ACLS 10-Q
Axcelis Technologies Inc (ACLS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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As of October 31, 2022, there were
Table of Contents
2
PART 1—FINANCIAL INFORMATION
Item 1. Financial Statements.
Axcelis Technologies, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
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Revenue: | |||||||||||||
Product | $ | | $ | | $ | | $ | | |||||
Services |
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Total revenue |
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Cost of revenue: | |||||||||||||
Product |
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Services |
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Total cost of revenue |
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Gross profit |
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Operating expenses: | |||||||||||||
Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Income from operations |
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Other (expense) income: | |||||||||||||
Interest income |
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Interest expense |
| ( |
| ( |
| ( |
| ( | |||||
Other, net |
| ( |
| ( |
| ( |
| ( | |||||
Total other expense |
| ( |
| ( |
| ( |
| ( | |||||
Income before income taxes |
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Income tax provision |
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Net income | $ | | $ | | $ | | $ | | |||||
Net income per share: | |||||||||||||
Basic | $ | $ | $ | $ | |||||||||
Diluted | $ | $ | $ | $ | |||||||||
Shares used in computing net income per share: | |||||||||||||
Basic weighted average common shares |
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Diluted weighted average common shares |
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See accompanying Notes to these Consolidated Financial Statements (Unaudited)
3
Axcelis Technologies, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Net income | $ | | $ | | $ | | $ | | |||||
Other comprehensive loss: | |||||||||||||
Foreign currency translation adjustments |
| ( |
| ( |
| ( |
| ( | |||||
Amortization of actuarial net gain/(loss) and other adjustments from pension plan, net of tax |
| |
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Total other comprehensive loss | ( | ( | ( | ( | |||||||||
Comprehensive income | $ | | $ | | $ | | $ | | |||||
See accompanying Notes to these Consolidated Financial Statements (Unaudited)
4
Axcelis Technologies, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
| September 30, |
| December 31, |
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2022 | 2021 |
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ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Short-term investments |
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| — | |||
Accounts receivable, net |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease assets | | | |||||
Finance lease assets, net | | | |||||
Long-term restricted cash |
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Deferred income taxes | | | |||||
Other assets |
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Total assets | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | | $ | | |||
Accrued compensation |
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Warranty |
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Income taxes |
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Deferred revenue |
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Current portion of finance lease obligation |
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Other current liabilities |
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Total current liabilities |
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Long-term finance lease obligation |
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Long-term deferred revenue |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (Note 17) | |||||||
Stockholders’ equity: | |||||||
Common stock, $ |
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Additional paid-in capital |
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Retained earnings (accumulated deficit) |
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| ( | |||
Accumulated other comprehensive (loss) income |
| ( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | | |||
See accompanying Notes to these Consolidated Financial Statements (Unaudited)
5
Axcelis Technologies, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
Accumulated |
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Additional | Other | Total |
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Common Stock | Paid-in | Accumulated | Comprehensive | Stockholders’ |
| ||||||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Income (Loss) |
| Equity |
| |||||||
Balance at December 31, 2020 | | $ | | $ | | $ | ( | $ | | $ | | ||||||||
Net income |
| — |
| — |
| — |
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| — |
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Foreign currency translation adjustments |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||
Change in pension obligation |
| — |
| — |
| — |
| — |
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Exercise of stock options |
| |
| — |
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| — |
| — |
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Issuance of common shares on restricted stock units, net of shares withheld |
| |
| — |
| ( |
| — |
| — |
| ( | |||||||
Stock-based compensation expense | — | — | | — | — | | |||||||||||||
Repurchase of common stock |
| ( |
| — |
| ( |
| ( |
| — |
| ( | |||||||
Balance at March 31, 2021 |
| | $ | | $ | | $ | ( | $ | | $ | | |||||||
Net income |
| — |
| — |
| — |
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| — |
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Foreign currency translation adjustments |
| — |
| — |
| — |
| — |
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Change in pension obligation |
| — |
| — |
| — |
| — |
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Exercise of stock options |
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| — |
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| — |
| — |
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Issuance of shares under Employee Stock Purchase Plan |
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| — |
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| — |
| — |
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Issuance of common shares on restricted stock units, net of shares withheld |
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| — |
| ( |
| — |
| — |
| ( | |||||||
Stock-based compensation expense | — | — | | — | — | | |||||||||||||
Repurchase of common stock | ( |
| — |
| ( |
| ( |
| — |
| ( | ||||||||
Balance at June 30, 2021 |
| | $ | | $ | | $ | ( | $ | | $ | | |||||||
Net income |
| — |
| — |
| — |
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| — |
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Foreign currency translation adjustments |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||
Change in pension obligation |
| — |
| — |
| — |
| — |
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Exercise of stock options |
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| — |
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| — |
| — |
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Issuance of common shares on restricted stock units, net of shares withheld |
| |
| — |
| ( |
| — |
| — |
| ( | |||||||
Stock-based compensation expense | — | — | | — | — | | |||||||||||||
Repurchase of common stock |
| ( |
| ( |
| ( |
| ( |
| — |
| ( | |||||||
Balance at September 30, 2021 |
| | $ | | $ | | $ | ( | $ | | $ | | |||||||
See accompanying Notes to these Consolidated Financial Statements (Unaudited)
6
Axcelis Technologies, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
(Accumulated | Accumulated | |||||||||||||||||
Additional | Deficit) | Other | Total | |||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | Stockholders’ | ||||||||||||||
| Shares |
| Amount |
| Capital |
| Earnings |
| Income (Loss) |
| Equity | |||||||
Balance at December 31, 2021 | | $ | | $ | | $ | ( | $ | | $ | | |||||||
Net income |
| — |
| — |
| — |
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| — |
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Foreign currency translation adjustments |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Change in pension obligation |
| — |
| — |
| — |
| — |
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Exercise of stock options |
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| — |
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| — |
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Issuance of common shares on restricted stock units, net of shares withheld |
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| — |
| ( |
| — |
| — |
| ( | ||||||
Stock-based compensation expense | — |
| — |
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| — |
