Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-30941
AXCELIS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
34-1818596
(State or other jurisdiction ofincorporation or organization)
(IRS EmployerIdentification No.)
108 Cherry Hill Drive
Beverly, Massachusetts 01915
(Address of principal executive offices, including zip code)
(978) 787-4000
(Registrant’s telephone number, including area code)
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. Yes ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Common Stock, $.001 par value
ACLS
Nasdaq Global Select Market
As of November 5, 2019 there were 32,421,139 shares of the registrant’s common stock outstanding.
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018
Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018
Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018
Notes to Consolidated Financial Statements (Unaudited)
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Critical Accounting Estimates
Results of Operations
Liquidity and Capital Resources
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
PART II - OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
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,
2019
2018
Revenue:
Product
$
64,290
88,496
217,201
317,039
Services
5,163
6,878
18,034
19,853
Total revenue
69,453
95,374
235,235
336,892
Cost of revenue:
33,587
49,136
118,105
181,423
5,285
6,325
17,294
19,400
Total cost of revenue
38,872
55,461
135,399
200,823
Gross profit
30,581
39,913
99,836
136,069
Operating expenses:
Research and development
12,930
12,845
40,335
37,631
Sales and marketing
8,057
7,923
25,411
25,246
General and administrative
7,707
8,477
23,097
24,755
Total operating expenses
28,694
29,245
88,843
87,632
Income from operations
1,887
10,668
10,993
48,437
Other (expense) income:
Interest income
687
593
2,373
1,518
Interest expense
(1,308)
(1,323)
(3,849)
(3,787)
Other, net
(890)
(592)
(1,252)
(1,710)
Total other expense
(1,511)
(1,322)
(2,728)
(3,979)
Income before income taxes
376
9,346
8,265
44,458
Income tax (benefit) provision
(328)
508
943
7,036
Net income
704
8,838
7,322
37,422
Net income per share:
Basic
0.02
0.27
0.22
1.16
Diluted
0.26
1.10
Shares used in computing net income per share:
Basic weighted average common shares
32,344
32,365
32,584
32,225
Diluted weighted average common shares
33,323
33,973
33,821
34,032
See accompanying Notes to these Consolidated Financial Statements
3
Consolidated Statements of Comprehensive Income
(In thousands)
Other comprehensive (loss):
Foreign currency translation adjustments
(1,132)
(284)
(1,847)
(1,584)
Amortization of actuarial loss and other adjustments from pension plan
29
30
89
90
Total other comprehensive (loss)
(1,103)
(254)
(1,758)
(1,494)
Comprehensive (loss) income
(399)
8,584
5,564
35,928
4
Consolidated Balance Sheets
December 31,
ASSETS
Current assets:
Cash and cash equivalents
155,317
177,993
Short-term restricted cash
149
—
Accounts receivable, net
49,046
78,727
Inventories, net
138,353
129,000
Prepaid expenses and other current assets
11,050
11,051
Total current assets
353,915
396,771
Property, plant and equipment, net
25,130
41,149
Operating lease assets
6,175
Finance lease assets, net
22,231
Long-term restricted cash
6,707
6,909
Deferred income taxes
71,121
71,939
Other assets
45,198
31,673
Total assets
530,477
548,441
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
21,320
35,955
Accrued compensation
6,961
19,218
Warranty
3,251
4,819
Income taxes
269
462
Deferred revenue
23,300
19,513
Current portion of finance lease obligation
252
Other current liabilities
7,674
5,030
Total current liabilities
63,027
84,997
Finance lease obligation
48,297
47,757
Long-term deferred revenue
4,141
3,071
Other long-term liabilities
7,165
4,279
Total liabilities
122,630
140,104
Commitments and contingencies (Note 15)
Stockholders’ equity:
Common stock, $0.001 par value, 75,000 shares authorized; 32,397 shares issued and outstanding at September 30, 2019; 32,558 shares issued and outstanding at December 31, 2018
32
33
Additional paid-in capital
559,063
565,116
Accumulated deficit
(149,938)
(157,260)
Accumulated other comprehensive (loss) income
(1,310)
448
Total stockholders’ equity
407,847
408,337
Total liabilities and stockholders’ equity
5
Consolidated Statements of Stockholders’ Equity
Accumulated
Additional
Other
Total
Common Stock
Paid-in
Comprehensive
Stockholders’
Shares
Amount
Capital
Deficit
Income (Loss)
Equity
Balance at December 31, 2017
32,048
556,147
(204,745)
2,176
353,610
13,915
Adjustment to Retained Earnings upon ASC 606 Adoption
1,600
1,021
Change in pension obligation
Exercise of stock options
75
446
Issuance of restricted common shares
19
(227)
Stock-based compensation expense
1,132
Balance at March 31, 2018
32,142
557,498
(189,230)
3,227
371,527
14,669
(2,321)
46
Issuance of shares under Employee Stock Purchase Plan
26
515
117
(1,161)
1,979
Balance at June 30, 2018
32,331
559,207
(174,561)
936
385,614
66
467
1
(6)
2,415
Balance at September 30, 2018
32,398
562,083
(165,723)
682
397,074
6
Balance at December 31, 2018
32,558
6,062
(495)
288
1,828
35
(281)
1,672
Balance at March 31, 2019
32,881
568,335
(151,198)
(17)
417,153
556
(219)
104
567
479
165
2,246
Repurchase of common stock
(885)
(1)
(14,034)
(14,035)
Balance at June 30, 2019
32,297
556,283
(150,642)
(207)
405,466
97
642
(11)
2,149
Balance at September 30, 2019
