Axcelis Technologies, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. Financial statements are unaudited. Axcelis makes ion implantation and other semiconductor processing equipment and provides aftermarket parts and services.
Financial performance
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Revenue | $47.5 million | $59.1 million | $88.2 million | $114.1 million |
| Gross profit / margin | $16.7 million / 35.2% | $22.8 million / 38.5% | $29.7 million / 33.6% | $43.3 million / 38.0% |
| Operating loss | $3.4 million | $0.6 million | $12.9 million | $9.0 million |
| Net loss | $4.0 million | $0.5 million | $13.0 million | $10.5 million |
| Net loss per share | $0.04 | $0.00 | $0.12 | $0.10 |
Q2 product revenue fell 20.8% year over year to $40.8 million; service revenue declined 12.0% to $6.7 million. First-half product revenue decreased 24.0% to $75.2 million and service revenue decreased 14.0% to $13.0 million.
Cash used in operating activities was $10.8 million in the first half, versus $12.6 million in the prior-year period. Investing activities provided $0.9 million, including $1.2 million of proceeds from Lam-related milestones; financing activities provided $0.4 million. Cash and cash equivalents declined to $34.6 million at June 30, 2013 from $45.0 million at year-end 2012.
At June 30, current assets were $167.4 million and current liabilities were $34.6 million. Total liabilities were $40.6 million and stockholders’ equity was $173.1 million. There were no borrowings under the revolving credit facility during the first half. A subsequent $15.0 million term loan is described below.
Changes versus prior comparable periods
- Revenue fell 19.6% in Q2 and 22.7% in the first half, reflecting weak semiconductor-industry spending and lower customer fab utilization.
- Gross margin contracted by 3.3 percentage points in Q2 and 4.4 points in the first half. Lower system volumes and under-absorption of fixed costs weighed on margins; higher-margin parts and upgrades partly offset the product-margin decline. First-half results also included a $2.1 million charge for excess 300 mm dry-strip inventory.
- Operating expenses declined 13.8% in Q2 and 18.6% in the first half, with reductions in R&D, sales and marketing, and G&A. Despite these savings, operating losses widened as revenue and gross profit fell.
- First-half net loss worsened by $2.5 million year over year. Q2 net loss increased from $0.5 million to $4.0 million.
Outlook, financing, and risks
- Management said weak industry conditions continued through Q1 2013 but believed market conditions began improving in Q2. It gave no specific revenue or earnings guidance and cautioned that interim results may not indicate full-year results.
- Management expected capital expenditures not to exceed $2.5 million over the next 12 months and believed existing cash and cash equivalents would meet anticipated short- and long-term cash requirements, based on current forecasts.
- On July 5, 2013, Axcelis entered a three-year, $15.0 million term loan at 5.5% interest, secured by its Beverly, Massachusetts real estate. Principal payments begin August 2014; the balance is due July 2016. The loan includes financial covenants, including minimum net worth of $100 million and minimum domestic liquidity of $7.5 million, plus restrictions on certain corporate actions.
- On July 5, Axcelis terminated its $30 million revolving credit facility, cash-collateralized $1.5 million of letters of credit, and paid a $0.3 million early termination fee. The loan proceeds are intended for Purion platform investment, working capital, and general corporate purposes.
- Customer and industry concentration remain important risks: the ten largest customers generated 70.0% of first-half revenue. One customer represented 28.4% of accounts receivable at June 30. Semiconductor-equipment demand is cyclical, and the company’s cost base does not adjust readily with volume.
- Axcelis sold dry-strip assets and intellectual property to Lam in December 2012. It recorded $1.2 million of milestone-related proceeds in the first half, partly offset by related costs. Sales of 300 mm dry-strip equipment are permitted only through September 2013; smaller-wafer systems may be sold through December 2015, and installed-base support continues indefinitely.
- Additional unusual items included $2.2 million of first-half restructuring charges and a $2.1 million excess-inventory charge. Management reported no litigation it believed would materially adversely affect operations and no material changes to previously disclosed risk factors.
Most important facts to verify
- Whether the reported Q2 market improvement translated into orders, revenue, and cash flow in subsequent periods.
- Whether cash resources and the $15.0 million term loan are sufficient while operating losses and cash use continue, and whether all loan covenants are met.
- Whether gross margins recover as system volumes and fab utilization change, and whether further inventory reserves or restructuring costs arise.
- How the end of 300 mm dry-strip sales and the remaining Lam milestone conditions affect future revenue and cash receipts.
- Whether customer concentration, particularly the customer representing 28.4% of receivables, creates collection or demand exposure.