| — |
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Repurchase of common stock |
| ( |
| — |
| ( |
| ( |
| — |
| ( | ||||||
Balance at March 31, 2022 |
| | $ | | $ | | $ | | $ | | $ | | ||||||
Net income |
| — |
| — |
| — |
| |
| — |
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Foreign currency translation adjustments |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Change in pension obligation |
| — |
| — |
| — |
| — |
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Exercise of stock options |
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| — |
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| — |
| — |
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Issuance of shares under Employee Stock Purchase Plan |
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| — |
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| — |
| — |
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Issuance of common shares on restricted stock units, net of shares withheld |
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| — |
| ( |
| — |
| — |
| ( | ||||||
Stock-based compensation expense |
| — |
| — |
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|
| — |
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Repurchase of common stock | ( | — | ( | ( | — | ( | ||||||||||||
Balance at June 30, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income |
| — |
| — |
| — |
| |
| — |
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Foreign currency translation adjustments |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Change in pension obligation |
| — |
| — |
| — |
| — |
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Exercise of stock options |
| |
| — |
| |
| — |
| — |
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Issuance of common shares on restricted stock units, net of shares withheld |
| |
| — |
| ( |
| — |
| — |
| ( | ||||||
Stock-based compensation expense | — |
| — |
| |
| — |
| — |
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Repurchase of common stock |
| ( |
| — |
| ( |
| ( |
| — |
| ( | ||||||
Balance at September 30, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
See accompanying Notes to these Consolidated Financial Statements (Unaudited)
7
Axcelis Technologies, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine months ended | |||||||
September 30, | |||||||
| 2022 |
| 2021 |
| |||
Cash flows from operating activities | |||||||
Net income | $ | | $ | | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization |
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Deferred income taxes |
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Stock-based compensation expense |
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Provision for excess and obsolete inventory |
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Changes in operating assets and liabilities: | |||||||
Accounts receivable |
| ( |
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Inventories |
| ( |
| ( | |||
Prepaid expenses and other current assets |
| ( |
| ( | |||
Accounts payable and other current liabilities |
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Deferred revenue |
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Income taxes |
| ( |
| ( | |||
Other assets and liabilities |
| ( |
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Net cash provided by operating activities |
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Cash flows from investing activities | |||||||
Expenditures for property, plant and equipment and capitalized software |
| ( |
| ( | |||
Purchase of short-term investments |
| ( |
| — | |||
Net cash used in investing activities |
| ( |
| ( | |||
Cash flows from financing activities | |||||||
Net settlement on restricted stock grants |
| ( |
| ( | |||
Repurchase of common stock |
| ( |
| ( | |||
Proceeds from Employee Stock Purchase Plan purchases |
| |
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Principal payments on finance lease obligation | ( | ( | |||||
Proceeds from exercise of stock options | | | |||||
Net cash used in financing activities |
| ( |
| ( | |||
Effect of exchange rate changes on cash and cash equivalents |
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Net increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period | $ | | $ | | |||
See accompanying Notes to these Consolidated Financial Statements (Unaudited)
8
Axcelis Technologies, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Note 1. Nature of Business
Axcelis Technologies, Inc. (“Axcelis” or the “Company”) was incorporated in Delaware in 1995 and is a producer of ion implantation equipment used in the fabrication of semiconductor chips in the United States, Europe and Asia. In addition, we provide extensive worldwide aftermarket service and support, including spare parts, equipment upgrades, used equipment and maintenance services to the semiconductor industry.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments which are of a normal recurring nature and considered necessary for a fair presentation of these financial statements have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for other interim periods or for the year as a whole.
The balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Axcelis Technologies, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021.
Note 2. Summary of Significant Accounting Policies
(a) Cash, Cash Equivalents and Short-term investments
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of ninety days or less. Cash equivalents consist primarily of money market funds, U.S. Government and Agency Securities and deposit accounts. Cash equivalents are carried on the balance sheet at fair market value. Short-term investments are highly liquid investments with original maturities of greater than 90 days but less than one year from date of purchase and are carried on the balance sheet at fair market value. Our short-term investments consist primarily of U.S. Government and Agency securities and are classified as held-to-maturity based on our positive intent and ability to hold the securities to maturity. Income related to these securities is recorded in interest income in the Consolidated Statements of Operations.
Note 3. Stock-Based Compensation
We maintain the Axcelis Technologies, Inc. 2012 Equity Incentive Plan, as amended (the “2012 Equity Plan”), an Internal Revenue Code Section 423 plan, which became effective on May 2, 2012, and permits the issuance of options, restricted stock, restricted stock units (“RSUs”) and performance awards to selected employees, directors and consultants of the Company.
The 2012 Equity Plan is more fully described in Note 13 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.
We recognized stock-based compensation expense of $
In the three-month periods ended September 30, 2022 and 2021, we issued
9
September 30, 2022 and 2021, we received proceeds of $
In the nine-month periods ended September 30, 2022 and 2021, we issued
Note 4. Leases
We have operating leases for office space, warehouse space, a manufacturing plant, computer and office equipment as well as vehicles used in our business operations. We have a finance lease as a result of the 2015 sale-leaseback of our corporate headquarters in Beverly, Massachusetts. All new agreements are reviewed to determine if they contain a lease component. A lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment over a period of time in exchange for consideration. We recognize the lease obligation on a discounted basis using the explicit or implicit discount rate stated within the agreement. We recognize a corresponding right-of-use asset, which is initially determined based upon the net present value of the associated liability and is adjusted for deferred costs and possible impairment, if any. For those lease agreements that do not indicate the applicable discount rate, we use our incremental borrowing rate. We have made the following policy elections: (i) operating leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet; (ii) we recognize lease expense for operating leases on a straight-line basis over the lease term; and (iii) we account for lease components and non-lease components that are fixed payments as one component. Some of our operating leases include one or more options to renew, with renewal terms that can
September 30, | December 31, | |||||||||
Leases | Classification | 2022 |
| 2021 |
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Assets | (in thousands) |
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Operating lease assets | $ | | $ | | ||||||
Finance lease assets * |
| |
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Total leased assets | $ | | $ | | ||||||
Liabilities | ||||||||||
Current | ||||||||||
Other current liabilities | $ | | $ | | ||||||
Current portion of finance lease obligation | | | ||||||||
Noncurrent | ||||||||||
Other long-term liabilities | | | ||||||||
Finance lease obligation |
| |
| | ||||||
$ | | $ | | |||||||
*Finance lease assets are recorded net of accumulated depreciation of $ | ||||||||||