32,397
7
Consolidated Statements of Cash Flows
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
5,583
4,208
818
6,767
6,140
5,603
Provision for excess and obsolete inventory
1,961
1,657
Changes in operating assets & liabilities:
Accounts receivable
29,232
(10,222)
Inventories
(16,602)
(4,867)
(155)
49
Accounts payable and other current liabilities
(22,887)
(10,872)
4,864
1,245
(185)
(61)
Other assets and liabilities
(16,436)
(13,709)
Net cash (used in) provided by operating activities
(345)
17,220
Cash flows from investing activities
Expenditures for property, plant and equipment and capitalized software
(11,064)
(3,852)
Net cash used in investing activities
Cash flows from financing activities
Net settlement on restricted stock grants
(1,602)
(1,393)
Proceeds from Employee Stock Purchase Plan
407
437
Proceeds from exercise of stock options
3,039
1,289
Net cash (used in) provided by financing activities
(12,191)
333
Effect of exchange rate changes on cash and cash equivalents
871
1,012
Net (decrease) increase in cash, cash equivalents and restricted cash
(22,729)
14,713
Cash, cash equivalents and restricted cash at beginning of period
184,902
140,880
Cash, cash equivalents and restricted cash at end of period
162,173
155,593
8
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, 2018 has been derived from the audited consolidated financial statements at that date but does not include all of 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, 2018.
Note 2. Stock-Based Compensation
We maintain the Axcelis Technologies, Inc. 2012 Equity Incentive Plan (the “2012 Equity Plan”), which became effective on May 2, 2012, and permits the issuance of options, restricted stock, restricted stock units and performance awards to selected employees, directors and consultants of the Company. Our 2000 Stock Plan (the “2000 Stock Plan”) expired on May 1, 2012 and no new grants may be made under that plan after that date. However, unexpired awards granted under the 2000 Stock Plan remain outstanding and subject to the terms of the 2000 Stock Plan. We also maintain the Axcelis Technologies, Inc. Employee Stock Purchase Plan (the “ESPP”), an Internal Revenue Code Section 423 plan.
The 2012 Equity Plan and the ESPP are more fully described in Note 13 to the consolidated financial statements in our 2018 Annual Report on Form 10-K.
We recognized stock-based compensation expense of $2.1 million and $2.4 million for the three month periods ended September 30, 2019 and 2018, respectively. We recognized stock-based compensation expense of $6.1 million and $5.6 million for the nine month periods ended September 30, 2019 and 2018, respectively. These amounts include compensation expense related to restricted stock units (“RSUs”), non-qualified stock options and stock to be issued to participants under the ESPP.
In the three month periods ended September 30, 2019 and 2018, we issued 0.1 million shares of common stock upon stock option exercises and vesting of RSUs. In the three month periods ended September 30, 2019 and 2018, we received proceeds of $0.6 million and $0.5 million, respectively, in connection with the exercise of stock options.
In the nine month periods ended September 30, 2019 and 2018, we issued 0.7 million and 0.3 million shares of common stock, respectively, upon stock option exercises, purchases under the ESPP and vesting of RSUs. In the nine month periods ended September 30, 2019 and 2018, we received proceeds of $3.4 million and $1.7 million, respectively, in connection with the exercise of stock options and ESPP purchases.
Note 3. Leases
We have operating leases for office space, warehouse space, computer and office equipment and vehicles used in our business operations. We have a finance lease in relation to the 2015 sale-leaseback of our corporate headquarters in Beverly, Massachusetts. We review all contract agreements to determine if the agreement contains a lease component. An
9
agreement contains a lease component if it provides the use of a specific physical space or a specific physical item. 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. The value of the right-of-use asset is initially determined based on the net present value of the associated liability, and is adjusted for deferred costs and possible impairments, if any. 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 extend the respective lease term 1 to 3 years. The exercise of lease renewal options are at our sole discretion. For lease extensions that are reasonably certain to occur, we have included these renewal periods in our calculation of the net present value of the lease obligation and related right-of-use asset. Certain leases also include options to purchase the leased property. The depreciable life of certain assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The amounts of operating and finance lease right-of-use assets and related lease obligations recorded within our consolidated balance sheet are as follows:
Leases
Classification
Assets
(in thousands)
Operating lease
Finance lease
Finance lease assets *
Total leased assets
28,406
Liabilities
Current
Operating
3,219
Finance
Noncurrent
2,899
Total lease liabilities
54,667
* Finance lease assets are recorded net of accumulated depreciation of $47.3 million and include $0.8 million of prepaid financing costs as of September 30, 2019.
