Axcelis Technologies, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Unaudited consolidated financial statements; comparisons are with the corresponding 2019 periods. Axcelis makes ion implantation equipment for semiconductor manufacturing and provides related aftermarket products and services.
Key financial results
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $123.0m | $74.3m | $242.0m | $165.8m |
| Gross profit / margin | $51.9m / 42.2% | $31.7m / 42.8% | $97.4m / 40.3% | $69.3m / 41.8% |
| Operating income / margin | $16.4m / 13.3% | $2.0m / 2.7% | $30.1m / 12.4% | $9.1m / 5.5% |
| Net income | $13.3m | $0.6m | $24.5m | $6.6m |
| Diluted EPS | $0.39 | $0.02 | $0.72 | $0.19 |
- Q2 revenue grew 65.5% year over year; first-half revenue grew 45.9%. Growth was primarily driven by higher system sales, particularly Purion systems. Systems revenue was $76.8m in Q2 and $159.2m for the first half; aftermarket revenue was $46.2m and $82.8m, respectively.
- Gross margin declined year over year despite higher gross profit. Management attributed weaker product margins to a lower mix of higher-margin parts and upgrades, partly offset by improved Purion system margins. Operating expenses rose, but fell as a share of revenue; higher incentive-based compensation was a principal driver of expense increases.
- First-half operating cash flow was $56.6m, versus cash used of $20.3m in 2019. Investing cash outflow was $3.0m, primarily capital expenditures; financing cash outflow was $3.7m. Cash, cash equivalents and restricted cash increased $50.5m in the period.
- At June 30, cash and cash equivalents were $190.3m, plus $6.7m restricted cash. Current assets were $420.7m and current liabilities $86.8m. Total liabilities were $143.5m. The filing reports $48.4m of finance lease obligation, principally from the headquarters sale-leaseback; it does not report conventional funded borrowings at quarter-end.
Changes, outlook and risks
- Cash and cash equivalents increased from $139.9m at December 31, 2019; accounts receivable decreased from $83.8m to $64.9m, while inventory rose from $140.4m to $149.2m.
- Management cited strong first-half performance but gave no specific revenue or earnings guidance. It said current cash, cash equivalents and borrowing capacity were expected to meet anticipated short- and long-term cash requirements, while maintaining liquidity for business ramps and potential growth opportunities.
- COVID-19 risks include supply-chain shortages, customer purchase delays or cancellations, changing semiconductor demand by end market, and restrictions on travel that could delay system installation. Management noted demand-supportive trends in PCs, streaming and communications, alongside weaker automotive and aviation demand; future pandemic effects remained uncertain.
- Customer concentration is significant: three customers represented 56.3% of Q2 revenue, and the ten largest customers represented 80.3% of first-half revenue. Two customers accounted for 52.1% of accounts receivable at June 30.
- The $50m share-repurchase authorization was suspended at the end of Q1 because of COVID-19-related uncertainty. No shares were repurchased in Q2; approximately $24.8m remained authorized at June 30.
- On July 31, 2020, after quarter-end, Axcelis entered a senior secured revolving credit facility of up to $40m, terminating August 3, 2023. No borrowings were outstanding when the filing was made; substantially all assets secure the facility, subject to exceptions.
- Management reported no litigation believed likely to have a material adverse effect and no material changes to previously disclosed risk factors beyond the risk factor added in the Q1 2020 Form 10-Q. Disclosure controls were deemed effective.
Most important facts for investors to verify
- Whether system demand and Purion sales remain strong, and whether product mix improves gross margins.
- How COVID-19 affects customer demand, supply availability, shipment timing and installation schedules.
- Exposure to major customers, including their share of revenue and receivables, and the collectability of those balances.
- Cash generation, inventory growth and the extent to which deferred revenue converts to recognized revenue.
- Terms and potential use of the secured credit facility, and whether share repurchases resume.