Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
or
☐
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)
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, $0.001 par value
ACLS
Nasdaq Global Select Market
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, a 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 ☒
As of October 31, 2023, there were 32,747,459 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, 2023 and 2022
3
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022
4
Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022
5
Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022
6
Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022
8
Notes to Consolidated Financial Statements (Unaudited)
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
Overview
Critical Accounting Estimates
Results of Operations
20
Liquidity and Capital Resources
26
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
27
Item 4.
Controls and Procedures
PART II - OTHER INFORMATION
28
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
29
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,
2023
2022
Revenue:
Product
$
283,367
221,540
795,047
631,998
Services
8,959
7,635
25,269
21,949
Total revenue
292,326
229,175
820,316
653,947
Cost of revenue:
154,798
118,992
444,311
342,387
7,844
6,862
22,600
19,291
Total cost of revenue
162,642
125,854
466,911
361,678
Gross profit
129,684
103,321
353,405
292,269
Operating expenses:
Research and development
24,093
20,563
71,996
56,267
Sales and marketing
16,465
14,573
46,146
38,567
General and administrative
17,446
14,983
48,519
41,163
Total operating expenses
58,004
50,119
166,661
135,997
Income from operations
71,680
53,202
186,744
156,272
Other income (expense):
Interest income
4,580
1,111
12,824
1,558
Interest expense
(1,325)
(1,333)
(4,027)
(4,101)
Other, net
(1,260)
(7,971)
(4,348)
(14,640)
Total other income (expense)
1,995
(8,193)
4,449
(17,183)
Income before income taxes
73,675
45,009
191,193
139,089
Income tax provision
7,744
4,726
15,986
13,002
Net income
65,931
40,283
175,207
126,087
Net income per share:
Basic
2.01
1.22
5.35
3.81
Diluted
1.99
1.21
5.28
3.75
Shares used in computing net income per share:
Basic weighted average shares of common stock
32,807
33,011
32,775
33,116
Diluted weighted average shares of common stock
33,159
33,389
33,208
33,638
See accompanying Notes to these Consolidated Financial Statements (Unaudited)
Consolidated Statements of Comprehensive Income
(In thousands)
Other comprehensive loss:
Foreign currency translation adjustments
(1,231)
(3,690)
(2,192)
(7,561)
Amortization of actuarial net gain and other adjustments from pension plan, net of tax
—
25
Total other comprehensive loss
(3,682)
(7,536)
Comprehensive income
64,700
36,601
173,015
118,551
Consolidated Balance Sheets
December 31,
ASSETS
Current assets:
Cash and cash equivalents
142,300
185,595
Short-term investments
318,710
246,571
Accounts receivable, net
192,327
169,773
Inventories, net
312,223
242,406
Prepaid expenses and other current assets
49,481
33,300
Total current assets
1,015,041
877,645
Property, plant and equipment, net
47,169
39,664
Operating lease assets
31,082
12,146
Finance lease assets, net
16,981
17,942
Long-term restricted cash
6,650
752
Deferred income taxes
44,323
31,701
Other assets
40,448
33,791
Total assets
1,201,694
1,013,641
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
60,061
62,346
Accrued compensation
26,535
35,540
Warranty
11,464
8,299
Income taxes
582
4,304
Deferred revenue
148,299
123,471
Current portion of finance lease obligation
1,438
1,229
Other current liabilities
12,799
12,943
Total current liabilities
261,178
248,132
Long-term finance lease obligation
44,070
45,185
Long-term deferred revenue
53,730
31,306
Other long-term liabilities
41,745
21,762
Total liabilities
400,723
346,385
Commitments and contingencies (Note 16)
Stockholders’ equity:
Common stock, $0.001 par value, 75,000 shares authorized; 32,772 shares issued and outstanding at September 30, 2023; 32,775 shares issued and outstanding at December 31, 2022
33
Additional paid-in capital
543,577
550,299
Retained earnings
261,521
118,892
Accumulated other comprehensive loss
(4,160)
(1,968)
Total stockholders’ equity
800,971
667,256
Total liabilities and stockholders’ equity