All of our office locations support selling and servicing functions. Lease expense, depreciation expense relating to finance leased assets and interest expense relating to our finance lease obligation recognized within our consolidated statement of operations for the three and nine months ended September 30, 2019 are as follows:
10
Lease cost
Operating lease cost
Service
Cost of revenue
552
1,732
Operating expenses
80
232
Sales and marketing*
338
1,037
General and administrative*
207
608
Total operating lease cost
1,177
3,609
Finance lease cost
Depreciation of leased assets
Cost of revenue, R&D, Sales and marketing and G&A
332
997
Interest on lease liabilities
1,308
3,849
Total finance lease cost
1,640
4,846
Total lease cost
2,817
8,455
* Sales and marketing, general and administrative expense includes short-term lease and variable lease costs of approximately $0.2 million and $0.6 million for the three and nine months ended September 30, 2019, respectively.
Our corporate headquarters, shown below under finance leases, has an original lease term of 22 years. All other locations are treated as operating leases, with lease terms ranging from 1 to 10 years. The tables below reflect the minimum cash outflow regarding our current lease obligations as well as the weighted-average remaining lease term and weighted-average discount rates used on our calculation of our lease obligations and right-of-use assets:
Maturity of Lease Liabilities
1,401
923
2,324
2020
5,720
3,283
9,003
2021
5,848
1,650
7,498
2022
5,980
6,488
2023
6,114
113
6,227
Thereafter
85,905
266
86,171
Total lease payments
110,968
6,743
117,711
Less interest portion*
(62,419)
(625)
(63,044)
Finance lease and operating lease obligations
48,549
6,118
* Finance lease interest calculated using the implied interest rate; operating lease interest calculated using estimated corporate borrowing rate.
Lease term and discount rate
Weighted-average remaining lease term (years):
Operating leases
2.3
Finance leases
17.6
Weighted-average discount rate:
4.5%
10.5%
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 section of our statement of cash flows. Our cash flows from our finance lease currently include an interest only component and starting in April 2020, both an interest and payment of 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:
11
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases
Operating cash outflows from finance leases
4,193
Financing cash outflows from finance leases
Operating lease assets obtained in exchange for new operating lease liabilities
Finance lease assets obtained in exchange for new finance lease liabilities
Note 4. 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:
Systems
Aftermarket
32,644
38,980
104,111
121,103
Revenue by geographic markets is determined based upon the location of where our products are shipped and our services are performed. Revenue in our principal geographic markets is as follows:
North America
Asia Pacific
Europe
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 warranty obligations).
Contract liabilities are as follows:
Contract liabilities
27,441
22,584
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.
12
Balance, beginning of the period
14,080
15,175
18,145
Deferral of revenue
17,254
7,168
20,887
11,586
Recognition of deferred revenue
(3,893)
(4,569)
(16,030)
(11,957)
Balance, ending of the period
17,774
The majority of our system transactions have payment terms of 90% due upon shipment of the tool and 10% due upon acceptance. Aftermarket transaction payment terms are such that payment is due either within 30 or 60 days of service provided or delivery of parts.
Note 5. 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 for stock options and RSUs had been issued, calculated using the treasury stock method.
The components of net earnings per share are as follows:
(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
979
1,608
1,237
1,807
Weighted average common shares used in computing diluted net income per share
Net income per share
Diluted weighted average common shares outstanding does not include options and RSUs outstanding to purchase 0.8 million and 0.3 million common equivalent shares for the three month periods ended September 30, 2019 and 2018, respectively, nor options and RSUs outstanding to purchase 0.2 million and eleven thousand common equivalent shares for the nine month periods ended September 30, 2019 and 2018, respectively, as their effect would have been anti-dilutive.
Note 6. Accumulated Other Comprehensive Loss
The following table presents the changes in accumulated other comprehensive loss, net of tax, by component, for the nine months ended September 30, 2019:
Foreign
Defined benefit
currency
pension plan
962
(514)
Other comprehensive loss and pension reclassification
(425)
13
Note 7. Cash, cash equivalents and restricted cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the amounts shown in the statement of cash flows:
Short-term and long-term restricted cash
Total cash, cash equivalents and restricted cash
As of September 30, 2019, we had $6.9 million in restricted cash which relates to a $5.9 million letter of credit serving as security for the lease of our corporate headquarters in Beverly, Massachusetts, a $0.7 million letter of credit relating to workers’ compensation insurance, a $0.2 million deposit securing a bank guarantee of our performance relating to a customer payment and a $0.1 million deposit relating to customs activity.