All of our operating lease office locations support selling and servicing functions. Our Axcelis Asia Operations Center facility in South Korea brings production capability closer to our Asia-based customers. Operating lease expense
10
and depreciation and interest expense relating to our finance lease obligation are recognized within our consolidated statement of operations for the three and nine months ended September 30, 2022 and 2021 as follows:
Three months ended | Nine months ended |
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September 30, | September 30, | |||||||||||||||
Lease cost | Classification | 2022 |
| 2021 |
| 2022 | 2021 |
|
| |||||||
Operating lease cost | (in thousands) |
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Product / Services* | Cost of revenue | $ | | $ | | $ | | $ | | |||||||
Research and development | Operating expenses |
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Sales and marketing* | Operating expenses |
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General and administrative* | Operating expenses |
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Total operating lease cost | $ | | $ | | $ | | $ | | ||||||||
Finance lease cost | ||||||||||||||||
Depreciation of leased assets | Cost of revenue, R&D, Sales and marketing and G&A | $ | | $ | | $ | | $ | | |||||||
Interest on lease liabilities | Interest expense |
| |
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| |
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Total finance lease cost | $ | | $ | | $ | | $ | | ||||||||
Total lease cost | $ | | $ | | $ | | $ | | ||||||||
* Product / services, sales and marketing and general and administrative expense also includes short-term lease and variable lease costs of approximately $ | ||||||||||||||||
The lease of our corporate headquarters, shown below under finance leases, had an original lease term of
Finance | Operating |
| Total |
| ||||||
Maturity of Lease Liabilities | Leases | Leases | Leases | |||||||
(in thousands) | ||||||||||
2022 | $ | | $ | | $ | | ||||
2023 |
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2024 |
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2025 |
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2026 | | | | |||||||
Thereafter | | | | |||||||
Total lease payments | $ | | $ | | $ | | ||||
Less interest portion* | ( | ( | ( | |||||||
Finance lease and operating lease obligations | $ | | $ | | $ | | ||||
* Finance lease interest calculated using the implied interest rate; operating lease interest calculated using estimated corporate borrowing rate. | ||||||||||
11
September 30, | ||||
Lease term and discount rate |
| 2022 | ||
Weighted-average remaining lease term (years): | ||||
Operating leases | ||||
Finance leases |
| |||
Weighted-average discount rate: | ||||
Operating leases |
| |||
Finance leases |
| |||
Our cash outflows from our operating leases include rent expense and other charges associated with these leases. These cash flows are included within the operating activities section of our statement of cash flows. Our cash flows from our finance lease include both an interest component and a principal component. The table below shows our cash outflows, by lease type and related section of our statement of cash flows, as well as the non-cash amount capitalized on our balance sheet in relation to our operating lease right-of-use assets for the nine months ending September 30, 2022 and 2021, respectively:
Nine months ended September 30, | ||||||||
Cash paid for amounts included in the measurement of lease liabilities |
| 2022 |
| 2021 |
| |||
(in thousands) | ||||||||
Operating cash outflows from operating leases | $ | | $ | | ||||
Operating cash outflows from finance leases |
| |
| | ||||
Financing cash outflows from finance leases |
| |
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Operating lease assets obtained in exchange for operating lease liabilities |
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Finance lease assets obtained in exchange for new finance lease liabilities |
| — |
| — | ||||
Note 5. Revenue
To reflect the organization of our business operations, we divide revenue into two categories: revenue from sales of new systems and revenue arising from the sale of used systems, parts and labor to customers who own systems, which we refer to as “Aftermarket.”
Revenue by categories used by management are as follows:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
(in thousands) | ||||||||||||
Systems | $ | $ | $ | $ | ||||||||
Aftermarket | | | | | ||||||||
Total Revenue | $ | $ | $ | $ | ||||||||
12
We also consider revenue by geography. Revenue is allocated to geographic markets based upon the location to which our products are shipped and in which our services are performed. Revenue in our principal geographic markets is as follows:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
(in thousands) | ||||||||||||
North America | $ | $ | $ | $ | ||||||||
Asia Pacific | ||||||||||||
Europe | ||||||||||||
Total Revenue | $ | $ | $ | $ | ||||||||
Our system sales revenue transactions give rise to contract liabilities (in the case of pre-payments and the fair value of goods and services to be delivered after the system delivery, such as installation and certain warranty obligations).
Contract liabilities are as follows:
September 30, | December 31, | |||||
2022 | 2021 | |||||
(in thousands) | ||||||
Contract liabilities | $ | | $ | | ||
Contract liabilities are reflected as deferred revenue on the consolidated balance sheet and relate to payments invoiced or received in advance of completion of performance obligations under a contract. Contract liabilities are recognized as revenue upon the fulfillment of performance obligations.
Three months ended | Nine months ended | |||||||||||
September 30, |
| September 30, | ||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
(in thousands) | ||||||||||||
Balance, beginning of the period | $ | | $ | | $ | | $ | | ||||
Deferral of revenue | | | | | ||||||||
Recognition of deferred revenue | ( | ( | ( | ( | ||||||||
Balance, end of the period | $ | | $ | | $ | | $ | | ||||
The majority of our system transactions have payment terms of
Note 6. Receivables and Allowances for Credit Losses
All trade receivables are reported on the Consolidated Balance Sheets at their amortized cost adjusted for any write-offs and net of allowances for credit losses.
Axcelis maintains an allowance for credit losses, which represent an estimate of expected losses over the remaining contractual life of our receivables, considering current market conditions and estimates for supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing assessments and evaluations of collectability, historical loss experience, and future expectations in estimating credit losses in our receivable portfolio. Axcelis uses historical loss experience rates and applies them to a related aging analysis while also considering customer and/or economic risk where appropriate. Determination of the proper amount of allowances requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and, as a result, net earnings. The allowance takes into consideration numerous quantitative and qualitative factors that include receivable type, historical loss experience, loss migration, delinquency trends, collection experience, current
13
economic conditions, trade restrictions, estimates for supportable forecasts, when appropriate, and credit risk characteristics.
Axcelis evaluates the credit risk of the customer when extending credit based on a combination of various financial and qualitative factors that may affect our customers’ ability to pay. These factors may include the customer’s financial condition, past payment experience, and credit bureau report, as well as the value of the underlying collateral.
Management performs detailed reviews of Axcelis’ receivables on a quarterly basis to assess the adequacy of the allowances and to determine if any impairment has occurred. Amounts determined to be uncollectable are charged directly against the allowances, while amounts recovered on previously written-off accounts increase the allowances. Changes to the allowances for credit losses are maintained through adjustments to the provision for credit losses, which are charged to current period earnings.
The following table shows changes of the allowances for credit losses related to trade receivables for the three and nine months ended September 30, 2022 and 2021, respectively:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
(in thousands) | ||||||||||||
Balance, beginning of period | $ | — | $ | — | $ | — | $ | — | ||||
Provision for credit losses | — | — | — | — | ||||||||
Charge-offs | — | — | — | — | ||||||||
Recoveries | — | — | — | — | ||||||||
Balance, end of period | $ | — | $ | — | $ | — | $ | — | ||||
Note 7. Computation of Net Earnings per Share
Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased by the number of additional common shares that would have been outstanding if the potentially dilutive common shares issuable on exercise of stock options and vesting of RSUs had been issued, calculated using the treasury stock method.
