Axcelis Technologies, Inc. — Q3 2013 Form 10-Q
Reporting period: Quarter ended September 30, 2013; comparisons are with the quarter and nine months ended September 30, 2012. Axcelis produces ion implantation and other semiconductor-processing equipment and provides aftermarket parts, upgrades, and services.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $48.8 million | $44.6 million | $137.1 million | $158.8 million |
| Gross profit / margin | $17.0 million / 34.8% | $14.4 million / 32.2% | $46.7 million / 34.1% | $57.7 million / 36.4% |
| Operating loss | $2.8 million | $7.9 million | $15.7 million | $16.8 million |
| Net loss | $4.8 million | $8.7 million | $17.8 million | $19.2 million |
| Net loss per diluted share | $0.04 | $0.08 | $0.16 | $0.18 |
Q3 revenue increased 9.4% year over year, driven by product revenue growth of 15.7%; service revenue fell 21.9%. For the first nine months, revenue declined 13.7%, with product revenue down 13.2% and services down 16.6%. Q3 product gross margin improved to 36.3% from 33.1%, while service gross margin declined to 23.4% from 27.6%. For the nine-month period, product and service gross margins were 36.5% and 18.4%, respectively, versus 37.8% and 27.7%.
Cash, liquidity, and debt
- Cash and cash equivalents were $48.3 million at September 30, 2013, versus $45.0 million at December 31, 2012. Including restricted cash, balances were $50.7 million and $45.1 million, respectively.
- Operating activities used $10.8 million of cash during the first nine months, compared with $11.4 million used in the prior-year period. Investing activities used $0.8 million; financing activities provided $15.0 million.
- The company had $15.0 million of long-term debt, plus $0.2 million current portion. The three-year, real-estate-secured term loan carries 5.5% interest, with principal payments beginning August 2014 and the outstanding balance due July 2016. Axcelis reported compliance with its loan covenants at quarter-end.
- Current assets were $178.6 million and current liabilities $33.5 million. Capital expenditures for the next twelve months were expected not to exceed $2.5 million.
Changes, outlook, and notable items
- Management said semiconductor-market conditions gradually improved beginning in Q2 and continued to improve in Q3. It expected to return to profitability in Q4 2013, citing revenue improvement and cost controls; this is a forecast, not a reported result.
- Axcelis continued investing in its Purion ion implantation platform while reducing discretionary spending, focusing R&D on critical programs, reducing headcount, and using employee unpaid shutdowns.
- The company ceased selling 300 mm dry-strip equipment in Q3 under its 2012 asset and intellectual-property sale to Lam Research, but expected to sell smaller-wafer dry-strip systems through December 2015 and support the installed base indefinitely. It recorded $1.2 million of contingent milestone proceeds and a $1.2 million gain in the nine-month period.
- Inventory included a $2.1 million nine-month charge for non-recoverable 300 mm dry-strip components. Total inventory reserves were $34.4 million at quarter-end, versus $33.6 million at year-end 2012.
- The prior $30 million revolving facility was terminated in July, resulting in $1.5 million of cash collateralized letters of credit and a $0.3 million termination fee. On October 31, 2013, after quarter-end, Axcelis entered a new SVB revolving facility of up to $10 million, expiring October 31, 2015, subject to financial covenants.
- Customer concentration remained significant: the ten largest customers represented 71.3% of nine-month revenue. Two customers contributed 19.0% and 14.5% of Q3 revenue.
- Other notable items included $0.3 million of noncash tax expense from writing off certain foreign deferred tax assets. The company reported no litigation it believed would materially adversely affect operations and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the expected Q4 return to profitability materialized and whether market improvement translated into sustained system sales and margins.
- Purion platform investment, customer adoption, and the effect of R&D reductions on product competitiveness.
- Cash burn, the availability and covenant terms of the new revolving facility, and compliance with the secured term-loan covenants.
- Inventory recoverability and reserve adequacy, particularly following the dry-strip business transition.
- Exposure to semiconductor-capital-spending cyclicality and reliance on a concentrated customer base.