Consolidated Statements of Stockholders’ Equity
(Accumulated
Accumulated
Additional
Deficit)
Other
Total
Common Stock
Paid-in
Retained
Comprehensive
Stockholders’
Shares
Amount
Capital
Earnings
Income
Equity
Balance at December 31, 2021
33,240
559,883
(22,722)
1,765
538,959
41,614
(1,186)
Change in pension obligation
Exercise of stock options
41
491
Issuance of common stock on restricted stock units, net of shares withheld
67
(3,315)
Stock-based compensation expense
2,701
Repurchase of common stock
(284)
(5,127)
(14,873)
(20,000)
Balance at March 31, 2022
33,064
554,633
4,019
588
559,273
44,189
(2,685)
298
Issuance of stock under Employee Stock Purchase Plan
15
711
205
(5,896)
3,527
(215)
(3,872)
(8,626)
(12,498)
Balance at June 30, 2022
33,094
549,401
39,582
(2,089)
586,927
30
367
Issuance of common stock on restricted stock units, net of stock withheld
(70)
3,562
(195)
(3,525)
(8,972)
(12,497)
Balance at September 30, 2022
32,937
549,735
70,893
(5,771)
614,890
Loss
Balance at December 31, 2022
47,697
50
56
(3,907)
3,199
(107)
(1,924)
(10,575)
(12,499)
Balance at March 31, 2023
32,726
547,692
156,014
(1,918)
701,821
61,579
(1,011)
957
199
(11,558)
4,749
(95)
(1,720)
(10,780)
(12,500)
Balance at June 30, 2023
32,836
540,120
206,813
(2,929)
744,037
7
(349)
5,082
(71)
(1,276)
(11,223)
Balance at September 30, 2023
32,772
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
9,488
8,614
(12,623)
6,416
13,030
9,790
Provision for doubtful accounts
749
Provision for excess and obsolete inventory
3,912
3,292
Accretion of discounts and premiums on marketable securities
(8,463)
Currency loss on foreign denominated transactions
7,487
Changes in operating assets and liabilities:
Accounts receivable
(26,674)
(77,449)
Inventories
(79,494)
(49,699)
(16,493)
(4,861)
Accounts payable and other current liabilities
(8,916)
17,695
47,704
54,814
(3,672)
(274)
Other assets and liabilities
(9,948)
(1,202)
Net cash provided by operating activities
91,294
93,223
Cash flows from investing activities
Expenditures for property, plant and equipment and capitalized software
(10,503)
(6,876)
Purchase of short-term investments
(271,583)
(33,576)
Maturities of short-term investments
207,907
Net cash used in investing activities
(74,179)
(40,452)
Cash flows from financing activities
Net settlement on restricted stock grants
(15,814)
(9,281)
(37,498)
(44,995)
Proceeds from Employee Stock Purchase Plan purchases
Principal payments on finance lease obligation
(915)
(728)
Proceeds from exercise of stock options
1,156
Net cash used in financing activities
(53,245)
(53,137)
Effect of exchange rate changes on cash and cash equivalents
(1,267)
13,987
Net (decrease) increase in cash, cash equivalents and restricted cash
(37,397)
13,621
Cash, cash equivalents and restricted cash at beginning of period
186,347
295,680
Cash, cash equivalents and restricted cash at end of period
148,950
309,301
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, 2022 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. As of September 30, 2023, there have been no material changes in the Company’s significant accounting policies. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Note 2. 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, 2022.
We recognized stock-based compensation expense of $5.1 million and $3.6 million for the three-month periods ended September 30, 2023 and 2022, respectively. We recognized stock-based compensation expense of $13.0 million and $9.8 million for the nine-month periods ended September 30, 2023 and 2022, respectively. These amounts include compensation expense related to RSUs, non-qualified stock options and stock issued to participants under the 2020 Employee Stock Purchase Plan (the “2020 ESPP”).
In the three-month period ended September 30, 2023, we issued 7,320 shares of common stock upon vesting of RSUs. In the three-month period ended September 30, 2022, we issued 38,507 shares of common stock upon vesting of RSUs and stock option exercises. In the three-month period ended September 30, 2023, we received no proceeds in connection with the exercise of stock options. In the three-month period ended September 30, 2022, we received proceeds of $0.4 million in connection with the exercise of stock options.
