Axcelis Technologies, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Axcelis makes ion implantation and other semiconductor-processing equipment and provides aftermarket services. Unless stated otherwise, financial figures below are in millions of U.S. dollars.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $91.5 | $122.2 | Down 25.1% |
| Gross profit / margin | $37.5 / 41.0% | $47.2 / 38.6% | Profit down 20.5%; margin up 2.4 points |
| Operating income / margin | $7.1 / 7.8% | $18.5 / 15.1% | Operating income down 61.6% |
| Net income | $6.1 | $13.9 | Down 56.4% |
| Diluted EPS | $0.18 | $0.41 | Down $0.23 |
| Operating cash flow | $(12.3) | $8.5 | Decrease of $20.8 |
Product revenue was $84.2 million, down 27.4%, primarily due to fewer systems sold; service revenue rose 18.1% to $7.3 million. Ion implant revenue was $57.1 million versus $85.5 million; aftermarket revenue was $34.4 million versus $36.7 million. Product gross margin improved to 43.8% from 41.1%, reflecting a higher mix of parts and upgrades and a lower mix of systems. Services gross margin improved to 8.9% from negative 8.0%.
Balance sheet and liquidity
- At March 31, cash and cash equivalents were $163.1 million, with $6.9 million of restricted cash; total cash, cash equivalents and restricted cash were $170.0 million, down from $184.9 million at year-end 2018.
- Current assets were $380.4 million and current liabilities were $66.1 million. Inventory was $134.1 million, up from $129.0 million at December 31, 2018.
- Total liabilities were $126.3 million and stockholders’ equity was $417.2 million. Finance lease obligations were $48.5 million; total operating and finance lease liabilities were $56.0 million.
- Operating activities used $12.3 million, primarily reflecting inventory purchases and vendor payments. Capital expenditures were $4.3 million. The company reported no credit facility and said existing cash and borrowing capacity should meet anticipated short- and long-term needs.
Changes, outlook and risks
- Management said the semiconductor industry slowdown adversely affected Q1 revenue, while improved gross margin supported what it described as solid financial performance. Operating expenses rose 6.1% to $30.4 million, including higher R&D spending; expenses increased as a share of revenue as sales fell.
- The filing provides no specific revenue, earnings or margin guidance. Management cited potential cash needs from business ramps and organic or inorganic growth opportunities.
- Customer concentration is significant: the ten largest customers represented 83.2% of Q1 revenue. Three customers accounted for 16.4%, 13.4% and 10.2%, respectively. Asia Pacific revenue declined to $62.9 million from $97.7 million.
- The company authorized up to $35 million of share repurchases through year-end 2019; none were made in Q1. Repurchases are discretionary and depend on business needs, share price and market conditions.
- Lease accounting adoption on January 1, 2019 added $7.5 million of operating lease assets and liabilities and reclassified headquarters sale-leaseback assets as finance lease assets; management said adoption did not affect earnings or cash flows. Headquarters finance lease payments are interest-only currently, with principal payments scheduled to begin in April 2020.
- Management reported no litigation it believes could materially adversely affect operations and no material changes to the risk factors in its 2018 Form 10-K. It cautioned that results are exposed to industry conditions, customer purchasing and fab utilization; actual outcomes may differ from forward-looking statements.
Investor verification points
- Monitor system sales and semiconductor-equipment demand, particularly whether revenue stabilizes after the reported slowdown.
- Track inventory levels, operating cash flow and working-capital needs against sales trends.
- Assess whether improved gross margins persist as product and service mix changes.
- Review customer concentration and the effect of Asia Pacific demand on results.
- Verify cash deployment, share repurchases and the transition to finance-lease principal payments beginning in 2020.