Axcelis Technologies, Inc. — Q1 2020 Form 10-Q
Period: Three months ended March 31, 2020; unaudited. Axcelis makes ion implantation equipment for semiconductor manufacturing and provides related aftermarket products and services. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $119.0 | $91.5 | +30.1% |
| Gross profit / margin | $45.5 / 38.2% | $37.5 / 41.0% | +21.4%; margin down 2.8 percentage points |
| Operating income / margin | $13.7 / 11.4% | $7.1 / 7.8% | +93.1% |
| Net income / diluted EPS | $11.2 / $0.33 | $6.1 / $0.18 | Net income +85.1% |
| Operating cash flow | $39.7 | $(12.3) | Improved by $52.0 |
| Capital expenditures | $1.3 | $4.3 | Down $3.0 |
Product revenue rose 33.2% to $112.1 million, primarily from increased system sales; services revenue fell 5.8% to $6.9 million. Systems revenue was $82.3 million versus $57.1 million, while aftermarket revenue was $36.7 million versus $34.4 million. Asia Pacific revenue increased to $96.8 million from $62.9 million.
Product gross margin fell to 40.1% from 43.8%, which management attributed to converting three evaluation systems into sales. Services gross margin was 8.6%, versus 8.9%. Operating expenses increased 4.7% to $31.8 million: R&D rose 6.7%, sales and marketing declined 8.0%, and general and administrative expense rose 15.7%. Higher incentive compensation contributed to increased R&D and G&A costs. Other expense increased to $1.4 million, primarily due to greater foreign-exchange losses.
Liquidity, cash flow and obligations
At March 31, 2020, cash and cash equivalents were $174.7 million, with another $6.7 million in restricted cash. Cash, cash equivalents and restricted cash totaled $181.4 million, up $34.9 million during the quarter. Working-capital movements, including a $19.2 million reduction in accounts receivable, contributed to operating cash flow.
Total assets were $562.6 million and current liabilities were $75.4 million. The company reported $48.5 million of finance lease obligation, principally related to its headquarters sale-leaseback, and $5.6 million of operating lease liabilities. It reported no credit facility, and management stated it believed existing cash and borrowing capacity would meet anticipated short- and long-term cash needs. Headquarters lease payments were to begin including principal in April 2020.
Deferred revenue was $34.1 million, up from $29.3 million at year-end, primarily reflecting advance payments on systems. Stockholders’ equity was $427.2 million. The company repurchased about 358,000 shares for $7.5 million during the quarter; the program had approximately $24.8 million remaining and was suspended amid COVID-19 while the company prioritized investment in the business.
Outlook, risks and notable items
Management reported strong first-quarter performance driven by demand for Purion systems, but provided no specific forward revenue, earnings or margin guidance. It said it was monitoring the pandemic and adjusting operations as needed. Axcelis continued operating with work-from-home and facility safety protocols; business travel was substantially curtailed.
Management warned that COVID-19 could disrupt the company, customers and suppliers; constrain travel and operations; cause parts shortages and shipment delays; and prompt customers to delay or cancel purchases. The pandemic’s impact on semiconductor demand was uncertain, with potential support from computing and communications demand but weakness in automotive and aviation-related demand. The company’s ten largest customers represented 85.9% of quarterly revenue; four customers individually accounted for 20.9%, 16.9%, 14.6% and 10.7%.
The company reported no litigation it believed would materially adversely affect operations and no material change to previously disclosed risk factors other than the added COVID-19 risk. A $9.1 million valuation allowance applies to certain U.S. tax credits and state net operating losses; additional allowance could be required if operating results are weaker than expected. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Investor verification priorities
- Assess whether system demand and the strong Q1 Purion-driven sales level continued, particularly under COVID-19 disruption.
- Track product gross margin, which declined despite higher revenue, and the contribution of systems versus aftermarket sales.
- Review customer concentration, supply-chain exposure and the effect of customer demand shifts or purchase delays.
- Verify cash generation and working-capital sustainability, including collections, inventory and deferred-revenue trends.
- Monitor lease principal payments beginning April 2020, and the rationale and timing for any resumption of share repurchases.
- Evaluate realization of deferred tax assets and any changes to the valuation allowance.