In the nine-month periods ended September 30, 2023 and 2022, we issued 0.3 million and 0.4 million shares of common stock, respectively, upon stock option exercises, purchases under the 2020 ESPP and vesting of RSUs. In the nine-month periods ended September 30, 2023 and 2022, we received proceeds of $1.0 million and $1.9 million, respectively, in connection with the exercise of stock options and purchases under the 2020 ESPP.
Note 3. Leases
We have operating leases for manufacturing, 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 agreements to determine if the agreement contains a lease
component. An agreement contains a lease component if it provides for the use of a specific physical space or a specific physical item.
We recognize operating lease obligations under Accounting Standards Codification Topic 842, Leases (“Topic 842”). The guidance in Topic 842 requires recognition of lease assets and related liabilities 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 extend the respective lease term by one to three years. The exercise of lease renewal options is at our sole discretion. For lease extensions that are reasonably certain to occur, we have included the 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 is 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 sheets are as follows:
Leases
Classification
Assets
(in thousands)
Operating leases
Finance lease
Finance lease assets*
Total leased assets
48,063
30,088
Liabilities
Current
Operating
5,001
5,367
Finance
Non-current
25,850
6,931
Finance lease obligation
Total lease liabilities
76,359
58,712
*Finance lease assets are recorded net of accumulated depreciation of $46.7 million and include $0.6 million of prepaid financing costs as of September 30, 2023. Finance lease assets are recorded net of accumulated depreciation of $45.9 million and include $0.6 million of prepaid financing costs as of December 31, 2022.
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. Our state-of-the-art 98,500 square foot logistics and flex manufacturing center in Beverly, Massachusetts became fully operational in the third quarter of 2023.
10
Operating lease expense 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, 2023 and 2022 as follows:
Lease cost
Operating lease cost
Product / services*
Cost of revenue
2,041
1,462
5,328
3,978
Operating expenses
183
54
426
186
Sales and marketing*
419
369
1,231
1,155
General and administrative*
253
813
773
Total operating lease cost
2,941
2,138
7,798
6,092
Finance lease cost
Depreciation of leased assets
Cost of revenue, Research and development, Sales and marketing and General and administrative
324
325
961
973
Interest on lease liabilities
1,214
1,245
3,668
3,754
Total finance lease cost
1,538
1,570
4,629
4,727
Total lease cost
4,479
3,708
12,427
10,819
* Product / services, sales and marketing and general and administrative expense also includes short-term lease and variable lease costs of approximately $0.6 million and $1.6 million for the three and nine months ended September 30, 2023, respectively, and includes short-term lease and variable lease costs of approximately $0.4 million and $1.4 million for the three and nine months ended September 30, 2022, respectively.
The lease of our corporate headquarters, shown below under finance leases, had an original lease term of 22 years, beginning in January 2015 and expiring in January 2037, with renewal options. All other locations are treated as operating leases, with lease terms ranging from one to sixteen 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 in our calculation of our lease obligations and right-of-use assets as of September 30, 2023:
Maturity of Lease Liabilities
1,531
2,117
3,648
2024
6,252
6,248
12,500
2025
5,930
4,761
10,691
2026
6,008
3,471
9,479
2027
6,128
2,502
8,630
Thereafter
61,586
25,123
86,709
Total lease payments
87,435
44,222
131,657
Less interest portion*
(41,927)
(13,371)
(55,298)
Finance lease and operating lease obligations
45,508
30,851
* Finance lease interest calculated using the implied interest rate; operating lease interest calculated using estimated corporate borrowing rate.
The table above does not include options to renew lease terms that are not reasonably certain of being exercised.
11
Lease term and discount rate
Weighted-average remaining lease term (years):
11.6
Finance leases
13.3
Weighted-average discount rate:
5.5%
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 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 ended September 30, 2023 and 2022, respectively:
Nine months ended September 30,
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases
Operating cash outflows from finance leases
Financing cash outflows from finance leases
915
728
Operating lease assets obtained in exchange for operating lease liabilities
25,697
5,494
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
231,454
171,092
641,825
488,243
Aftermarket
60,872
58,083
178,491
165,704
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:
North America
51,563
36,036
134,647
95,633
Asia Pacific
185,194
166,342
582,238
484,286
Europe
55,569
26,797
103,431
74,028
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:
Contract liabilities
202,029
154,777
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.