The components of net earnings per share are as follows:
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
(in thousands, except per share amounts) | |||||||||||||
Net income available to common stockholders | $ | | $ | | $ | | $ | | |||||
Weighted average common shares outstanding used in computing basic income per share |
| |
| |
| |
| | |||||
Incremental options and RSUs |
| |
| |
| |
| | |||||
Weighted average common shares used in computing diluted net income per share |
| |
| |
| |
| | |||||
Net income per share | |||||||||||||
Basic | $ | | $ | | $ | | $ | | |||||
Diluted | $ | | $ | | $ | | $ | | |||||
14
Diluted weighted average common shares outstanding does not include
Note 8. Accumulated Other Comprehensive (Loss) Income
The following table presents the changes in accumulated other comprehensive (loss) income, net of tax, by component, for the nine months ended September 30, 2022:
| Foreign |
| Defined benefit |
|
| |||||
currency | pension plan | Total |
| |||||||
(in thousands) |
| |||||||||
Balance at December 31, 2021 | $ | | $ | ( | $ | | ||||
Other comprehensive loss and pension reclassification |
| ( |
| |
| ( | ||||
Balance at September 30, 2022 | $ | ( | $ | ( | $ | ( | ||||
Note 9. Cash, cash equivalents and restricted cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the total of the amounts shown in the statement of cash flows:
September 30, | December 31, | |||||
2022 | 2021 | |||||
(in thousands) | ||||||
Cash and cash equivalents | $ | $ | ||||
Long-term restricted cash | ||||||
Total cash, cash equivalents and restricted cash | $ | $ | ||||
As of September 30, 2022, we had $
Note 10. Inventories, net
The components of inventories are as follows:
September 30, | December 31, | ||||||
| 2022 |
| 2021 |
| |||
(in thousands) | |||||||
Raw materials | $ | | $ | | |||
Work in process |
| |
| | |||
Finished goods (completed systems) |
| |
| | |||
Inventories, net | $ | | $ | | |||
When recorded, inventory reserves reduce the carrying value of inventories to their net realizable value. We establish inventory reserves when conditions exist that indicate inventory may be in excess of anticipated demand or is obsolete based upon assumptions about future demand for the Company’s products or market conditions. We regularly evaluate the ability to realize the value of inventories based on a combination of factors including the following: forecasted sales or usage, estimated product end of life dates, estimated current and future market value and new product introductions. Purchasing and usage alternatives are also explored to mitigate inventory exposure.
15
Note 11. Product Warranty
We generally offer a
The changes in our standard product warranty liability are as follows:
Nine months ended | |||||||
September 30, | |||||||
| 2022 |
| 2021 |
| |||
(in thousands) | |||||||
Balance at January 1 (beginning of year) | $ | | $ | | |||
Warranties issued during the period |
| |
| | |||
Settlements made during the period |
| ( |
| ( | |||
Changes in estimate of liability for pre-existing warranties during the period |
| ( |
| ( | |||
Balance at September 30 (end of period) | $ | | $ | | |||
Amount classified as current | $ | | $ | | |||
Amount classified as long-term |
| |
| | |||
Total warranty liability | $ | | $ | | |||
Note 12. Fair Value Measurements
Certain assets on our balance sheets are reported at their fair value. Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
(a) Fair Value Hierarchy
The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:
Level 1 - applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 - applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
(b) Fair Value Measurements
Our money market funds and short-term investments with initial maturities of three months or less are included in cash and cash equivalents in the consolidated balance sheets. Other investments have a maturity of greater than three months but less than one year are included within short-term investments in the consolidated balance sheets.
16
The following table sets forth our assets by level within the fair value hierarchy:
September 30, 2022 |
| ||||||||||||
Fair Value Measurements |
| ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| |||||
(in thousands) |
| ||||||||||||
Assets | |||||||||||||
Cash equivalents and other short-term investments: | |||||||||||||
Cash equivalents (money market funds, U.S. Government Securities and Agency Investments) | $ | | $ | — | $ | — | $ | | |||||
Short-term investments (U.S. Government Securities and Agency Investments) | | — | — | | |||||||||
Total | $ | | $ | — | $ | — | $ | | |||||
December 31, 2021 |
| ||||||||||||
Fair Value Measurements |
| ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| |||||
(in thousands) |
| ||||||||||||
Assets | |||||||||||||
Cash equivalents: | |||||||||||||
Money market funds, U.S. Government Securities and Agency Investments | $ | | $ | — | $ | — | $ | | |||||
(c) Other Financial Instruments
The carrying amounts reflected in the consolidated balance sheets for accounts receivable, prepaid expenses and other current assets and non-current assets, restricted cash, accounts payable and accrued expenses approximate fair value due to their short-term maturities.
Note 13. Financing Arrangements
On January 30, 2015, we sold our corporate headquarters facility in Beverly, Massachusetts for $
On July 31, 2020, we entered into a Senior Secured Credit Facilities Credit Agreement (the “Credit Agreement”) with Silicon Valley Bank, in its capacity as administrative agent and collateral agent for itself and as a lender, and such other banks and financial institutions or entities that from time to time join as lenders under the Credit Agreement. The Credit Agreement provides for a revolving credit facility in an aggregate principal amount not to exceed $
17
Note 14. Income Taxes
Income tax expense was $
The effective tax rate for the three and nine months ended September 30, 2022 was less than the U.S. statutory rate of
The deferred income taxes of $
Note 15. Concentration of Risk
For the three months ended September 30, 2022,
For the nine months ended September 30, 2022,
At September 30, 2022,
Note 16. Share Repurchase
In February 2022, our Board of Directors approved stock repurchases of up to $
Shares repurchased by us are accounted for when the transaction is settled. Shares repurchased are returned to the status of authorized but unissued shares. Accordingly, the repurchases are deducted from common stock for par value and from additional paid-in capital for the excess over par value. If additional paid-in capital has been exhausted, the excess over par value is deducted from retained earnings. Direct costs incurred to acquire the shares are included in the total cost of the shares.
Note 17. Contingencies
(a) Litigation
We are from time to time a party to litigation that arises in the normal course of our business operations. We are not presently a party to any litigation that we believe might have a material adverse effect on our business operations.
18
(b) Indemnifications
Our system sales agreements typically include provisions under which we agree to take certain actions, provide certain remedies and defend our customers against third-party claims of intellectual property infringement under specified conditions and indemnify customers against any damage and costs awarded in connection with such claims. We have not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements within "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements that involve risks and uncertainties. Words such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such forward-looking statements. The forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Factors that might cause such a difference include, among other things, those set forth under "Liquidity and Capital Resources" below and under “Risk Factors” in Part I, Item 1A to our annual report on Form 10-K for the year ended December 31, 2021, which discussion is incorporated herein by reference. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as may be required by law.
Overview
We are primarily a producer of ion implantation equipment used in the fabrication of semiconductor chips in the United States, Europe and Asia. In addition, we provide extensive worldwide aftermarket service and support, including spare parts, equipment upgrades and maintenance services to the semiconductor industry. Our product development and manufacturing activities currently occur primarily in the United States and South Korea. Our equipment and service products are highly technical and are sold through a direct sales force in the United States, Europe and Asia. Consolidation and partnering within the semiconductor manufacturing industry has resulted in a small number of customers representing a substantial portion of our business. Our ten largest customers accounted for 60.7% of total revenue for the nine months ended September 30, 2022.
For Axcelis and the rest of our industry, the first nine months of 2022 has been a continuation of the unprecedented demand for chips and the capital equipment required to produce them. At the same time, supply chain challenges also continued during the first nine months of 2022. Axcelis’ strong results in the first nine months of 2022 demonstrate our ability to meet demand and manage supply chain difficulties. The growing mature process technology market continues to be an area of strength for Axcelis, with 84% of shipments during the first nine months of 2022 going to mature foundry/logic customers.
Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations included herein and in our Annual Report on Form 10-K for the year ended December 31, 2021 are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions. Management’s estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
19
Management has not identified any need to make any material change in, and has not changed, any of our critical accounting estimates and judgments as described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Results of Operations
The following table sets forth our results of operations as a percentage of total revenue:
Three months ended | Nine months ended | ||||||||||
September 30, | September 30, | ||||||||||
| 2022 |
| 2021 |
|
| 2022 |
| 2021 |
|
| |
Revenue: | |||||||||||
Product | 96.7 | % | 95.7 | % | 96.6 | % | 95.4 | % | |||
Services |
| 3.3 |
| 4.3 |
|
| 3.4 |
| 4.6 |
|
|
Total revenue |
| 100.0 |
| 100.0 |
|
| 100.0 |
| 100.0 |
|
|
Cost of revenue: | |||||||||||
Product |
| 51.9 |
| 52.7 |
|
| 52.4 |
| 52.6 |
|
|
Services |
| 3.0 |
| 4.0 |
|
| 2.9 |
| 4.3 |
|
|
Total cost of revenue |
| 54.9 |
| 56.7 |
|
| 55.3 |
| 56.9 |
|
|
Gross profit |
| 45.1 |
| 43.3 |
|
| 44.7 |
| 43.1 |
|
|
Operating expenses: | |||||||||||
Research and development |
| 9.0 |
| 9.4 |
|
| 8.6 |
| 10.7 |
|
|
Sales and marketing |
| 6.4 |
| 6.5 |
|
| 5.9 |
| 7.4 |
|
|
General and administrative |
| 6.5 |
| 6.8 |
|
| 6.3 |
| 7.3 |
|
|
Total operating expenses |
| 21.9 |
| 22.7 |
|
| 20.8 |
| 25.4 |
|
|
Income from operations |
| 23.2 |
| 20.6 |
|
| 23.9 |
| 17.7 |
|
|
Other (expense) income: | |||||||||||
Interest income |
| 0.5 |
| — |
|
| 0.2 |
| — |
|
|
Interest expense |
| (0.6) |
| (0.7) |
|
| (0.6) |
| (0.8) |
|
|
Other, net |
| (3.5) |
| (0.5) |
|
| (2.2) |
| (0.4) |
|
|
Total other expense |
| (3.6) |
| (1.2) |
|
| (2.6) |
| (1.2) |
|
|
Income before income taxes |
| 19.6 |
| 19.4 |
|
| 21.3 |
| 16.5 |
|
|
Income tax provision |
| 2.0 |
| 3.8 |
|
| 2.0 |
| 2.7 |
|
|
Net income | 17.6 | % | 15.6 | % | 19.3 | % | 13.8 | % | |||
Revenue
The following table sets forth our product and services revenue:
Three months ended | Period-to-Period | Nine months ended | Period-to-Period |
| ||||||||||||||||||||
September 30, | Change | September 30, | Change |
| ||||||||||||||||||||
2022 | 2021 | $ | % | 2022 | 2021 | $ | % |
| ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Product | $ | 221,540 | $ | 169,151 | $ | 52,389 | 31.0 | % | $ | 631,998 | $ | 435,916 | $ | 196,082 | 45.0 | % | ||||||||
Percentage of revenue | 96.7 | % | 95.7 | % | 96.6 | % | 95.4 | % | ||||||||||||||||
Services |
| 7,635 |
| 7,543 | 92 | 1.2 | % |
| 21,949 |
| 20,828 | 1,121 | 5.4 | % | ||||||||||
Percentage of revenue | 3.3 | % | 4.3 | % | 3.4 | % | 4.6 | % | ||||||||||||||||
Total revenue | $ | 229,175 | $ | 176,694 | $ | 52,481 | 29.7 | % | $ | 653,947 | $ | 456,744 | $ | 197,203 | 43.2 | % | ||||||||
20
Three months ended September 30, 2022 Compared with Three months ended September 30, 2021
Product
Product revenue, which includes systems sales, sales of spare parts, product upgrades and used systems was $221.5 million, or 96.7% of revenue during the three months ended September 30, 2022, compared with $169.2 million, or 95.7% of revenue for the three months ended September 30, 2021. The $52.4 million increase in product revenue for the three-month period ending September 30, 2022, in comparison to the same period in 2021, was primarily driven by an increase in the number of systems sold.
Deferred revenue includes payments received in advance of system sales as well as deferral of revenue from systems sales for installation and other future performance obligations. The total amount of deferred revenue at September 30, 2022 and December 31, 2021 was $122.6 million and $68.4 million, respectively. The increase in deferred revenue was primarily due to the number of systems sold and payments received in advance of sales.
Services
Services revenue, which includes the labor component of maintenance and service contracts and fees for service hours provided by on-site service personnel, was $7.6 million, or 3.3% of revenue for the three months ended September 30, 2022, compared with $7.5 million, or 4.3% of revenue for the three months ended September 30, 2021. Although services revenue typically increases with the expansion of the installed base of systems, it can fluctuate from period to period based on capacity utilization at customers’ manufacturing facilities, which affects the need for equipment service.
Nine months ended September 30, 2022 Compared with Nine months ended September 30, 2021
Product
Product revenue was $632.0 million, or 96.6% of revenue during the nine months ended September 30, 2022, compared with $435.9 million, or 95.4% of revenue for the nine months ended September 30, 2021. The $196.1 million increase in product revenue for the nine-month period ending September 30, 2022, in comparison to the same period in 2021, was primarily driven by an increase in the number of systems sold.
Services
Services revenue was $21.9 million, or 3.4% of revenue for the nine months ended September 30, 2022, compared with $20.8 million, or 4.6% of revenue for the nine months ended September 30, 2021.
Revenue Categories used by Management
In addition to the line item revenue categories discussed above, management also regularly disaggregates revenue in the following categories, which it finds relevant and useful:
| ● | Systems and Aftermarket revenues, in which “Aftermarket” is: |
| A. | The portion of Product revenue relating to spare parts, product upgrades and used equipment, combined with |
| B. | Services revenue, which is the labor component of Aftermarket revenues |
(Aftermarket purchases reflect current fab utilization as opposed to Systems purchases which reflect capital investment decisions by our customers, which have differing economic drivers);
| ● | Revenue by geographic regions, since economic factors impacting customer purchasing decisions may vary by geographic region; and |
21
| ● | Revenue by our customer market segments, since they can be subject to different economic drivers at different periods of time, impacting a customer’s likelihood of purchasing capital equipment during any particular period. Currently, management references three customer market segments: memory, mature process technology and leading edge foundry and logic. |
Aftermarket and Systems Revenue
Three months ended September 30, 2022 Compared with Three months ended September 30, 2021
Included in total revenue of $229.2 million during the three months ended September 30, 2022 is revenue from our Aftermarket business of $58.1 million, compared with $50.5 million of aftermarket revenue for the three months ended September 30, 2021. Aftermarket revenue fluctuates from period to period based on capacity utilization at customers’ manufacturing facilities, which affects the sale of spare parts and demand for equipment service. Aftermarket revenue can also fluctuate from period to period based on the demand for system upgrades or used equipment. The remaining $171.1 million of revenue for the three months ended September 30, 2022 was from system sales, compared with $126.2 million of systems revenue for the three months ended September 30, 2021. Systems revenue fluctuates from period to period based on our customers’ capital spending.
