Axcelis Technologies, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Axcelis makes ion implantation and other semiconductor-processing equipment and provides related aftermarket parts and services. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance and liquidity
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Revenue | $60.8 | $40.7 |
| Gross profit / gross margin | $21.7 / 35.7% | $12.9 / 31.8% |
| Operating income (loss) | $0.3 | $(9.5) |
| Net income (loss) | $0.2 | $(9.0) |
| Diluted earnings (loss) per share | $0.00 | $(0.08) |
| Cash used in operating activities | $(4.0) | $(1.9) |
| Cash and cash equivalents at period end | $43.0 | $46.3 at Dec. 31, 2013 |
| Total debt carrying value | $15.0 | $15.0 at Dec. 31, 2013 |
- Revenue increased 49.4%, driven by product revenue, which rose 59.7% to $55.0 million. System revenue was $32.5 million, up from $12.7 million, mainly on higher Purion sales. Services revenue declined 7.2% to $5.8 million; aftermarket revenue was $28.3 million versus $28.0 million.
- Product gross margin improved to 38.6% from 35.6%, reflecting higher system volume and fixed-cost absorption and a lower excess-inventory provision. Service gross margin fell to 9.0% from 10.7% due to contract mix.
- Operating expenses declined 4.5% to $21.4 million. Restructuring charges were $0.2 million versus $1.8 million a year earlier. Q1 2013 also included a $0.4 million gain related to the sale of dry-strip assets and intellectual property.
- Cash declined $3.3 million during the quarter. Operating cash use was $4.0 million; investing cash use was $0.2 million, primarily capital expenditures; financing provided $1.3 million from stock-option exercises.
- At March 31, current assets were $184.2 million and current liabilities $33.2 million, giving working capital of approximately $150.9 million. The company had $8.9 million of available capacity on its revolving facility and no borrowings under it.
Changes, outlook and risks
- Management described the semiconductor equipment market as gradually improving since Q2 2013 and expected improvement to continue into 2015, with possible quarter-to-quarter variation. It expected Purion system sales to grow during 2014 and intended to maintain tight cost control.
- Management believed existing cash, cash equivalents and borrowing capacity would meet anticipated short- and long-term cash needs, while noting this depended on forecasts and market conditions. No specific numerical revenue or earnings guidance was provided.
- The company failed the term loan’s Debt Service Ratio covenant for Q1 2014; the lender waived the breach. A May 2, 2014 letter agreement deferred effectiveness of that covenant until September 30, 2014. The $15 million loan bears 5.5% interest, with principal payments beginning August 2014 and remaining principal due July 2016.
- Customer concentration increased: the ten largest customers represented 81.2% of revenue versus 59.7% a year earlier. Three customers contributed 38.1%, 12.6% and 10.2% of Q1 revenue.
- Key risks cited include cyclical semiconductor capital spending, customer acceptance and demand for ion implantation equipment, competitive pricing, production-cost increases, and global economic, political and financial conditions. Operating cash use increased year over year.
- The company reported no litigation it believed would materially adversely affect operations, no material changes to its previously disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Whether the covenant amendment and waiver remain effective and what covenant compliance requires after September 30, 2014.
- Whether Purion system sales and the broader market recovery continue, given the quarter’s high revenue and customer concentration.
- Whether operations can return to positive cash generation while supporting inventory, customer demand and ongoing R&D investment.
- Whether cash, unused credit capacity and scheduled debt payments remain manageable under weaker-than-expected demand.