Axcelis Technologies, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. Axcelis produces ion implantation and other semiconductor fabrication equipment and provides related aftermarket services.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $41.2 million | $47.5 million | $102.0 million | $88.2 million |
| Gross profit / margin | $14.5 million / 35.2% | $16.7 million / 35.2% | $36.2 million / 35.5% | $29.7 million / 33.6% |
| Operating loss | $6.1 million | $3.4 million | $5.7 million | $12.9 million |
| Net loss | $6.9 million | $4.0 million | $6.7 million | $13.0 million |
| Loss per share, basic and diluted | $0.06 | $0.04 | $0.06 | $0.12 |
- Q2 revenue fell 13.4% year over year, mainly because customers pushed out system purchases amid muted spending. Product revenue declined 14.7% to $34.8 million; service revenue declined 5.6% to $6.4 million. Systems revenue was $10.9 million versus $16.6 million, while aftermarket revenue was relatively flat at $30.3 million.
- First-half revenue rose 15.6%, reflecting stronger semiconductor-market spending and Purion system sales in Q1, partly offset by Q2 weakness. Systems revenue rose to $43.3 million from $29.3 million; aftermarket revenue was approximately flat at $58.7 million.
- Q2 gross margin was unchanged at 35.2%: improved product margin (39.6% versus 37.6%) was offset by lower service margin (11.2% versus 21.2%). First-half gross margin improved to 35.5%, with product margin rising to 39.0% and service margin falling to 10.2%.
- Operating expenses were $20.5 million in Q2, up 2.0%; for the first half they were $42.0 million, down 1.4%. Prior-year periods included dry-strip asset sale milestone gains of $0.8 million in Q2 and $1.2 million for the half, as well as higher restructuring charges.
- Cash used in operating activities was $11.9 million in the first half, compared with $10.8 million a year earlier. Capital expenditures were $0.6 million; financing provided $1.8 million. Cash and cash equivalents declined to $35.6 million from $46.3 million at year-end.
- At June 30, current assets were $181.9 million and current liabilities $32.1 million. Inventory increased to $106.7 million from $95.8 million at year-end.
- Debt included a $15.0 million term loan, shown as $1.1 million current and $13.9 million long-term. The loan bears 5.5% interest; principal payments began in August 2014, with remaining principal due July 2016. The revolving facility permits up to $10.0 million of borrowing; available capacity was $8.9 million and there were no draws in the first half.
Outlook, risks and notable items
- Management reported a market pause in Q2 as customers delayed purchases. It expected industry conditions to improve in late 2014 and continue improving into 2015, while cautioning that growth could vary by quarter. These are forward-looking expectations, not assurances.
- The first Purion H high-current ion implanter shipped in Q2. Management expected further Purion placements in 2014 and anticipated growth in system sales as the industry improved.
- A subsequent-event disclosure says Axcelis was implementing a Q3 2014 headcount reduction to align manufacturing and operating costs with business conditions, with approximately $2.0 million of termination and related costs anticipated.
- The company said its cash, cash equivalents and borrowing capacity were expected to meet anticipated short- and long-term requirements, while noting that actual liquidity could differ with market, revenue, expense and cash-flow conditions. It used cash in operations during the first half.
- The May 2014 term-loan amendment deferred a minimum net-income-to-debt-service covenant until September 30, 2014 and waived the company’s March non-compliance; the company reported compliance with term-loan covenants in Q2. The revolving facility’s Minimum Adjusted Net Income covenant was waived under an amendment dated August 1, 2014, after quarter-end.
- Customer concentration was significant: the ten largest customers generated 74.0% of first-half revenue, versus 70.0% in 2013. Two customers represented 24.5% and 12.5% of first-half revenue.
- Axcelis reported no litigation it believed would materially adversely affect operations and no material change in previously disclosed risk factors. U.S. tax-loss benefits remained subject to a full valuation allowance. Adoption of ASU 2013-11 had no material impact; the company was assessing the impact of the forthcoming revenue-recognition standard.
Key facts for investors to verify
- Whether the expected late-2014 market recovery and Purion placements materialize, given Q2 system push-outs.
- Cash consumption, inventory growth and liquidity after the planned Q3 workforce reduction and its anticipated $2.0 million cost.
- Compliance with loan and credit-facility covenants after the waiver periods, and the facility terms as amended August 1, 2014.
- Customer concentration and the effect of large-customer purchasing decisions on revenue and receivables.
- Whether service-margin weakness and operating losses improve as system sales and customer activity change.