Nine months ended September 30, 2022 Compared with Nine months ended September 30, 2021
Included in total revenue of $653.9 million during the nine months ended September 30, 2022 is revenue from our Aftermarket business of $165.7 million, compared with $149.4 million of aftermarket revenue for the nine months ended September 30, 2021. The remaining $488.2 million of revenue for the nine months ended September 30, 2022 was from system sales, compared with $307.3 million of systems revenue for the nine months ended September 30, 2021.
Gross Profit / Gross Margin
The following table sets forth our gross profit / gross margin:
Three months ended | Period-to-Period | Nine months ended | Period-to-Period |
| ||||||||||||||||||||
September 30, | Change | September 30, | Change |
| ||||||||||||||||||||
| 2022 |
| 2021 |
| $ | % |
| 2022 |
| 2021 |
| $ | % |
|
| |||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Product | $ | 102,548 | $ | 75,950 | $ | 26,598 | 35.0 | % | $ | 289,611 | $ | 195,693 | $ | 93,918 | 48.0 | % | ||||||||
Product gross margin | 46.3 | % | 44.9 | % | 45.8 | % | 44.9 | % | ||||||||||||||||
Services |
| 773 |
| 562 | 211 | 37.5 | % |
| 2,658 | 1,268 | 1,390 | 109.6 | % | |||||||||||
Services gross margin | 10.1 | % | 7.5 | % | 12.1 | % | 6.1 | % | ||||||||||||||||
Total gross profit | $ | 103,321 | $ | 76,512 | $ | 26,809 | 35.0 | % | $ | 292,269 | $ | 196,961 | $ | 95,308 | 48.4 | % | ||||||||
Gross margin | 45.1 | % | 43.3 | % | 44.7 | % | 43.1 | % | ||||||||||||||||
Three months ended September 30, 2022 Compared with Three months ended September 30, 2021
Product
Gross margin from product revenue was 46.3% for the three months ended September 30, 2022, compared to 44.9% for the three months ended September 30, 2021. The increase in gross margin resulted from improved margins on Purion systems.
Services
Gross margin from services revenue was 10.1% for the three months ended September 30, 2022, compared to 7.5% for the three months ended September 30, 2021. The increase in gross margin is attributable to changes in the mix of service contracts.
22
Nine months ended September 30, 2022 Compared with Nine months ended September 30, 2021
Product
Gross margin from product revenue was 45.8% for the nine months ended September 30, 2022, compared to 44.9% for the nine months ended September 30, 2021. The increase in gross margin resulted from improved margins on Purion systems.
Services
Gross margin from services revenue was 12.1% for the nine months ended September 30, 2022, compared to 6.1% for the nine months ended September 30, 2021. The increase in gross margin is attributable to changes in the mix of service contracts.
Operating Expenses
The following table sets forth our operating expenses:
Three months ended | Period-to-Period | Nine months ended | Period-to-Period |
| ||||||||||||||||||||
September 30, | Change | September 30, | Change |
| ||||||||||||||||||||
2022 | 2021 | $ | % | 2022 | 2021 | $ | % |
| ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Research and development |
| $ | 20,563 |
| $ | 16,707 |
| $ | 3,856 |
| 23.1 | % | $ | 56,267 |
| $ | 49,015 |
| $ | 7,252 |
| 14.8 | % |
|
Percentage of revenue | 9.0 | % | 9.4 | % | 8.6 | % | 10.7 | % | ||||||||||||||||
Sales and marketing |
| 14,573 |
| 11,415 | 3,158 | 27.7 | % |
| 38,567 |
| 33,979 | 4,588 | 13.5 | % | ||||||||||
Percentage of revenue | 6.4 | % | 6.5 | % | 5.9 | % | 7.4 | % | ||||||||||||||||
General and administrative |
| 14,983 |
| 11,996 | 2,987 | 24.9 | % |
| 41,163 |
| 33,226 | 7,937 | 23.9 | % | ||||||||||
Percentage of revenue | 6.5 | % | 6.8 | % | 6.3 | % | 7.3 | % | ||||||||||||||||
Total operating expenses | $ | 50,119 | $ | 40,118 | $ | 10,001 | 24.9 | % | $ | 135,997 | $ | 116,220 | $ | 19,777 | 17.0 | % | ||||||||
Percentage of revenue | 21.9 | % | 22.7 | % | 20.8 | % | 25.4 | % | ||||||||||||||||
Our operating expenses consist primarily of personnel costs, including salaries, commissions, incentive-based compensation, stock-based compensation and related benefits and taxes; project material costs related to the design and development of new products and enhancement of existing products; and professional fees, travel and depreciation expenses.
Personnel costs are our largest expense, representing $31.4 million or 62.6% of our total operating expenses for the three months ended September 30, 2022, compared to $24.9 million or 62.1% of our total operating expenses for the three months ended September 30, 2021. Personnel costs were $83.0 million or 61.0% of our total operating expenses for the nine months ended September 30, 2022, compared to $72.3 million or 62.2% of our total operating expenses for the nine months ended September 30, 2021. The higher personnel costs for the three and nine months ended September 30, 2022 are primarily due to increases in personnel-related expenses to support growth as well as an increase in incentive-based pay expense due to strong financial performance.
Research and Development
Three months ended | Period-to-Period | Nine months ended | Period-to-Period |
| ||||||||||||||||||||||
September 30, | Change | September 30, | Change |
| ||||||||||||||||||||||
2022 | 2021 | $ | % | 2022 | 2021 | $ | % |
| ||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||
Research and development |
| $ | 20,563 |
| $ | 16,707 |
| $ | 3,856 | 23.1 | % | $ | 56,267 |
| $ | 49,015 |
| $ | 7,252 |
| 14.8 | % |
| |||
Percentage of revenue | 9.0 | % | 9.4 | % | 8.6 | % | 10.7 | % | ||||||||||||||||||
Our ability to remain competitive depends largely on continuously developing innovative technology, with new and enhanced features and systems and introducing them at competitive prices on a timely basis. Accordingly, based on our
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strategic plan, we establish annual R&D budgets to fund programs that we expect will solve customers’ high value, high impact, ion implantation challenges.