Balance, beginning of the period
182,540
71,549
68,436
Deferral of revenue
62,787
70,706
154,216
108,472
Recognition of deferred revenue
(43,298)
(19,666)
(106,964)
(54,319)
Balance, end of the period
122,589
The majority of our system transactions have either (1) payment terms of 90% due upon shipment of the system and 10% due upon acceptance or (2) a pre-shipment deposit ranging from 20% to 60%, 70% to 30% due upon shipment and 10% at acceptance. Aftermarket transaction payment terms typically provide that payment is due either within 30 or 60 days after the service is provided or parts delivered.
Note 5. 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.
We maintain an allowance for credit losses, which represents 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 our ongoing assessments and evaluations of collectability, historical loss experience, and future expectations in estimating credit losses in our receivable portfolio. We use historical loss experience rates and apply 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
13
experience, loss migration, delinquency trends, collection experience, current economic conditions, trade restrictions, estimates for supportable forecasts, when appropriate, and credit risk characteristics.
We evaluate the credit risk of the customer when extending credit based on a combination of 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 our 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. We recorded $0.7 million in bad debt expense for the three and nine-month periods ended September 30, 2023. We did not have any allowance or incur any credit losses or recoveries for the three and nine-month periods ended September 30, 2022. As of September 30, 2023 and 2022, respectively, we had no provision for credit losses.
Note 6. 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 shares of common stock 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 shares of common stock that would have been outstanding if the potentially dilutive shares of common stock 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:
(in thousands, except per share amounts)
Net income available to common stockholders
Weighted average shares of common stock outstanding used in computing basic income per share
Incremental options and RSUs
352
378
433
522
Weighted average shares of common stock used in computing diluted net income per share
Net income per share
Diluted weighted average shares of common stock outstanding does not include 734 and 5,046 common equivalent shares issuable with respect to outstanding equity awards for the three-month periods ended September 30, 2023 and 2022, respectively, or 2,598 and 6,692 common equivalent shares issuable with respect to outstanding equity awards for the nine-month periods ended September 30, 2023 and 2022, respectively, as their effect would have been anti-dilutive.
Note 7. 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, 2023:
Foreign
Defined benefit
currency
pension plan
(1,994)
Other comprehensive loss and pension reclassification
(4,186)
14
Note 8. 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:
Total cash, cash equivalents and restricted cash
As of September 30, 2023, we had $6.7 million in restricted cash representing the total of (i) a $5.9 million cash collateral relating to our lease for our headquarters in Beverly, Massachusetts, (ii) a $0.7 million letter of credit relating to workers’ compensation insurance and (iii) a $0.1 million deposit relating to customs activity. See Note 12 for further discussion on the $5.9 million cash collateral.
Note 9. Inventories, net
The components of inventories are as follows:
Raw materials
226,601
187,313
Work in process
55,825
35,069
Finished goods (completed systems)
29,797
20,024
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 10. 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.
The changes in our standard product warranty liability are as follows:
Balance at January 1 (beginning of year)
10,487
6,924
Warranties issued during the period
9,072
7,454
Settlements made during the period
(7,746)
(4,633)
Changes in estimate of liability for pre-existing warranties during the period
2,043
(78)
Balance at September 30 (end of period)
13,856
9,667
Amount classified as current
8,482
Amount classified as long-term (within other long-term liabilities)
2,392
1,185
Total warranty liability
Note 11. Fair Value Measurements
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 that have a maturity of greater than three months but less than one year are included within short-term investments in the consolidated balance sheets.
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The following table sets forth our assets by level within the fair value hierarchy:
September 30, 2023
Fair Value Measurements
Level 1
Level 2
Level 3
Cash equivalents and other short-term investments:
Cash equivalents (money market funds, U.S. Government Securities and Agency Investments)
114,475
Short-term investments (U.S. Government Securities and Agency Investments)
318,202
432,677
December 31, 2022
111,771
25,000
136,771
245,247
357,018
382,018
(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 12. 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 $45.5 million as of September 30, 2023. The associated lease payments include both an interest component and payment of principal, with the remaining liability being extinguished at the end of the original lease term. As of September 30, 2023, we had a security deposit of $5.9 million related to this lease.
