Axcelis Technologies, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; unaudited. Axcelis makes ion implantation equipment for semiconductor manufacturing and provides related aftermarket products and services. Unless noted otherwise, amounts are in U.S. dollars.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $147.3m | $123.0m | $280.1m | $242.0m |
| Gross profit / margin | $64.0m / 43.4% | $51.9m / 42.2% | $120.4m / 43.0% | $97.4m / 40.3% |
| Operating income | $24.0m | $16.4m | $44.3m | $30.1m |
| Net income | $18.9m | $13.3m | $35.4m | $24.5m |
| Diluted EPS | $0.55 | $0.39 | $1.03 | $0.72 |
| Operating cash flow | Not separately stated | Not separately stated | $45.9m | $56.6m |
Q2 revenue grew 19.8% year over year; first-half revenue rose 15.7%. Product revenue was $140.2m in Q2, up 19.6%, while services revenue was $7.1m, up 23.3%. Management reported Q2 system revenue of $100.1m and aftermarket revenue of $47.1m. First-half systems revenue was $181.1m and aftermarket revenue $98.9m. Ion implant products and services represented 97.0% of revenue in both Q2 and the first half.
Q2 product gross margin improved to 45.3% from 44.1%, attributed to better margins on parts, upgrades and Purion systems. First-half product margin rose to 44.9% from 42.1%, reflecting product mix and improved Purion margins. Services margin was 7.7% in Q2 versus 3.9%, but declined to 5.3% for the first half from 6.4%, with mix of service contracts cited. Operating expenses rose 12.7% in Q2 and 13.0% in the first half; sales and marketing expense increases included higher freight, project materials and personnel costs.
Balance sheet, liquidity and capital
- At June 30, 2021, cash and cash equivalents were $219.7m, restricted cash $0.8m, current assets $514.1m and current liabilities $106.5m. Cash and cash equivalents were $203.5m at December 31, 2020.
- Inventory increased to $192.3m from $161.1m at year-end. First-half operating cash flow fell to $45.9m from $56.6m, primarily reflecting a $32.4m cash use from inventory growth; accounts receivable provided $7.1m.
- Investing cash outflow was $2.4m, principally capital expenditures. Financing cash outflow was $28.3m, including $25.0m of share repurchases and $6.5m for taxes withheld on employee equity awards.
- Finance lease obligations totaled $47.8m, including $0.9m current; the obligation relates primarily to the headquarters sale-leaseback. The company had no borrowings under its $40m revolving credit facility, which matures July 31, 2023. A $5.9m letter of credit reduces availability; the company reported covenant compliance.
- Total liabilities were $166.5m and stockholders’ equity was $494.1m. The filing states management expects existing cash and financing capacity to meet anticipated short- and long-term cash needs.
Changes, outlook and management commentary
- Revenue growth was driven primarily by increased system sales. Management cited strong semiconductor industry fundamentals and demand for Purion products, especially for power devices and image sensors amid automotive electrification.
- Asia Pacific generated $116.6m of Q2 revenue and $220.0m in the first half; Europe revenue rose to $20.4m in Q2 from $7.4m and to $40.3m for the first half from $18.9m. North American first-half revenue was $19.7m, approximately unchanged year over year.
- Management was adding manufacturing capacity in South Korea, expected to come online by year-end 2021. The filing provides no numerical revenue or earnings guidance.
- Trade tensions, COVID-19 and related logistical challenges continued. U.S. export-control licensing requirements for customer SMIC delayed some shipments in the first half; Axcelis said it had begun receiving licenses.
- The ten largest customers represented 71.1% of first-half revenue. One customer represented 24.4% of first-half revenue; two customers represented 19.7% and 10.2% of Q2 revenue.
- The company repurchased 0.6m shares during the first half at an average $39.92 per share under a program authorizing up to $100m through 2021. Approximately $75.0m remained available at June 30.
- Net deferred tax assets were $51.4m, including a $9.1m U.S. valuation allowance. Management noted that weaker-than-expected future results could require an additional valuation allowance. The effective tax rate was below the 21% U.S. statutory rate due to equity-compensation items and R&D credits.
- Management reported no litigation it believes would materially adversely affect operations and no material changes to the risk factors in the 2020 Form 10-K. Disclosure controls were deemed effective; no material change in internal control was reported.
Key facts for investors to verify
- Whether system demand and improved product margins persist, and whether increased inventories convert into shipments and cash.
- Customer concentration, particularly reliance on major accounts, and the timing and scope of export licenses and SMIC shipments.
- South Korea capacity ramp timing, execution and associated costs, alongside ongoing freight and supply-chain pressures.
- Cash generation relative to share repurchases, remaining authorization, and the company’s lease obligations and revolver availability.
- Future realization of deferred tax assets and any changes to the valuation allowance.