Three months ended September 30, 2022 Compared with Three months ended September 30, 2021
Research and development expense was $20.6 million during the three months ended September 30, 2022, an increase of $3.9 million, or 23.1%, compared with $16.7 million during the three months ended September 30, 2021. The increase is primarily due to higher personnel expenses including an increase in incentive-based pay expense as well as an increase in project materials and related services for ongoing projects.
Nine months ended September 30, 2022 Compared with Nine months ended September 30, 2021
Research and development expense was $56.3 million during the nine months ended September 30, 2022, an increase of $7.3 million, or 14.8%, compared with $49.0 million during the nine months ended September 30, 2021. The increase is primarily due to higher personnel expenses including an increase in incentive-based pay expense as well as an increase in project materials and related services for ongoing projects.
Sales and Marketing
Three months ended | Period-to-Period | Nine months ended | Period-to-Period |
| ||||||||||||||||||||
September 30, | Change | September 30, | Change |
| ||||||||||||||||||||
2022 | 2021 | $ | % | 2022 | 2021 | $ | % |
| ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Sales and marketing |
| $ | 14,573 |
| $ | 11,415 |
| $ | 3,158 | 27.7 | % | $ | 38,567 |
| $ | 33,979 |
| $ | 4,588 |
| 13.5 | % |
| |
Percentage of revenue | 6.4 | % | 6.5 | % | 5.9 | % | 7.4 | % | ||||||||||||||||
Our sales and marketing expenses result primarily from the sale of our equipment and services through our direct sales force.
Three months ended September 30, 2022 Compared with Three months ended September 30, 2021
Sales and marketing expense was $14.6 million during the three months ended September 30, 2022, an increase of $3.2 million, or 27.7%, compared with $11.4 million during the three months ended September 30, 2021. The increase is primarily due to higher personnel expenses including an increase in incentive-based pay expense and freight expense.
Nine months ended September 30, 2022 Compared with Nine months ended September 30, 2021
Sales and marketing expense was $38.6 million during the nine months ended September 30, 2022, an increase of $4.6 million, or 13.5%, compared with $34.0 million during the three months ended September 30, 2021. The increase is primarily due to higher personnel expenses including an increase in incentive-based pay expense and freight expense.
General and Administrative
Three months ended | Period-to-Period | Nine months ended | Period-to-Period |
| ||||||||||||||||||||
September 30, | Change | September 30, | Change |
| ||||||||||||||||||||
2022 | 2021 | $ | % | 2022 | 2021 | $ | % |
| ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
General and administrative |
| $ | 14,983 |
| $ | 11,996 |
| $ | 2,987 |
| 24.9 | % | $ | 41,163 |
| $ | 33,226 |
| $ | 7,937 |
| 23.9 | % |
|
Percentage of revenue | 6.5 | % | 6.8 | % | 6.3 | % | 7.3 | % | ||||||||||||||||
Our general and administrative expenses result primarily from the costs associated with our executive, finance, information technology, legal and human resource functions.
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Three months ended September 30, 2022 Compared with Three months ended September 30, 2021
General and administrative expense was $15.0 million during the three months ended September 30, 2022, an increase of $3.0 million, or 24.9%, compared with $12.0 million during the three months ended September 30, 2021. The increase is primarily due to an increase in personnel expenses and professional fees.
Nine months ended September 30, 2022 Compared with Nine months ended September 30, 2021
General and administrative expense was $41.2 million during the nine months ended September 30, 2022, an increase of $7.9 million, or 23.9%, compared with $33.2 million during the nine months ended September 30, 2021. The increase is primarily due to an increase in personnel expenses and professional fees.
Other (Expense) Income
Three months ended | Period-to-period |
| Nine months ended | Period-to-period |
| ||||||||||||||||||||
September 30, | change |
| September 30, | change |
| ||||||||||||||||||||
2022 | 2021 | $ | % |
| 2022 | 2021 | $ | % |
| ||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||
Other expense |
| $ | (8,193) |
| $ | (2,181) |
| $ | 6,012 |
| (275.7) | % |
| $ | (17,183) |
| $ | (5,579) |
| $ | 11,604 |
| (208.0) | % | |
Percentage of revenue |
| (3.6) | % |
| (1.2) | % |
| (2.6) | % |
| (1.2) | % | |||||||||||||
Other (expense) income consists primarily of interest expense relating to the finance lease obligation we incurred in connection with the 2015 sale of our headquarters facility and other financing obligations, foreign exchange gains and losses attributable to fluctuations of the U.S. dollar against local currencies of certain of the countries in which we operate as well as interest earned on our invested cash balances.
Other expense was $8.2 million for the three months ended September 30, 2022, compared with $2.2 million for the three months ended September 30, 2021. The increase in other expense was primarily due to an increase in foreign currency exchange losses. Other expense was $17.2 million for the nine months ended September 30, 2022, compared with $5.6 million for the nine months ended September 30, 2021. The increase in other expense was primarily due to an increase in foreign currency exchange losses.
During the nine-month periods ended September 30, 2022 and 2021, we had no significant off-balance-sheet risk such as exchange contracts, option contracts or other hedging arrangements.
Income Tax Provision
Three months ended | Period-to-period |
| Nine months ended | Period-to-period |
| ||||||||||||||||||||||
September 30, | change |
| September 30, | change |
| ||||||||||||||||||||||
2022 | 2021 | $ | % |
| 2022 | 2021 | $ | % |
| ||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||||
Income tax provision |
| $ | 4,726 |
| $ | 6,698 |
| $ | (1,972) |
| (29.4) | % |
| $ | 13,002 |
| $ | 12,261 |
| $ | 741 |
| 6.0 | % | |||
Percentage of revenue |
| 2.0 | % |
| 3.8 | % |
| 2.0 | % |
| 2.7 | % | |||||||||||||||
Income tax expense was $4.7 million for the three months ended September 30, 2022, compared to $6.7 million for the three months ended September 30, 2021. The $2.0 million decrease was primarily due to the FDII deduction on export sales. Income tax expense was $13.0 million for the nine months ended September 30, 2022, compared to $12.3 million for the nine months ended September 30, 2021. The $0.7 million increase was primarily due to a $63.9 million increase in pretax income offset by the FDII deduction on export sales.
The effective tax rate for the three and nine months ended September 30, 2022 was less than the U.S. statutory rate of 21% due to forecasted FDII deductions, Federal research and development tax credits and a favorable discrete item related to equity compensation that reduces the annual tax rate. The effective tax rate for the three and nine months ended
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September 30, 2021 was less than the U.S. statutory rate of 21% due to favorable discrete items related to equity compensation in the period and Federal research and development tax credits that reduce the annual tax rate.
The deferred income taxes of $28.4 million and $35.5 million as of September 30, 2022 and December 31, 2021, respectively, reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carryforwards. We have recorded a $9.3 million valuation allowance in the U.S. against certain tax credits and state net operating losses due to the uncertainty of their realization. Realization of our net deferred tax assets is dependent on future taxable income. We believe it is more likely than not that such assets will be realized; however, ultimate realization could be impacted by market conditions and other variables not known or anticipated at this time.