On April 5, 2023 we terminated the Senior Secured Credit Facilities Credit Agreement, as amended (the “Credit Agreement”), with Silicon Valley Bank that we entered into on July 31, 2020. The Credit Agreement provided for a revolving credit facility covering borrowings and letters of credit in an aggregate principal amount not to exceed $40.0 million. Our obligations under the Credit Agreement were 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. Upon termination, these liens and all other obligations under the credit agreement, were released. A letter of credit issued by Silicon Valley Bank, a division of First Citizens Bank & Trust Company (successor by purchase to the Federal Deposit Insurance Corporation as Receiver for Silicon Valley Bridge Bank, N.A.) as successor to Silicon Valley Bank, remains outstanding in the amount of $5.9 million, securing our lease on our corporate headquarters. This letter of credit was transitioned to a cash collateral arrangement on March 30, 2023, and was classified as long-term restricted cash on our balance sheet at September 30, 2023.
Note 13. Income Taxes
Income tax expense was $7.7 million for the three months ended September 30, 2023, compared to $4.7 million for the three months ended September 30, 2022. The $3.0 million increase was primarily due to an increase in pre-tax
17
income partially offset by the tax deduction related to foreign sales taxed at a lower rate. Income tax expense was $16.0 million for the nine months ended September 30, 2023, compared to $13.0 million for the nine months ended September 30, 2022. The $3.0 million increase was primarily due to an increase in pre-tax income partially offset by the tax deduction related to stock based compensation and additional research and development tax credit.
The effective tax rate for the three and nine months ended September 30, 2023 was less than the U.S. statutory rate of 21% due to a forecasted Foreign Derived Intangible Income deduction, Federal research and development tax credits and a favorable discrete item related to equity compensation that reduces the annual tax rate.
The deferred income taxes of $44.3 million and $31.7 million as of September 30, 2023 and December 31, 2022, 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. As of September 30, 2023, we have recorded a $10.6 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.
Note 14. Concentration of Risk
For the three months ended September 30, 2023, no individual customer accounted for greater than ten percent of total revenue. For the three months ended September 30, 2022, one customer accounted for 13.8% of total revenue.
For the nine months ended September 30, 2023, one customer accounted for 10.7% of total revenue. For the nine months ended September 30, 2022, one customer accounted for 14.8% of total revenue.
At September 30, 2023, three customers accounted for 11.8%, 11.0%, and 10.2% of accounts receivable, respectively. At December 31, 2022, two customers accounted for 19.4% and 11.5% of accounts receivable, respectively.
Note 15. Share Repurchase
In February 2022, our Board of Directors approved stock repurchases of up to $100 million of our common stock. In August 2023, our Board of Directors approved additional funding of $200 million for our stock repurchase program, to be available on full utilization of the $100 million repurchase funding approved in February 2022. During the nine months ended September 30, 2023, we repurchased 0.3 million shares at an average cost of $137.54 per share. The timing and actual number of any additional shares to be repurchased under this program will depend on various factors including price, corporate and regulatory requirements, alternative investment opportunities and other market conditions.
Repurchased shares are accounted for when the transaction is settled and returned to the status of authorized but unissued shares. Accordingly, on our balance sheet, the repurchase price is deducted from common stock 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 16. 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.
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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 I, Item 1A to our Annual Report on Form 10-K for the year ended December 31, 2022, 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 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 55.1% of total revenue for the nine months ended September 30, 2023.
The first nine months of 2023 exhibited continued strong demand for our capital equipment, despite a downturn in the memory segment of our industry that is causing other semiconductor equipment makers to experience lower revenues than the same period in the prior year. Supply chain performance has improved from challenges experienced during the global pandemic between 2020 and 2022, but has not completely recovered. Axcelis’ strong results in 2023 demonstrate our ability to meet demand and manage supply chain difficulties. Our performance is closely related to the growing mature process technology market, with 94% of shipments during the first nine months of 2023 going to mature foundry/logic customers.
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, 2022 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.
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, 2022.
