Axcelis Technologies, Inc. — Q1 2021 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2021, compared with the same 2020 period. Axcelis makes ion implantation equipment for semiconductor manufacturing and provides related aftermarket products and services.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $132.8 million | $119.0 million | +11.6% |
| Gross profit / margin | $56.4 million / 42.5% | $45.5 million / 38.3% | +$10.9 million |
| Operating income / margin | $20.4 million / 15.4% | $13.7 million / 11.4% | +$6.6 million |
| Net income | $16.5 million | $11.2 million | +46.9% |
| Diluted EPS | $0.48 | $0.33 | +$0.15 |
| Operating cash flow | $15.1 million | $39.7 million | -$24.6 million |
Product revenue increased 12.9% to $126.6 million; services revenue declined 10.1% to $6.2 million. Systems revenue was $81.0 million versus $82.3 million, while aftermarket revenue rose to $51.8 million from $36.7 million. Asia Pacific generated $103.4 million of revenue and Europe $19.9 million; North America generated $9.5 million.
Product gross margin improved to 44.4% from 40.1%, which management attributed to improved Purion system margins. Services gross margin fell to 2.6% from 8.6%, primarily due to service-contract mix. Operating expenses increased 13.3% to $36.1 million, led by sales and marketing costs, including freight, project materials and personnel expenses.
Balance sheet and liquidity
- Cash and cash equivalents were $206.8 million at March 31, 2021, up from $203.5 million at year-end; restricted cash was $0.8 million.
- Total assets were $629.3 million and stockholders’ equity was $487.7 million. Inventories increased to $174.4 million from $161.1 million, while accounts receivable declined to $75.9 million from $86.9 million.
- Cash from operations was $15.1 million, capital expenditures were $1.3 million, and cash used in financing was $11.7 million. The operating cash flow decline versus 2020 chiefly reflects the inventory cash use of $16.5 million in Q1 2021, compared with a $1.9 million source in Q1 2020.
- The company reported $48.0 million of finance lease obligation, primarily related to its headquarters sale-leaseback; total finance and operating lease liabilities were $52.2 million. It had no borrowings under its $40 million revolving credit facility, which expires in July 2023. A $5.9 million letter of credit reduces available capacity. The company reported compliance with facility covenants.
- Axcelis repurchased 303,000 shares for approximately $11.6 million during the quarter, at an average $38.41 per share, under its authorization to repurchase up to $100 million through year-end 2021.
Changes, outlook and risks
- Management described Q1 performance as strong, driven by Purion demand, and said gross margin reached 42.5% despite logistical challenges associated with COVID-19 and U.S.-China trade tensions.
- U.S. export-control restrictions on major Chinese customer SMIC require licenses for all U.S. shipments. Axcelis received no licenses for that customer during Q1, delaying shipments. One customer accounted for 29.6% of quarterly revenue; the ten largest customers together accounted for 79.8%.
- Management said existing cash, cash flows and financing capacity should be sufficient for anticipated short- and long-term requirements, and noted potential organic and inorganic growth opportunities. The filing provides no specific numerical earnings or revenue guidance.
- Other risks include customer concentration, demand variability in semiconductor capital equipment and aftermarket markets, inventory exposure, and possible additional valuation allowances on deferred tax assets. Management reported no litigation believed likely to have a material adverse effect and no material changes to the risk factors in its 2020 Form 10-K.
Important facts for investors to verify
- Whether export licenses are obtained for SMIC and how shipment delays affect revenue, customer concentration and collections.
- Whether aftermarket growth and improved Purion system margins persist, and whether low services margins recover.
- Inventory levels and operating cash conversion, given the quarter’s inventory build and lower operating cash flow.
- Remaining revolver availability after the letter of credit, lease obligations, and the pace and price of future share repurchases.