Axcelis Technologies, Inc. — 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013. The filing also reports unaudited quarterly results, including fourth-quarter 2013. Amounts below are in U.S. dollars.
Business context
Axcelis designs, manufactures and services semiconductor fabrication equipment, principally ion implanters, and provides aftermarket parts and services. Ion implantation represented 83.8% of 2013 revenue. In December 2012, Axcelis sold dry-strip intellectual property and assets to Lam Research; it stopped selling 300mm dry-strip equipment in September 2013 and may sell smaller-wafer systems through December 2015, while continuing installed-base support.
Financial performance and liquidity
| Metric | 2013 | 2012 | Change / context |
|---|---|---|---|
| Revenue | $195.6 million | $203.4 million | Down 3.8% |
| Gross profit / margin | $67.9 million / 34.7% | $58.2 million / 28.6% | Margin improved 6.1 percentage points |
| Operating loss | $14.6 million | $30.9 million | Loss narrowed |
| Net loss | $17.1 million | $34.0 million | Loss per share: $(0.16) vs. $(0.32) |
| Cash used in operating activities | $15.0 million | $10.6 million | Cash use increased |
| Cash and cash equivalents at year-end | $46.3 million | $45.0 million | 2013 includes $0.8 million long-term restricted cash separately reported |
| Working capital at year-end | $149.4 million | $145.4 million | Increased |
| Total debt at year-end | $15.0 million | None reported | $0.5 million current and $14.5 million long-term |
- Product revenue was $169.6 million, down 2.7%; service revenue was $26.0 million, down 10.4%. Management attributed weakness to lower industry capital spending and fab utilization early in 2013.
- Product gross margin rose to 37.1% from 29.1%, mainly reflecting a lower excess-inventory charge, favorable systems mix and lower warranty costs. Service gross margin declined to 19.3% from 25.6%, due to contract mix and fixed-cost absorption.
- Research and development expense was $34.8 million, or 17.8% of revenue, versus $40.4 million, or 19.9%, in 2012. Selling, marketing and administrative expenses also declined.
- Ion implantation revenue increased to $164.0 million from $156.1 million; its share of total revenue rose partly because dry-strip sales contracted after the Lam transaction. Aftermarket revenue fell to $120.6 million from $124.1 million.
- Fourth-quarter 2013 revenue was $58.6 million, gross profit $21.3 million and net income $0.6 million ($0.01 per share). In fourth-quarter 2012, revenue was $44.6 million, gross profit $0.5 million and net loss $14.8 million ($(0.14) per share); the prior-year quarter included a $13.4 million excess-inventory provision.
- Year-end systems backlog, including deferred systems revenue, was $9.3 million versus $18.5 million a year earlier. Fourth-quarter bookings were $16.8 million versus $17.3 million.
Material changes, outlook and risks
- Operating cash outflow was funded in part by a $15.0 million term loan issued in 2013. The loan is secured by the Beverly property, bears fixed interest of 5.5%, and matures July 5, 2016; principal payments begin in August 2014. The company reported compliance with loan and revolving-credit covenants. Its $10.0 million revolving facility had $7.5 million available at year-end and no borrowings.
- Management expected gradual market improvement to continue through 2014, with Purion system sales growing and tight cost control supporting quarterly profitability. Strategic priorities include expanding Purion placements, growing services, exceeding prior peak-cycle quarterly revenue and sustaining quarterly profitability. No numerical revenue or earnings guidance was provided.
- Purion M evaluation tools had been placed with customers; the first was purchased in 2013. Axcelis planned further evaluations and pursued follow-on orders and design wins. The newly announced Purion H was expected to enter multiple customer-fab evaluations in 2014.
- Significant risks include semiconductor-equipment cyclicality, uncertain order and acceptance timing, reliance on a small number of customers, international exposure, competition and dependence on suppliers. The ten largest customers generated 69.1% of revenue; one customer represented 15.5%. International revenue was 76.4% of total.
- Unusual items included $2.3 million of restructuring charges, a $1.2 million Lam milestone gain, and a $2.6 million increase in excess-inventory reserves. Disposal of $8.7 million of previously fully reserved inventory contributed to the reported reserve decrease. Extending the estimated useful life of internally manufactured assets from five to ten years increased 2013 pretax and net income by approximately $0.1 million.
- Axcelis reported no litigation it believed would materially adversely affect operations, no material off-balance-sheet arrangements other than operating leases, and no impairment charge. Its U.S. deferred tax assets remained subject to a full valuation allowance. The independent auditor issued an unqualified opinion and reported effective internal control over financial reporting.
Most important facts for investors to verify
- Whether Purion evaluations translate into customer acceptance, repeat orders and meaningful revenue growth.
- Whether improving gross margin is sustainable, given the inventory-reserve effects and weaker service margins.
- Cash burn, debt-service capacity and compliance with financial covenants as principal payments begin.
- Backlog conversion and customer concentration, including the effects of order cancellations, rescheduling and acceptance timing.
- Progress of the dry-strip transition and any remaining obligations or proceeds under the Lam agreement.