Note 8. Inventories, net
The components of inventories are as follows:
Raw materials
95,758
91,875
Work in process
30,486
23,857
Finished goods (completed systems)
12,109
13,268
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.
Note 9. Product Warranty
We generally offer a one year warranty for all of our systems, the terms and conditions of which vary depending upon the product sold. For all systems sold, we accrue a liability for the estimated cost of standard warranty at the time of system shipment and defer the portion of systems revenue attributable to the fair value of non-standard warranty. Costs for non-standard warranty are expensed as incurred. Factors that affect our warranty liability include the number of installed units, historical and anticipated product failure rates, material usage and service labor costs. We periodically assess the adequacy of our recorded liability and adjust the amount as necessary.
14
The changes in our standard product warranty liability are as follows:
Balance at January 1 (beginning of year)
5,091
4,502
Warranties issued during the period
2,282
4,294
Settlements made during the period
(4,405)
(4,566)
Changes in estimate of liability for pre-existing warranties during the period
523
650
Balance at September 30 (end of period)
3,491
4,880
Amount classified as current
4,545
Amount classified as long-term
240
335
Total warranty liability
Note 10. 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 are included in cash and cash equivalents in the consolidated balance sheets.
15
The following table sets forth our assets by level within the fair value hierarchy:
September 30, 2019
Fair Value Measurements
Level 1
Level 2
Level 3
Cash equivalents:
Money market funds, U.S. Government Securities and Agency Investments
112,655
24,000
136,655
December 31, 2018
138,510
21,700
160,210
(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 11. Financing Arrangements
On January 30, 2015, we sold our corporate headquarters facility in Beverly Massachusetts for $48.9 million. As part of the sale, we also entered into a 22-year lease agreement of our headquarters facility. This sale-leaseback is accounted for as a financing lease under generally accepted accounting principles and, as such, we have recorded a financing obligation of $48.5 million as of September 30, 2019. Our current lease payments are interest only payments. Commencing in April 2020, the associated lease payments will include both an interest component and payment of principal, with the remaining liability being extinguished at the end of the original lease term. We posted a security deposit of $5.9 million in the form of an irrevocable letter of credit at the time of the closing. This letter of credit is cash collateralized and the associated cash is included in long-term restricted cash.
Note 12. Income Taxes
The income tax benefit was $0.3 million for the three months ended September 30, 2019, a decrease of $0.8 million when compared to the three months ended September 30, 2018. The $0.8 million decrease was primarily due to a decrease in pretax income for the period of $9.0 million as well as a $1.4 million tax benefit in the three months ended September 30, 2018, relating to the 2017 Tax Cut and Jobs Act.
The income tax provision was $0.9 million during the nine months ended September 30, 2019, a decrease of $6.1 million when compared to the nine months ended September 30, 2018. This change was primarily attributable to the decrease in pretax income of $36.2 million.
We have significant net operating loss carryforwards in the United States and certain European jurisdictions, and, as a result, we do not currently pay significant income taxes in these jurisdictions. At December 31, 2018, we had $71.9 million of deferred tax assets worldwide comprised of net operating loss carryforwards, tax credit carryforwards and other temporary differences, which are available to reduce income tax liabilities in future years. This amount was net of a $6.8 million valuation allowance. As of September 30, 2019, the valuation allowance increased to $7.7 million due to the uncertainty of the utilization of certain research and development credits.
16
Note 13. Concentration of Risk
For the three months ended September 30, 2019, two customers accounted for 28.0% and 13.2% of total revenue, respectively. For the three months ended September 30, 2018, three customers accounted for 17.8%, 13.6% and 13.1% of total revenue, respectively.
For the nine months ended September 30, 2019, three customers accounted for 18.7%, 12.4% and 11.8% of total revenue, respectively. For the nine months ended September 30, 2018, two customers accounted for 22.9% and 10.8% of total revenue, respectively.
At September 30, 2019, four customers accounted for 21.1%, 17.5%, 11.2% and 10.6% of accounts receivable, respectively. At December 31, 2018, two customers accounted for 21.9% and 11.5% of accounts receivable, respectively.
Note 14. Share Repurchase
Under the current stock repurchase plan, announced on January 14, 2019, we are authorized to repurchase up to $35 million of our common stock through the end of 2019. During the nine months ended September 30, 2019, we purchased 0.9 million shares at an average cost of $15.83 per share. The timing and actual number of shares repurchased will depend on various factors including price, corporate and regulatory requirements, alternative investment opportunities and other market conditions.