Liquidity and Capital Resources
We had $308.6 million in unrestricted cash and cash equivalents at September 30, 2022 and $33.6 million in short-term investments, in addition to $0.8 million in restricted cash. Management believes that maintaining a strong cash balance is necessary to fund a continuing ramp in our business which can require significant cash investment to meet sudden demand. Additionally, we are using cash in our stock repurchase program and are considering both organic and inorganic opportunities to drive future growth, for which cash resources will be necessary.
Our liquidity is affected by many factors. Some of these relate specifically to the operations of our business, for example, the rate of sale of our products, and others relate to the uncertainties of global economic conditions, including the availability of credit and the condition of the overall semiconductor equipment industry. Our industry requires ongoing investments in operations and research and development that are not easily adjusted to reflect changes in revenue. As a result, profitability and cash flows can fluctuate more widely than revenue. Stock repurchases, as discussed below, also reduce our cash balances.
During the nine months ended September 30, 2022 and 2021, we generated $93.2 million and $112.1 million, respectively, of cash related to operating activities.
Investing activities for the nine months ended September 30, 2022 resulted in cash outflows of $40.5 million, $6.9 million of which was used for capital expenditures and $33.6 million used to purchase short-term investments. Investing activities for the nine months ended September 30, 2021 resulted in cash outflows of $5.7 million used for capital expenditures.
Financing activities for the nine months ended September 30, 2022 resulted in a cash usage of $53.1 million. During the first nine months of 2022, $45.0 million in cash was used to repurchase our common stock and $9.3 million was used for payments to government tax authorities for income tax withholding on employee compensation arising from the vesting of RSUs, where units are withheld by the Company for taxes, as well as $0.7 million relating to the reduction of the liability under the finance lease of our corporate headquarters. These amounts were partially offset by $1.9 million of proceeds from the exercise of stock options and purchase of shares under our 2020 ESPP during the first nine months of 2022. In comparison, financing activities for the nine months ended September 30, 2021 resulted in cash usage of $40.7 million, $37.5 million of which related to the repurchase of our common stock and $6.5 million related to payments made to government tax authorities for income tax withholding on employee compensation arising from the vesting of RSUs, as well as $0.6 million relating to the reduction of our financing lease liability. These amounts were partially offset by $3.9 million of proceeds related to the exercise of stock options during the first nine months of 2021.
Under the rules of the U.S. Securities and Exchange Commission (the “SEC”), we qualify as a “well-known seasoned issuer,” which allows us to file shelf registration statements to register an unspecified amount of securities that are effective upon filing. On May 29, 2020, we filed such a shelf registration statement with the SEC for the issuance of an unspecified amount of common stock, preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, from time to time at prices and on terms to be determined at the time of any such offering. This registration statement was effective upon filing and will remain in effect for up to three years from filing, prior to which time we may file another shelf registration statement to maintain the availability of this financing option.
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On July 31, 2020, we entered into a Senior Secured Credit Facilities Credit Agreement (the “Credit Agreement”) with Silicon Valley Bank. The Credit Agreement provides for a revolving credit facility in an aggregate principal amount not to exceed $40.0 million. Our obligations under the Credit Agreement are secured by a security interest, senior to any current and future debts and to any security interest, in all of our rights, title, and interest in, to and under substantially all of our assets, subject to limited exceptions, including permitted liens. The revolving credit facility terminates on July 31, 2023. As of September 30, 2022, we were in compliance with all covenant requirements of the Credit Agreement. As of such date, no borrowings had been made under the Credit Agreement, although a letter of credit for $5.9 million reduces the funds available for borrowing under the credit line. We have no immediate plans to borrow under the Credit Agreement, but we will use the facility for letters of credit, for ongoing working capital needs and to fund general corporate purposes, as desired. We entered into a First Amendment to the Credit Agreement with Silicon Valley Bank in March 2021 to (i) align the covenants with our stock repurchase program, and (ii) establish terms to transition from a Eurodollar based interest rate option to an interest rate benchmark using a secured overnight financing rate (known as “SOFR”) published by the Federal Reserve Bank of New York.
We believe that based on our current market, revenue, expense and cash flow forecasts, our existing cash, cash equivalents and equity and debt financing capacity will be sufficient to satisfy our anticipated cash requirements for the short and long-term.
Commitments and Contingencies
Significant commitments and contingencies at September 30, 2022 are consistent with those discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 16 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As of September 30, 2022, there have been no material changes to the quantitative information about market risk disclosed in Item 7A to our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, these disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control that occurred during the three months ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are, from time to time, a party to litigation that arises in the normal course of our business operations. We are not presently a party to any litigation that we believe might have a material adverse effect on our business operations.
Item 1A. Risk Factors.
As of September 30, 2022, there have been no material changes to the risk factors described in Item 1A to our Annual Report on Form 10-K for the year ended December 31, 2021. We note that on October 7, 2022, the U.S. Department of Commerce issued new regulations that impact both sales of U.S. goods to China and sourcing from China. The Company is engaged in an on-going assessment of these new regulations on our business, but does not currently anticipate a material impact.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In February 2022, our Board of Directors authorized a share repurchase program for up to $100 million of the Company's common stock.
The following table summarizes the stock repurchase activity, based upon settlement date, for the three months ended September 30, 2022 as well as the approximate dollar value of shares that may yet be purchased pursuant to our stock repurchase program:
Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program | |||||||
(in thousands except per share amounts) | ||||||||||
July 1, 2022 through July 31, 2022 | 90 | $56.47 | 90 | $ | 62,419 | |||||
August 1, 2022 through August 31, 2022 | 79 | $72.38 | 79 | 56,701 | ||||||
September 1, 2022 through September 30, 2022 | 26 | $64.39 | 26 | $ | 55,005 | |||||
Total | 195 | 195 | ||||||||
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
In connection with his retirement, William Bintz, Executive Vice President, Product Development, has submitted his resignation as an executive officer of the Company, effective December 31, 2022. Greg Redinbo has assumed the title of Executive Vice President, Marketing and Applications, and has been leading those functions. To facilitate the transition, Mr. Bintz will continue to serve as a senior advisor to the Company for a period following his retirement.
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Item 6. Exhibits.
The following exhibits are filed herewith:
Exhibit |
| Description |
3.1 | ||
3.2 | ||
10.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101 | The following materials from the Company’s Form 10-Q for the quarter ended September 30, 2022, formatted in inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements (Unaudited). Filed herewith. | |
104 | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AXCELIS TECHNOLOGIES, INC. | ||
DATED: November 3, 2022 | By: | /s/ KEVIN J. BREWER |
Kevin J. Brewer | ||
Executive Vice President and Chief Financial Officer | ||
Duly Authorized Officer and Principal Financial Officer | ||
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