilities were $45.9 million. Total liabilities were $99.0 million, including a $47.6 million sale-leaseback financing obligation. Restricted cash was $6.9 million.
Operating cash use was driven mainly by increases in accounts receivable and other assets and liabilities. Cash used in investing was $1.3 million; financing provided $0.3 million. The prior-year quarter’s financing inflow included proceeds from the headquarters sale-leaseback. The company reported no credit facility and said existing cash was expected to cover anticipated cash requirements for at least 12 months; management believed it could borrow on reasonable terms if needed.
Material changes, outlook and risks
- Management said it expects to continue growing Purion system sales and maintain cost control, while noting that results can vary with semiconductor-equipment cycles, customer utilization and purchasing decisions. The filing provides no specific revenue or earnings guidance.
- The company recorded a $0.5 million income tax benefit, versus a $0.1 million provision a year earlier. Expiration of a tax-position statute of limitations led to reversal of a $0.6 million tax reserve and $0.3 million of related accrued interest. Management maintained a full valuation allowance on U.S. deferred tax assets.
- Customer concentration remains significant: the ten largest customers generated 79.6% of Q1 revenue. Three customers represented approximately 20.8%, 13.4% and 13.2% of revenue.
- A reduction in force related to changes in customer service contracts generated $0.3 million in restructuring charges. Warranty liability was $3.5 million at quarter-end, versus $2.2 million a year earlier.
- The company reported no litigation it believed would have a material adverse effect, no material change in previously disclosed risk factors, and effective disclosure controls. It was assessing the impact of several not-yet-effective accounting standards, including revenue recognition and leases.
Important facts for investors to verify
- Whether Purion system demand and unit sales recover, given their role in the revenue decline.
- Whether operating cash use reverses and receivables and other asset/liability movements normalize.
- Whether gross-margin gains persist as product and service mix changes.
- How customer concentration, semiconductor-industry cyclicality and the $47.6 million sale-leaseback obligation affect future results and liquidity.
- Whether the tax benefit is nonrecurring and how future taxable income may affect the valuation allowance and cash taxes.