Shares repurchased by us are accounted for when the transaction is settled. There were no unsettled share repurchases at September 30, 2019. Shares repurchased and retired 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 either increases the accumulated deficit or reduces retained earnings. Direct costs incurred to acquire the shares are included in the total cost of the shares.
Note 15. 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.
(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.
Note 16. Headcount-related Actions
During the second quarter of 2019, we took steps to reduce expenses through a variety of programs. Headcount–related actions resulted in $1.0 million of additional expense in the nine months ended September 30, 2019. This expense was recorded as follows; $0.5 million to cost of revenue, $0.3 million to research and development and $0.1 million to both sales and marketing and general and administrative, respectively. As of September 30, 2019, $0.8 million of these expenses remained accrued within current liabilities.
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Note 17. Recent Accounting Guidance
(a)
Accounting Standards Update 2016-02 on Leases Effective January 1, 2019
We adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases” and ASU No. 2018-11 “Leases (Topic 842)”, collectively (“Topic 842) as of January 1, 2019, using the modified retrospective approach, applying the new lease standard at the adoption date. We elected the package of practical expedients permitted under the transition guidance within the new standard, carrying forward the historical lease classification for both operating and finance leases. We made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet. We recognize the lease expense relating to operating leases on a straight-line basis over the respective lease term and report the associated expense within the operating activities section of our statement of cash flows. We recognize the interest expense on our finance lease within the operating activities section of our statement of cash flows and recognize the payment of principal of our finance lease obligation within the financing activities section of our statement of cash flows.
The adoption of Topic 842 resulted in the recording of additional net operating lease assets and related lease liabilities of $7.5 million as of January 1, 2019. We also reclassified $22.1 million net, of previously capitalized property, plant and equipment associated with the sale of our corporate headquarters, as well as $0.8 million of prepaid transaction costs, as finance lease assets, within our balance sheet. The related finance lease liability associated with the sale-leaseback increased $0.8 million as a result of the reclassification of the prepaid transaction costs. The standard had no impact on our consolidated net earnings and cash flows.
(b)
Accounting Standards Update 2018-13 on Fair Value Measurements
We adopted ASU No. 2018-13 “Fair Value Measurement (Topic 820)” as of January 1, 2019, The amendments in ASU No. 2018-13 modify the disclosure requirements on fair value measurements in Topic 820, removing disclosure requirements for transfers between Level 1 and Level 2 within the fair value hierarchy, as well as modifying the disclosure requirement relating to the timing of liquidation for investments calculated on net asset value. The ASU also requires the disclosure of unrealized gains and losses for the period included in other comprehensive income for Level 3 instruments. The amendments on changes for unrealized gains and losses should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The adoption of ASU 2018-13 did not have any impact on our consolidated financial statements and disclosures.
(c)
Accounting Standards Update 2019-04 on Financial Instruments; Topic 326, Topic 815 and Topic 825 to be Effective January 1, 2020
In April 2019, the Financial Accounting Standards Board issued ASU No. 2019-04 “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The amendments in this Update clarify the guidance within Topic 326 relating to credit losses. The guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted in any interim period after issuance of this Update as long as the entity has adopted the amendments in Update 2016-13. The amendments in these Updates should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date of adoption of Update 2016-13. The adoption of these Updates is not expected to have a material impact on our results of operations or cash flows.
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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 II, Item 1A to our annual report on Form 10-K for the year ended December 31, 2018, 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.
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 occur primarily in the United States. Our equipment and service products are highly technical and are sold primarily 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 76.2% of total revenue for the nine months ended September 30, 2019.
In the first nine months of 2019, our revenues were adversely affected by the current industry slowdown, but we maintained profitability at the lower revenue level, resulting from both improved gross margin and expense control. We have taken steps to reduce operating expenses through a variety of programs while continuing to make the necessary investments in the business required to drive growth. Our strong gross margins in the third quarter are due to cost-out initiatives and favorable product mix.
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, 2018 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 on-going 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.
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 Conditions and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2018.
The following table sets forth our results of operations as a percentage of total revenue:
92.6
%
92.8
92.3
94.1
7.4
7.2
7.7
5.9
100.0
48.4
51.6
50.2
53.9
7.6
6.6
5.8
56.0
58.2
57.6
59.7
44.0
41.8
42.4
40.3
18.6
13.5
17.1
11.2
11.6
8.3
10.8
7.5
11.1
8.9
9.8
7.3
41.3
30.7
37.7
26.0
2.7
4.7
14.3
1.0
0.6
0.5
(1.9)
(1.4)
(1.6)
(1.1)
(1.3)
(0.6)
(0.5)
(2.2)
9.7
3.6
13.2
0.4
2.1
9.2
3.2
Revenue
The following table sets forth our revenue:
Period-to-Period
Change
(dollars in thousands)
(24,206)
(27.4)
(99,838)
(31.5)
Percentage of revenue
(1,715)
(24.9)
(1,819)
(9.2)
(25,921)
(27.2)
(101,657)
(30.2)
Three months ended September 30, 2019 Compared with Three months ended September 30, 2018
Product revenue, which includes systems sales, sales of spare parts, product upgrades and used systems was $64.3 million, or 92.6% of revenue during the three months ended September 30, 2019, compared with $88.5 million, or
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92.8% of revenue for the three months ended September 30, 2018. The $24.2 million decrease in product revenue for the three month period ending September 30, 2019, in comparison to the same period in 2018, was primarily driven by a decrease in the number of systems sold.