The following table sets forth our results of operations as a percentage of total revenue:
96.9
%
96.7
96.6
3.1
3.3
3.4
100.0
53.0
51.9
54.2
52.4
2.7
3.0
2.8
2.9
55.7
54.9
57.0
55.3
44.3
45.1
43.0
44.7
8.2
9.0
8.8
8.6
5.6
6.4
5.9
6.0
6.5
6.3
19.8
21.9
20.3
20.8
24.5
23.2
22.7
23.9
1.6
0.5
0.2
(0.5)
(0.6)
(0.4)
(3.5)
(2.2)
0.7
(3.6)
0.6
(2.6)
25.2
19.6
23.3
21.3
2.6
2.0
1.9
22.6
17.6
21.4
19.3
Revenue
The following table sets forth our product and services revenue:
Period-to-Period
Change
(dollars in thousands)
61,827
27.9
163,049
25.8
Percentage of revenue
1,324
17.3
3,320
15.1
63,151
27.6
166,369
25.4
Three months ended September 30, 2023 Compared with Three months ended September 30, 2022
Product revenue, which includes systems sales, sales of spare parts, product upgrades and used systems, was $283.4 million, or 96.9% of revenue, during the three months ended September 30, 2023, compared with $221.5 million, or 96.7% of revenue, for the three months ended September 30, 2022. The $61.8 million increase in product revenue for the
three-month period ended September 30, 2023, in comparison to the same period in 2022, 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, 2023 and December 31, 2022 was $202.0 million and $154.7 million, respectively. The increase in deferred revenue was primarily due to payments received in advance of sales.
Services revenue, which includes the labor component of maintenance and service contracts and fees for service hours provided by on-site service personnel, was $9.0 million, or 3.1% of revenue, for the three months ended September 30, 2023, compared with $7.6 million, or 3.3% of revenue, for the three months ended September 30, 2022. 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, 2023 Compared with Nine months ended September 30, 2022
Product revenue was $795.0 million, or 96.9% of revenue, during the nine months ended September 30, 2023, compared with $632.0 million, or 96.6% of revenue, for the nine months ended September 30, 2022. The $163.0 million increase in product revenue for the nine-month period ended September 30, 2023, in comparison to the same period in 2022, was primarily driven by an increase in the number of systems sold.
Services revenue was $25.3 million, or 3.1% of revenue, for the nine months ended September 30, 2023, compared with $21.9 million, or 3.4% of revenue, for the nine months ended September 30, 2022.
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:
(Aftermarket purchases reflect current fab utilization as opposed to Systems purchases which reflect capital investment decisions by our customers, which have differing economic drivers);
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Aftermarket and Systems Revenue
Included in total revenue of $292.3 million during the three months ended September 30, 2023 is revenue from our Aftermarket business of $60.9 million, compared with $58.1 million of Aftermarket revenue for the three months ended September 30, 2022. 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 $231.4 million of revenue for the three months ended September 30, 2023 was from system sales, compared with $171.1 million of systems revenue for the three months ended September 30, 2022. Systems revenue fluctuates from period to period based on our customers’ capital spending.
Included in total revenue of $820.3 million during the nine months ended September 30, 2023 is revenue from our Aftermarket business of $178.5 million, compared with $165.7 million of Aftermarket revenue for the nine months ended September 30, 2022. The remaining $641.8 million of revenue for the nine months ended September 30, 2023 was from system sales, compared with $488.2 million of systems revenue for the nine months ended September 30, 2022.
Gross Profit / Gross Margin
The following table sets forth our gross profit / gross margin:
Gross Profit:
128,569
102,548
26,021
350,736
289,611
61,125
21.1
Product gross margin
45.4
46.3
44.1
45.8
1,115
342
44.2
2,669
2,658
0.4
Services gross margin
12.4
10.1
10.6
12.1
Total gross profit
26,363
25.5
61,136
20.9
Gross margin
Gross margin from product revenue was 45.4% for the three months ended September 30, 2023, compared to 46.3% for the three months ended September 30, 2022. The decrease in gross margin primarily resulted from a less favorable mix of system revenue.
Gross margin from services revenue was 12.4% for the three months ended September 30, 2023, compared to 10.1% for the three months ended September 30, 2022. The increase in gross margin is attributable to changes in the mix of service contracts.
22
Gross margin from product revenue was 44.1% for the nine months ended September 30, 2023, compared to 45.8% for the nine months ended September 30, 2022. The decrease in gross margin primarily resulted from a less favorable mix of system revenue.
Gross margin from services revenue was 10.6% for the nine months ended September 30, 2023, compared to 12.1% for the nine months ended September 30, 2022. The decrease in gross margin is attributable to changes in the mix of service contracts.
