Axcelis Technologies, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. Axcelis makes semiconductor processing equipment, including ion implantation and dry strip systems, and provides aftermarket parts, upgrades and services. Amounts below are in millions of dollars unless stated otherwise.
Financial results
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $55.0 | $93.2 |
| Gross profit / margin | $20.5 / 37.3% | $31.1 / 33.4% |
| Operating expenses | $28.9 | $28.7 |
| Operating income (loss) | $(8.4) | $2.4 |
| Net income (loss) | $(10.0) | $1.8 |
| Diluted earnings (loss) per share | $(0.09) | $0.02 |
| Cash used in operating activities | $9.7 | $1.2 |
Revenue fell 40.9% year over year. Product revenue declined to $47.5 million from $86.6 million, while service revenue increased to $7.5 million from $6.6 million. Ion implant revenue was $40.4 million versus $64.4 million; aftermarket revenue was $32.1 million versus $38.3 million. Gross margin improved despite lower sales: product gross margin rose to 38.4% from 34.3%, and service margin to 30.6% from 20.6%. The overall gross-margin increase reflected a higher-margin parts and upgrades mix and improved service cost absorption, partly offset by lower system volumes.
Cash, liquidity and balance sheet
- Cash and cash equivalents were $37.2 million at March 31, down from $46.9 million at December 31, 2011. Operating cash use included increased inventory in anticipation of future system sales.
- Current assets were $206.9 million and current liabilities $42.1 million. Inventory increased to $128.7 million from $120.0 million; accounts receivable declined to $30.5 million from $35.1 million.
- Total liabilities were $49.4 million; the filing does not report outstanding borrowings. The revolving credit facility permits borrowings up to $30 million; available capacity was $20.0 million at quarter-end. Axcelis said it was compliant with all covenants.
- Capital expenditures were $0.1 million. No cash-flow guidance or numerical full-year forecast was provided.
Changes, outlook and risks
- Management attributed the revenue contraction to weak semiconductor-market conditions and reduced customer capital spending. It said the business declined further from the prior quarter and described future market conditions as difficult to predict.
- Management anticipated business growth and improving financial results in 2012, while noting that liquidity and performance depend on product demand, global economic conditions and semiconductor-equipment industry conditions. It said forecast cash and existing liquidity should cover anticipated short- and long-term cash needs, and that spending could be aligned with demand if sales weakened.
- A workforce reduction generated $2.9 million of restructuring expense in Q1; total expected expense was approximately $3.3 million, with the remainder expected in Q2. About $1.0 million remained accrued at quarter-end, expected to be paid through the rest of 2012.
- The revolving-credit covenants were modified on March 5, 2012, revising minimum quarterly current-asset/current-liability ratios and minimum trailing six-month adjusted net income requirements to align with forecasts.
- Two customers represented 24.6% and 14.4% of Q1 revenue; one customer represented 19.0% of quarter-end receivables. Inventory reserves were $23.8 million. The company recorded a $0.4 million noncash tax expense from writing off a deferred tax asset in a European jurisdiction.
- Axcelis reported no litigation it believed would have a material adverse effect, no material changes to previously disclosed risk factors, and effective disclosure controls. It noted that semiconductor-equipment demand is cyclical and operating expenses are relatively fixed.
Important facts for investors to verify
- Whether demand and system sales recover sufficiently to support management’s 2012 growth and improving-results outlook.
- Cash burn, inventory levels and realizability of inventory, including the adequacy of reserves, as customer demand evolves.
- Compliance with the modified credit covenants and the availability of the stated $20.0 million borrowing capacity.
- Customer concentration and the effect of lower factory utilization on parts, upgrades and service demand.
- The remaining restructuring costs and expected timing of related payments.