Axcelis Technologies, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Axcelis makes ion implantation equipment for semiconductor manufacturing and provides related aftermarket products and services. Amounts below are in U.S. dollars; financial amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $69.5 | $95.4 | $235.2 | $336.9 |
| Gross profit / margin | $30.6 / 44.0% | $39.9 / 41.8% | $99.8 / 42.4% | $136.1 / 40.3% |
| Operating income / margin | $1.9 / 2.7% | $10.7 / 11.1% | $11.0 / 4.7% | $48.4 / 14.3% |
| Net income | $0.7 | $8.8 | $7.3 | $37.4 |
| Diluted EPS | $0.02 | $0.26 | $0.22 | $1.10 |
- Q3 product revenue was $64.3 million, down 27.4%; services revenue was $5.2 million, down 24.9%. Systems revenue was $36.8 million and aftermarket revenue was $32.6 million.
- For the first nine months, product revenue fell 31.5% and services revenue fell 9.2% year over year. Management attributed the product decline primarily to fewer systems sold.
- Q3 product gross margin improved to 47.8% from 44.5%, while services gross margin fell to negative 2.4% from 8.0%. Management cited Purion system cost-out initiatives and favorable product mix for product margin improvement; service contract mix weighed on services margin.
- Operating expenses were $28.7 million in Q3, down 1.9% year over year; nine-month expenses increased 1.4% to $88.8 million. Research and development spending rose 7.2% for the nine-month period, while lower incentive compensation contributed to reduced personnel and G&A expense.
Cash flow, balance sheet and liquidity
- Cash from operating activities was negative $0.3 million for the first nine months, versus positive $17.2 million in 2018. Capital expenditures were $11.1 million, versus $3.9 million; operating cash flow less capital expenditures was approximately negative $11.4 million.
- Cash and cash equivalents were $155.3 million at September 30, 2019, down from $178.0 million at year-end 2018; restricted cash was $6.9 million. Cash, cash equivalents and restricted cash combined declined $22.7 million during the nine months.
- Current assets were $353.9 million and current liabilities were $63.0 million. Total liabilities were $122.6 million and stockholders’ equity was $407.8 million.
- The company reported a $48.5 million finance lease obligation associated with its headquarters sale-leaseback, plus $6.1 million of operating lease liabilities. It had no credit facility. Management said existing cash, cash equivalents and borrowing capacity should meet anticipated short- and long-term needs.
- Cash used in financing included $14.0 million for share repurchases. The company repurchased 885,000 shares at an average $15.83 per share during the first nine months; approximately $21.0 million remained under its $35 million authorization, which expired at year-end 2019.
Changes, outlook and risks
- Management said the semiconductor industry slowdown adversely affected first-nine-month revenue. It reported maintaining profitability at lower revenue through improved gross margin and expense control, and described strong Q3 gross margins as reflecting cost-out initiatives and favorable mix.
- No specific revenue or earnings guidance was provided in the filing. Management noted ongoing investment in product development and consideration of organic and inorganic growth opportunities.
- Customer concentration is significant: the ten largest customers generated 76.2% of nine-month revenue. Two customers represented 28.0% and 13.2% of Q3 revenue; four customers each represented at least 10% of receivables at quarter-end.
- Other items include $1.0 million of headcount-related charges in the first nine months, with $0.8 million accrued at quarter-end; a $7.7 million tax valuation allowance, increased due to uncertainty around certain R&D credits; and $1.8 million of foreign-currency translation losses in other comprehensive income for the nine months.
- The company reported no litigation believed likely to have a material adverse effect and no material changes to the risk factors in its 2018 Form 10-K. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Whether semiconductor equipment demand and system shipments recover, and how that affects revenue and operating leverage.
- Whether improved product margins persist and services margins recover from the Q3 loss.
- Cash conversion, inventory levels, and the effect of capital spending and share repurchases on liquidity.
- Customer concentration, deferred revenue and acceptance timing, and the potential impact of changes in major customer demand.
- Terms and future cash-payment profile of the headquarters finance lease, particularly as principal payments begin in April 2020.