Axcelis Technologies, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparative periods ended September 30, 2020. Unaudited. Unless noted, amounts are in U.S. dollars.
Business context
Axcelis makes ion implantation equipment for semiconductor manufacturing and provides related aftermarket parts, upgrades, used equipment, and services. Management attributed strong 2021 performance to semiconductor industry demand, particularly demand for Purion products serving power-device and image-sensor markets. The company began an initiative to expand manufacturing capacity in South Korea, expected to come online by year-end 2021.
Financial results
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $176.7 million | $110.4 million | $456.7 million | $352.4 million |
| Gross profit / margin | $76.5 million / 43.3% | $48.2 million / 43.6% | $197.0 million / 43.1% | $145.6 million / 41.3% |
| Operating income / margin | $36.4 million / 20.6% | $13.9 million / 12.6% | $80.7 million / 17.7% | $44.0 million / 12.4% |
| Net income | $27.5 million | $10.8 million | $62.9 million | $35.3 million |
| Diluted EPS | $0.81 | $0.32 | $1.83 | $1.04 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $112.1 million | $75.7 million |
- Q3 revenue increased 60.0% year over year; nine-month revenue rose 29.6%. Product revenue growth was primarily driven by more systems sold. Q3 systems revenue was $126.2 million and aftermarket revenue was $50.5 million; nine-month figures were $307.3 million and $149.4 million, respectively.
- Q3 gross margin was slightly lower year over year: product margin declined to 44.9% from 46.2%, attributed to a lower mix of higher-margin parts and upgrades and changes in Purion system mix. For the first nine months, total gross margin improved to 43.1% from 41.3%, with improved product and services margins.
- Operating expenses rose 17.0% in Q3 and 14.3% for nine months, but declined as a share of revenue. Higher personnel and incentive compensation contributed; freight and project costs also increased in some areas.
- Other expense was $2.2 million in Q3 and $5.6 million for nine months, versus $0.3 million and $2.5 million a year earlier. The increase was primarily due to foreign-exchange losses; nine-month interest income also declined.
Liquidity, cash flow, and obligations
- At September 30, 2021, cash and cash equivalents were $271.1 million, compared with $203.5 million at December 31, 2020; restricted cash was $0.8 million. Current assets were $570.1 million and current liabilities $137.2 million.
- Nine-month operating cash flow was $112.1 million. Investing cash outflow was $5.7 million, mainly capital expenditures; financing cash outflow was $40.7 million, including $37.5 million of share repurchases.
- Inventory increased to $196.8 million from $161.1 million. Deferred revenue rose to $58.2 million from $23.1 million, primarily reflecting customer prepayments and performance obligations not yet fulfilled.
- No borrowings were outstanding under the $40 million revolving credit facility, which matures in July 2023. A $5.9 million letter of credit reduces availability; the company reported compliance with covenants. The headquarters finance-lease obligation was $47.6 million.
- Management said existing cash and financing capacity should cover anticipated short- and long-term cash requirements based on current forecasts. The company repurchased 0.9 million shares during the first nine months at an average $40.90 per share under a program authorizing up to $100 million through 2021.
Outlook, commentary, and risks
- The filing gives no numerical revenue, earnings, or margin guidance. Management cited strong semiconductor-market fundamentals and demand for Purion products, while noting that operating results and cash flows fluctuate with sales, industry conditions, and customer demand.
- Management cited logistical challenges associated with COVID-19 and U.S.-China trade tensions. U.S. export licenses are required for shipments to major Chinese customer SMIC following its placement on the U.S. Entity List; licenses had begun to be received, but the issue delayed some first-half shipments and could cause further delays.
- Customer concentration is material: one customer represented 26.7% of Q3 revenue, two customers represented 32.6% of nine-month revenue, and one customer was 32.2% of receivables at quarter-end. The ten largest customers accounted for 71.4% of nine-month revenue.
- The company recorded a $10.2 million U.S. valuation allowance against certain tax credits and state net operating losses; realization of deferred tax assets depends on future taxable income. It reported no litigation believed likely to have a material adverse effect and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether system demand, Purion product mix, and the announced South Korea capacity expansion translate into sustained growth and margins.
- Customer concentration and the effect of export-license timing or further restrictions on shipments to SMIC.
- Inventory growth, customer prepayments/deferred revenue, and the company’s ability to convert these into deliveries and operating cash flow.
- Repurchase pace and remaining authorization, alongside cash needs for capacity expansion and potential organic or inorganic investments.
- Foreign-exchange exposure, lease obligations, and the realizability of deferred tax assets.