A portion of our revenue from systems sales is deferred until installation and other services related to future performance obligations are performed. The total amount of deferred revenue at September 30, 2019 and December 31, 2018 was $27.4 million and $22.6 million, respectively. The net increase in deferred revenue is primarily due to the timing of system acceptances.
Services revenue, which includes the labor component of maintenance and service contracts and fees for service hours provided by on-site service personnel, was $5.2 million, or 7.4% of revenue for the three months ended September 30, 2019, compared with $6.9 million, or 7.2% of revenue for the three months ended September 30, 2018. 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, 2019 Compared with Nine months ended September 30, 2018
Product revenue, which includes systems sales, sales of spare parts, product upgrades and used systems was $217.2 million, or 92.3% of revenue during the nine months ended September 30, 2019, compared with $317.0 million, or 94.1% of revenue for the nine months ended September 30, 2018. The $99.8 million decrease in product revenue for the nine month period ending September 30, 2019, in comparison to the same period in 2018, was primarily driven by a decrease in the number of systems sold.
Services revenue was $18.0 million, or 7.7% of revenue for the nine months ended September 30, 2019, compared with $19.9 million, or 5.9% of revenue for the nine months ended September 30, 2018.
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:
·
Ion implant revenue separate from revenue from legacy non-implant product lines, given that ion implantation systems are the primary driver of our growth and strategic objectives;
Systems and Aftermarket revenues, in which “Aftermarket” is
A.
the portion of Product revenue relating to spare parts, product upgrades and used systems 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
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
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technology processes and leading edge foundry and logic.
The ion implant and Aftermarket revenue categories for recent periods are discussed below.
Ion Implant
Included in total revenue of $69.5 million during the three months ended September 30, 2019 is revenue from sales of ion implant of $65.2 million, or 93.9% of total revenue, compared with $90.4 million, or 94.8%, of total revenue for the three months ended September 30, 2018. The remaining $4.3 million of revenue for the three months ended September 30, 2019 was non-ion implant services.
Included in total revenue of $69.5 million during the three months ended September 30, 2019 is revenue from our Aftermarket business of $32.6 million, compared to $39.0 million for the three months ended September 30, 2018. The remaining $36.8 million of revenue for the three months ended September 30, 2019 was from system sales. 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 tools.
Included in total revenue of $235.2 million during the nine months ended September 30, 2019 is revenue from sales of ion implant of $222.4 million, or 94.5% of total revenue, compared with $320.8 million, or 95.2%, of total revenue for the nine months ended September 30, 2018. The remaining $12.8 million of revenue for the nine months ended September 30, 2019 was non-ion implant services.
Included in total revenue of $235.2 million during the nine months ended September 30, 2019 is revenue from our Aftermarket business of $104.1 million, compared to $121.1 million for the nine months ended September 30, 2018. The remaining $131.1 million of revenue for the nine months ended September 30, 2019 was from system sales.
Gross Profit / Gross Margin
The following table sets forth our gross profit / gross margin:
Gross Profit:
30,703
39,360
(8,657)
(22.0)
99,096
135,616
(36,520)
(26.9)
Product gross margin
47.8
44.5
45.6
42.8
(122)
553
(675)
122.1
740
453
287
(63.4)
Services gross margin
(2.4)
8.0
4.1
Total gross profit
(9,332)
(23.4)
(36,233)
(26.6)
Gross margin
22
Gross margin from product revenue was 47.8% for the three months ended September 30, 2019, compared to 44.5% for the three months ended September 30, 2018. The increase in gross margin resulted from improved margins on Purion systems due to cost-out initiatives and favorable product mix.
Gross margin from services revenue was (2.4)% for the three months ended September 30, 2019, compared to 8.0% for the three months ended September 30, 2018. The decrease in gross margin is attributable to changes in the mix of service contracts.
Gross margin from product revenue was 45.6% for the nine months ended September 30, 2019, compared to 42.8% for the nine months ended September 30, 2018. The increase in gross margin resulted from improved margins on Purion systems.