Operating Expenses
The following table sets forth our operating expenses:
3,530
17.2
15,729
28.0
1,892
13.0
7,579
19.7
2,463
16.4
7,356
17.9
7,885
15.7
30,664
22.5
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 $34.8 million, or 60.0%, of our total operating expenses for the three months ended September 30, 2023, compared to $31.4 million, or 62.6%, of our total operating expenses for the three months ended September 30, 2022. Personnel costs were $99.3 million, or 59.6%, of our total operating expenses for the nine months ended September 30, 2023, compared to $83.0 million, or 61.0%, of our total operating expenses for the nine months ended September 30, 2022. The higher personnel costs for the three and nine months ended September 30, 2023 are primarily due to increases in personnel-related expenses to support growth.
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 research and development budgets to fund programs that we expect will solve customers’ high value, high impact, ion implantation challenges.
23
Research and development expense was $24.1 million during the three months ended September 30, 2023, an increase of $3.5 million, or 17.2%, compared with $20.6 million during the three months ended September 30, 2022. The increase is primarily due to higher personnel expenses as well as an increase in the cost of project materials and related services for ongoing projects.
Research and development expense was $72.0 million during the nine months ended September 30, 2023, an increase of $15.7 million, or 28.0%, compared with $56.3 million during the nine months ended September 30, 2022. The increase is primarily due to higher personnel expenses as well as an increase in the cost of project materials and related services for ongoing projects.
Sales and Marketing
Our sales and marketing expenses result primarily from the sale of our equipment and services through our direct sales force.
Sales and marketing expense was $16.5 million during the three months ended September 30, 2023, an increase of $1.9 million, or 13.0%, compared with $14.6 million during the three months ended September 30, 2022. The increase is primarily due to higher personnel expenses.
Sales and marketing expense was $46.1 million during the nine months ended September 30, 2023, an increase of $7.6 million, or 19.7%, compared with $38.6 million during the nine months ended September 30, 2022. The increase is primarily due to higher personnel expenses and travel-related expense.
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.
24
General and administrative expense was $17.4 million during the three months ended September 30, 2023, an increase of $2.5 million, or 16.4%, compared with $15.0 million during the three months ended September 30, 2022. The increase is primarily due to an increase in personnel expenses.
General and administrative expense was $48.5 million during the nine months ended September 30, 2023, an increase of $7.4 million, or 17.9%, compared with $41.2 million during the nine months ended September 30, 2022. The increase is primarily due to an increase in personnel expenses.
Other Income (Expense)
Period-to-period
change
(10,188)
124.4
(21,632)
125.9
Other income (expense) consists of interest earned and accretion on our invested cash balances, interest expense relating to the finance lease obligation we incurred in connection with the 2015 sale of our headquarters facility and other financing obligations as well as foreign exchange gains and losses attributable to fluctuations of the U.S. dollar against local currencies of the countries in which we operate.
Other income was $2.0 million for the three months ended September 30, 2023, compared with other expense of $8.2 million for the three months ended September 30, 2022. The $10.2 million change in other income (expense) compared to the same prior year period was primarily due to an increase in interest income of $3.5 million and a decrease in foreign exchange loss of $6.7 million. Other income was $4.4 million for the nine months ended September 30, 2023, compared with other expense of $17.2 million for the nine months ended September 30, 2022. The $21.6 million change in other income (expense) compared to the same prior year period was primarily due to an increase in interest income of $11.3 million and a decrease in foreign exchange loss of $10.2 million.
During the nine-month periods ended September 30, 2023 and 2022, we had no significant off-balance sheet risk such as exchange contracts, option contracts or other hedging arrangements.
Income Tax Provision
3,018
63.9
2,984
23.0
Income tax expense was $7.7 million for the three months ended September 30, 2023, compared to $4.7 million for the three months ended September 30, 2022. The $3.0 million increase was primarily due to an increase in pre-tax income partially offset by the tax deduction related to foreign sales taxed at a lower rate. Income tax expense was $16.0 million for the nine months ended September 30, 2023, compared to $13.0 million for the nine months ended September 30, 2022. The $3.0 million increase was primarily due to an increase in pre-tax income partially offset by the tax deduction related to stock based compensation and additional research and development tax credit.
