Axcelis Technologies, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Axcelis makes semiconductor processing equipment, including ion implantation systems, and provides aftermarket parts and services. The interim financial statements are unaudited.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Total revenue | $40.7 million | $55.0 million |
| Gross profit / margin | $12.9 million / 31.8% | $20.5 million / 37.3% |
| Operating loss | $9.5 million | $8.4 million |
| Net loss | $9.0 million | $10.0 million |
| Net loss per share, diluted | $0.08 | $0.09 |
| Cash used in operating activities | $1.9 million | $9.7 million |
- Product revenue fell 27.5% to $34.5 million; service revenue declined 16.0% to $6.3 million. Aftermarket revenue was $28.0 million, versus $32.1 million.
- Product gross margin was 35.6%, down from 38.4%; service gross margin was 10.7%, down from 30.6%. Overall gross margin contracted 5.5 percentage points.
- Operating expenses decreased 22.5% to $22.4 million, including $1.8 million of restructuring charges and a $0.4 million gain related to the dry-strip asset sale. Other income was $0.8 million, compared with other expense of $0.9 million in Q1 2012; the filing attributes these amounts primarily to foreign exchange movements. Income tax expense was $0.3 million.
- At March 31, cash and cash equivalents were $42.4 million, down from $45.0 million at year-end. Current assets were $169.9 million and current liabilities $34.1 million. Total liabilities were $40.1 million; the balance sheet reports no borrowings.
- Cash used in investing activities was $0.3 million net, including $0.4 million of Lam-related proceeds and $0.2 million of capital expenditures. Financing activities provided $0.05 million. Foreign exchange reduced cash by $1.0 million.
- The $30 million revolving credit facility had $13.0 million of available borrowing capacity; Axcelis had no borrowings under it and was in covenant compliance. The facility terminates April 10, 2015.
Material changes and unusual items
- Revenue fell 26.0% year over year amid weak semiconductor industry spending, lower system sales, and reduced customer fab utilization. Top-ten customers represented 59.7% of revenue, down from 79.5% a year earlier.
- The operating loss widened despite lower expenses, as lower revenue and gross profit more than offset cost reductions. Net loss improved year over year, aided by the swing in other income/expense.
- Axcelis recorded a $2.1 million charge for dry-strip inventory components judged non-recoverable after revised sales forecasts, and a $0.5 million charge from production below normal capacity. Inventory reserves totaled $35.3 million at quarter-end.
- Following its December 2012 sale of dry-strip assets and intellectual property to Lam Research, Axcelis expects to cease selling 300 mm dry-strip equipment in 2013; it may sell smaller-wafer systems through December 2015 and support the installed base indefinitely. It recognized $0.4 million of milestone-related gain in Q1 and received a further $0.8 million milestone payment in April, to be recognized in Q2.
- Q1 restructuring charges were $1.8 million; the $1.4 million remaining liability was expected to be paid primarily in Q2. Cost actions included workforce reductions, focused R&D spending, discretionary-spending controls, and a one-week unpaid employee shutdown.
Outlook, risks, and contingencies
- Management provided no specific revenue or earnings guidance. It said existing cash and cash equivalents, based on current forecasts, should meet anticipated short- and long-term cash needs, and that spending could be aligned with demand if conditions weaken.
- Management described the semiconductor equipment market as cyclical, with customer capital spending and fab utilization outside Axcelis’s control. Its relatively fixed cost structure can limit expense reductions as sales decline; weak fab utilization also pressures aftermarket demand and service margins.
- The filing reports no litigation believed likely to have a material adverse effect and no material change to previously disclosed risk factors. It also reports no significant off-balance-sheet foreign-exchange hedging arrangements.
- One customer represented 11.5% of Q1 revenue and 12.9% of accounts receivable at quarter-end. The filing notes that customer consolidation and foundry outsourcing may reduce the potential customer base.
Important facts for investors to verify
- Whether revenue, fab utilization, aftermarket demand, and gross margins recover from the weak Q1 levels.
- Whether inventory reserves, particularly for dry-strip components, require further charges as product sales wind down.
- Whether restructuring and cost controls reduce cash burn without impairing critical R&D and competitiveness.
- Availability under the revolver and compliance with its operating-results and liquidity covenants if losses continue.
- Recognition and timing of the additional $0.8 million Lam milestone proceeds in Q2, and any further contingent consideration.