Gross margin from services revenue was 4.1% for the nine months ended September 30, 2019, compared to 2.3% for the nine months ended September 30, 2018. 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:
85
0.7
2,704
134
1.7
(770)
(9.1)
(1,658)
(6.7)
(551)
1,211
1.4
Our operating expenses consist primarily of personnel costs, including salaries, commissions, expected incentive plan payouts, 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 $16.9 million or 58.5% of our total operating expenses for the three month period ended September 30, 2019, compared to $18.1 million or 61.8% of our total operating expenses for the three month period ended September 30, 2018. Personnel costs were $52.6 million or 59.0% of our total operating expenses for the nine month period ended September 30, 2019, compared to $54.7 million or 62.5% of our total operating expenses for the nine month period ended September 30, 2018. The lower personnel costs for the three and nine month periods ended September 30, 2019 are primarily due to lower incentive based pay expense.
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Research and Development
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 strategic plan, we establish annual R&D budgets to fund programs that we expect will solve customers’ high value, high impact, ion implantation challenges.
Research and development expense was $12.9 million during the three months ended September 30, 2019, an increase of $0.1 million, or 0.7%, relatively flat when compared to the three months ended September 30, 2018.
Research and development expense was $40.3 million during the nine months ended September 30, 2019, a $2.7 million, or 7.2%, increase from $37.6 million during the nine months ended September 30, 2018. The increase is primarily due to increased outside services and project materials cost to support the development of new products and enhancements of existing products.
Sales and Marketing
Our sales and marketing expenses result primarily from the sale of our equipment and services through our direct sales force. Moving forward, we will incur expenses associated with implementing the agreement with Screen Semiconductor Solutions Co. Ltd., to distribute Purion products to customers in Japan.
Sales and marketing expense was $8.1 million during the three months ended September 30, 2019, an increase of $0.1 million, or 1.7%, relatively flat when compared with $7.9 million during the three months ended September 30, 2018.
Sales and marketing expense was $25.4 million during the nine months ended September 30, 2019, an increase of $0.2 million, or 0.7%, relatively flat when compared with $25.2 million during the nine months ended September 30, 2018.
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General and Administrative
Our general and administrative expenses result primarily from the costs associated with our executive, finance, information technology, legal and human resource functions.
General and administrative expense was $7.7 million during the three months ended September 30, 2019, a decrease of $0.8 million, or 9.1%, compared with $8.5 million during the three months ended September 30, 2018. The decrease is primarily due to a decrease in incentive based pay expense.
General and administrative expense was $23.1 million during the nine months ended September 30, 2019, a decrease of $1.7 million, or 6.7%, compared with $24.8 million during the nine months ended September 30, 2018. The decrease is primarily due to a decrease in incentive based pay expense.
Other (Expense) Income
Period-to-period
change
Other expense
(189)
(14.3)
1,251
31.4
Other (expense) income consists primarily of interest 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 US 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 $1.5 million for the three months ended September 30, 2019, compared with $1.3 million for the three months ended September 30, 2018. The increase in other expense for the three month period ended September 30, 2019 compared to the three month period ended September 30, 2018, was primarily due to higher foreign currency exchange losses in the current year period compared to the prior year. Other expense was $2.7 million for the nine months ended September 30, 2019, compared with $4.0 million for the nine months ended September 30, 2018. The decrease in other expense for the nine month period ended September 30, 2019 compared to the nine month period ended September 30, 2018, was primarily due to lower foreign currency exchange losses in the current year and increased interest earned on our invested cash balances compared to the same period last year.
During the three and nine month periods ended September 30, 2019, we had no significant off-balance-sheet risk such as exchange contracts, option contracts or other hedging arrangements. During the three and nine month periods ended September 30, 2018, with the exception of operating lease agreements entered into by us, we had no significant off-balance-sheet risk such as exchange contracts, option contracts or other hedging arrangements.
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Income Tax (Benefit) Provision
(836)
(164.6)
(6,093)
86.6
At December 31, 2018, we had $71.9 million of deferred tax assets worldwide comprised of net operating loss carryforwards, tax credit carryforwards and other temporary differences, which are available to reduce income tax liabilities in future years. This amount was net of a $6.8 million valuation allowance. As of September 30, 2019, the valuation allowance increased to $7.7 million due to the uncertainty of the utilization of certain research and development credits. Management considered the weight of all available evidence in determining whether a valuation allowance was required. After consideration of both positive and negative evidence, management concluded that it is more likely than not that a substantial portion of the Company’s deferred tax assets will be realized. The positive evidence considered was three year U.S. historical cumulative pretax income, projected future taxable income and length of carry-forward periods of net operating losses and tax credits. The primary negative evidence considered was the volatility of the semiconductor industry in which we operate.
We had $155.3 million in unrestricted cash and cash equivalents at September 30, 2019, in addition to $6.9 million in restricted cash, primarily comprised of the $5.9 million security for the lease of our corporate headquarters. Management believes that maintaining a strong cash balance is necessary to provide funding for potential ramps in our business which can require significant cash investment to meet sudden demand. Additionally, we 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 established cost structure, other than cost of goods sold, does not vary significantly with changes in volume. We experience fluctuations in operating results and cash flows depending on these factors. We are also engaging in stock repurchases, as discussed below.