At September 30, 2023, we had $142.3 million in unrestricted cash and cash equivalents and $318.7 million in short-term investments, in addition to $6.7 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 to repurchase shares as part of 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 sales 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, 2023 and 2022, we generated $91.3 million and $93.2 million, respectively, of cash related to operating activities.
Investing activities for the nine months ended September 30, 2023 resulted in cash outflows of $74.2 million, $10.5 million of which was used for capital expenditures and $271.6 million of which was used to purchase short-term investments, offset by $207.9 million related to maturities of short-term investments. 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.
Financing activities for the nine months ended September 30, 2023 resulted in a cash usage of $53.2 million. During the first nine months of 2023, $37.5 million in cash was used to repurchase our common stock and $15.8 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 to cover taxes, as well as $0.9 million relating to the reduction of the liability under the finance lease of our corporate headquarters. These amounts were partially offset by $1.0 million of proceeds related to the purchase of shares under our 2020 ESPP and exercise of stock options during the first nine months of 2023. In comparison, financing activities for the nine months ended September 30, 2022 resulted in cash usage of $53.1 million, $45.0 million of which related to the repurchase of our common stock and $9.3 million of which related to payments made to government tax authorities for income tax withholding on employee compensation arising from the vesting of RSUs, as well as $0.7 million relating to the reduction of our financing lease liability. These amounts were partially offset by $1.9 million of proceeds related to the purchase of shares under our ESPP and exercise of stock options during the first nine months of 2022.
On April 5, 2023, we terminated the Senior Secured Credit Facilities Credit Agreement, as amended (the “Credit Agreement”), with Silicon Valley Bank that we entered into on July 31, 2020. The Credit Agreement provided for a revolving credit facility covering borrowings and letters of credit in an aggregate principal amount not to exceed $40.0 million. Our obligations under the Credit Agreement were 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. Upon termination, these liens and all other obligations under the credit agreement, were released. A letter of credit issued by Silicon Valley Bank, a division of First Citizens Bank & Trust
Company (successor by purchase to the Federal Deposit Insurance Corporation as Receiver for Silicon Valley Bridge Bank, N.A.) as successor to Silicon Valley Bank, remains outstanding in the amount of $5.9 million, securing our lease on our corporate headquarters. This letter of credit was transitioned to a cash collateral arrangement on March 30, 2023, and was classified as long-term restricted cash on our balance sheet at September 30, 2023.
We believe that based on our current market, revenue, expense and cash flow forecasts, our existing cash and cash equivalents 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, 2023 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 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As of September 30, 2023, there have been no material changes to the quantitative information about market risk disclosed in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” included in our Annual Report on Form 10-K for the year ended December 31, 2022.
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, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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, 2023, there have been no material changes to the risk factors described in Item 1A, “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.
In February 2022, our Board of Directors authorized a share repurchase program for up to $100 million of the Company's common stock. This program was announced on March 1, 2022. In August 2023, our Board of Directors approved additional funding of $200 million for our stock repurchase program, to be available upon the full utilization of the $100 million repurchase funding approved in February 2022. This additional funding was announced on September 12, 2023. The Company’s share repurchase program does not have an expiration date.
The following table summarizes the stock repurchase activity, based upon settlement date, for the three months ended September 30, 2023 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 through July 31
$179.93
13,507
August 1 through August 31
$175.80
208,761
(1)
September 1 through September 30
$174.80
205,007
71
(1) The increase in the dollar value available for repurchases under the program at August 31, 2023 reflects the additional funding authorized under the program in August 2023.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
During the quarter ended September 30, 2023, no director or officer adopted or terminated any contract, instrument or written plan for the purchase or sale of Axcelis securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any non-Rule 10b5-1 trading arrangement as defined in Item 408(c) of Regulation S-K.
Item 6. Exhibits.
The following exhibits are filed herewith:
ExhibitNo
Description
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.
3.2
Bylaws of the Company, as amended as of May 11, 2022. Incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed with the SEC on May 11, 2022.
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 2, 2023.
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 2, 2023.
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 2, 2023.
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 2, 2023.
101*
The following materials from the Company’s Form 10-Q for the quarter ended September 30, 2023, 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).
* Filed herewith
** This exhibit is being furnished rather than filed, and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
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 2, 2023
By:
/s/ JAMES COOGAN
James Coogan
Executive Vice President and Chief Financial Officer
Duly Authorized Officer and Principal Financial Officer