Axcelis Technologies, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Financial statements are unaudited. Unless otherwise noted, amounts are in U.S. dollars and millions.
Business context and results
Axcelis makes ion implantation and other semiconductor fabrication equipment and provides related aftermarket services. Results improved substantially year over year, driven mainly by higher sales of Purion systems. The company notes that semiconductor equipment demand is cyclical and that a concentrated customer base affects its business.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $78.4 | $41.2 | $151.7 | $102.0 |
| Gross profit / margin | $27.2 / 34.6% | $14.5 / 35.2% | $50.6 / 33.3% | $36.2 / 35.5% |
| Operating income (loss) | $7.2 | ($6.1) | $10.6 | ($5.7) |
| Net income (loss) | $5.9 | ($6.9) | $7.8 | ($6.7) |
| Diluted EPS | $0.05 | ($0.06) | $0.06 | ($0.06) |
Financial position, cash flow and liquidity
- For Q2, product revenue rose 109% to $72.7 million; service revenue fell 10.5% to $5.7 million. For the first half, product revenue increased 56.2% to $140.3 million, while services declined 6.1% to $11.4 million.
- System revenue was $41.6 million in Q2 versus $10.9 million a year earlier; first-half system revenue was $84.1 million versus $43.3 million. Management attributed growth to Purion sales, market-share gains and improved equipment-market conditions.
- Product gross margin weakened to 36.0% in Q2 from 39.6%, and to 34.6% for the first half from 39.0%, reflecting lower initial margins on new Purion systems and, for the first half, a lower parts-and-upgrades mix. Service margins improved.
- At June 30, cash and cash equivalents were $78.1 million, versus $30.8 million at year-end 2014. Current assets were $250.7 million and current liabilities $60.3 million. Inventories increased to $122.0 million from $104.1 million.
- First-half operating cash flow was $11.8 million, compared with cash used of $11.9 million in 2014. Capital expenditures were $0.7 million. Financing activities provided $35.8 million, largely reflecting the headquarters transaction.
- The company sold its headquarters for $48.9 million and repaid its $14.4 million term loan. For accounting purposes, the sale-leaseback was treated as financing: the June 30 obligation was $47.6 million. The 22-year lease has scheduled cash payments totaling $133.1 million, including $85.5 million of interest. The company also recorded $1.3 million of Q2 interest expense related to the obligation.
- No borrowings were outstanding under the revolving facility at June 30; $3.1 million of capacity remained available after letters of credit. The facility was due to expire October 31, 2015. The company reported covenant compliance.
Changes, outlook and risks
- Operating expenses declined 2.6% in Q2 and 4.8% for the first half. Lower R&D and G&A costs were partly offset by higher sales and marketing expense. Management cited reduced headcount following prior-year workforce reductions.
- Management expected Purion system sales to continue growing during 2015 and planned to maintain tight cost control. It stated that current cash, equivalents and borrowing capacity were expected to meet anticipated short- and long-term cash needs; this is an expectation, not a guarantee.
- Key risks cited include customer acceptance and demand for ion implantation equipment, semiconductor-factory activity, competitive and pricing pressure, production-cost increases, and global economic, political and financial conditions. Revenue is concentrated: the ten largest customers generated 75.4% of first-half revenue; one customer alone represented 33.1%.
- Q2 stock-based compensation included $1.1 million from accelerated vesting. The company maintained a full valuation allowance against approximately $140 million of U.S. deferred tax assets, citing a three-year cumulative U.S. loss position. It reported no litigation expected to have a material adverse effect and no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Whether Purion sales growth and market-share gains continue, and whether lower initial system margins improve with scale or product mix.
- Customer concentration, order timing, system installations and acceptance, and the resulting deferred revenue and cash conversion.
- Inventory growth and reserve assumptions; inventories were $122.0 million, net of $17.6 million in reserves.
- The financing and cash-flow implications of the headquarters sale-leaseback, including the $47.6 million recorded obligation and long-term lease payments.
- Renewal or replacement of the revolving credit facility, which was scheduled to expire October 31, 2015, and the company’s liquidity if demand weakens.