During the nine months ended September 30, 2019, we used $0.3 million of cash related to operating activities. In comparison, during the nine months ended September 30, 2018, we generated $17.2 million of cash from operations.
Investing activities for the nine months ended September 30, 2019 and 2018 resulted in cash outflows of $11.1 million and $3.9 million, respectively, used for capital expenditures. During the nine months ended September 30, 2019, we purchased machinery and equipment to support manufacturing and engineering operations.
Financing activities for the nine months ended September 30, 2019 used net cash of $12.2 million, $14.0 million of which related to the repurchase of our common stock and $1.6 million related to the payments made to government tax authorities for income tax withholding on RSU vesting, where shares are withheld by the Company. These amounts were partially offset by $3.4 million of proceeds related to the exercise of stock options and purchase of shares under our ESPP. Financing activities for the nine months ended September 30, 2018 generated net cash of $0.3 million, of which $1.7 million related to the exercise of stock options and issuance of shares under our ESPP, partially offset by $1.4 million
related to payments made to government tax authorities for income tax withholding on RSU vesting, where shares are withheld by the Company.
We believe that based on our current market, revenue, expense and cash flow forecasts, our existing cash, cash equivalents and borrowing capacity will be sufficient to satisfy our anticipated cash requirements for the short and long-term. We currently have no credit facility but management believes we would be able to borrow on reasonable terms if needed.
On January 14, 2019 we announced that our Board of Directors authorized a one-year share repurchase program of up to $35 million of our common stock. These shares may be purchased in the open market or through privately negotiated transactions. We commenced repurchases of our stock in the second quarter, using $14.0 million in cash for this purpose. As of September 30, 2019, we had approximately $21.0 million remaining under the share repurchase program. See Part II, Item 2 of this report. We have no obligation to repurchase any additional shares under the authorization, and the timing, actual number and value of shares which are repurchased will depend on a number of factors, including the price of our common stock, general business and market conditions, and alternative investment opportunities. We may suspend or discontinue the repurchase program at any time.
Commitments and Contingencies
Significant commitments and contingencies at September 30, 2019 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, 2018.
27
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As of September 30, 2019, 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, 2018.
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, 2019 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.
Item 1A. Risk Factors.
As of September 30, 2019, 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, 2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In December 2018 our Board of Directors approved a $35 million one-year program to repurchase shares of our common stock. As of September 30, 2019, $21.0 million remained available for stock repurchases pursuant to this program.
Our stock repurchase authorization expires at the end of 2019 and the pace of our repurchase activity will depend on factors such as our working capital needs, our cash requirements for business development, our stock price, and economic and market conditions. Our stock repurchases may be effected from time to time through open market purchases or pursuant to a Rule 10b5-1 plan, if one is adopted. Our stock repurchase program may be accelerated, suspended, delayed or discontinued at any time.
The following table summarizes the stock repurchase activity for the nine months ended September 30, 2019 and 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)
May 1, 2019 through May 31, 2019
$16.23
24,577
June 1, 2019 through June 30, 2019
243
$14.87
20,965
885
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
Item 6. Exhibits.
The following exhibits are filed herewith:
ExhibitNo
Description
3.1
Restated Certificate of Incorporation of the Company filed November 2, 2017. Incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed with the Commission on November 3, 2017.
Bylaws of the Company, as amended as of May 13, 2014. Incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed with the Commission on May 19, 2014.
31.1
Certification of the Principal Executive Officer under Exchange Act Rule 13a-14(a)/15d-14(a) (Section 302 of the Sarbanes-Oxley Act), dated November 7, 2019. Filed herewith.
31.2
Certification of the Principal Financial Officer under Exchange Act Rule 13a-14(a)/15d-14(a) (Section 302 of the Sarbanes-Oxley Act), dated November 7, 2019. Filed herewith.
32.1
Certification of the Principal Executive Officer pursuant to Section 1350 of Chapter 63 of title 18 of the United States Code (Section 906 of the Sarbanes-Oxley Act), dated November 7, 2019. Filed herewith.
32.2
Certification of the Principal Financial Officer pursuant to Section 1350 of Chapter 63 of title 18 of the United States Code (Section 906 of the Sarbanes-Oxley Act), dated November 7, 2019. Filed herewith.
101
The following materials from the Company’s Form 10-Q for the quarter ended September 30, 2019, formatted in eXtensible Business Reporting Language (XBRL): (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.
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.
DATED: November 7, 2019
By:
/s/ KEVIN J. BREWER
Kevin J. Brewer
Executive Vice President and Chief Financial Officer
Duly Authorized Officer and Principal Financial Officer
31