SEC Filing | Axcelis Technologies Inc

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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, 2020

☐

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 of incorporation or organization)		(IRS Employer Identification 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, $.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, 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 November 3, 2020 there were 33,496,006 shares of the registrant’s common stock outstanding.

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PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019	3
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019	4
	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	5
	Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	8
	Notes to Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Overview	20
	Critical Accounting Estimates	21
	Results of Operations	22
	Liquidity and Capital Resources	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II - OTHER INFORMATION		32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33

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PART 1—FINANCIAL INFORMATION

Item 1. Financial Statements.

Axcelis Technologies, Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)


	Three months ended				Nine months ended
		September 30,			September 30,
	2020		2019		2020		2019
Revenue:
Product	$	104,799	$	64,290	$	334,126	$	217,201
Services		5,606		5,163		18,235		18,034
Total revenue		110,405		69,453		352,361		235,235
Cost of revenue:
Product		56,427		33,587		189,118		118,105
Services		5,817		5,285		17,634		17,294
Total cost of revenue		62,244		38,872		206,752		135,399
Gross profit		48,161		30,581		145,609		99,836
Operating expenses:
Research and development		14,867		12,930		45,513		40,335
Sales and marketing		9,763		8,057		27,404		25,411
General and administrative		9,649		7,707		28,726		23,097
Total operating expenses		34,279		28,694		101,643		88,843
Income from operations		13,882		1,887		43,966		10,993
Other (expense) income:
Interest income		106		687		658		2,373
Interest expense		(1,296)		(1,308)		(3,898)		(3,849)
Other, net		900		(890)		701		(1,252)
Total other expense		(290)		(1,511)		(2,539)		(2,728)
Income before income taxes		13,592		376		41,427		8,265
Income tax provision (benefit)		2,807		(328)		6,119		943
Net income	$	10,785	$	704	$	35,308	$	7,322
Net income per share:
Basic	$	0.32	$	0.02	$	1.06	$	0.22
Diluted	$	0.32	$	0.02	$	1.04	$	0.22
Shares used in computing net income per share:
Basic weighted average common shares		33,477		32,344		33,159		32,584
Diluted weighted average common shares		34,174		33,323		34,070		33,821

See accompanying Notes to these Consolidated Financial Statements

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Axcelis Technologies, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income	$	10,785	$	704	$	35,308	$	7,322
Other comprehensive income (loss):
Foreign currency translation adjustments		1,437		(1,132)		1,161		(1,847)
Amortization of actuarial loss and other adjustments from pension plan		61		29		175		89
Total other comprehensive income (loss)		1,498		(1,103)		1,336		(1,758)
Comprehensive income (loss)	$	12,283	$	(399)	$	36,644	$	5,564

See accompanying Notes to these Consolidated Financial Statements

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Axcelis Technologies, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)


	September 30,		December 31,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	211,967	$	139,881
Accounts receivable, net		45,161		83,753
Inventories, net		159,658		140,364
Prepaid expenses and other current assets		18,982		11,681
Total current assets		435,768		375,679
Property, plant and equipment, net		29,199		25,328
Operating lease assets		4,655		5,849
Finance lease assets, net		20,872		21,880
Long-term restricted cash		750		6,653
Deferred income taxes		58,247		68,060
Other assets		41,165		44,645
Total assets	$	590,656	$	548,094
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	24,260	$	25,341
Accrued compensation		18,856		7,631
Warranty		4,151		2,759
Income taxes		328		294
Deferred revenue		13,118		24,601
Current portion of finance lease obligation		705		399
Other current liabilities		7,965		7,639
Total current liabilities		69,383		68,664
Long-term finance lease obligation		47,593		48,149
Long-term deferred revenue		3,851		4,650
Other long-term liabilities		9,166		7,204
Total liabilities		129,993		128,667
Commitments and contingencies (Note 16)
Stockholders’ equity:
Common stock, $0.001 par value, 75,000 shares authorized; 33,491 shares issued and outstanding at September 30, 2020; 32,585 shares issued and outstanding at December 31, 2019		33		33
Additional paid-in capital		566,195		559,878
Accumulated deficit		(106,643)		(140,226)
Accumulated other comprehensive income (loss)		1,078		(258)
Total stockholders’ equity		460,663		419,427
Total liabilities and stockholders’ equity	$	590,656	$	548,094

See accompanying Notes to these Consolidated Financial Statements

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Axcelis Technologies, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)


								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		Income (Loss)		Equity
Balance at December 31, 2018	32,558	$	33	$	565,116	$	(157,260)	$	448	$	408,337
Net income	—		—		—		6,062		—		6,062
Foreign currency translation adjustments	—		—		—		—		(495)		(495)
Change in pension obligation	—		—		—		—		30		30
Exercise of stock options	288		—		1,828		—		—		1,828
Issuance of restricted common shares, net of shares withheld	35		—		(281)		—		—		(281)
Stock-based compensation expense	—		—		1,672		—		—		1,672
Balance at March 31, 2019	32,881	$	33	$	568,335	$	(151,198)	$	(17)	$	417,153
Net income	—		—		—		556		—		556
Foreign currency translation adjustments	—		—		—		—		(219)		(219)
Change in pension obligation	—		—		—		—		29		29
Exercise of stock options	104		—		567		—		—		567
Issuance of shares under Employee Stock Purchase Plan	32		—		479		—		—		479
Issuance of restricted common shares, net of shares withheld	165		—		(1,310)		—		—		(1,310)
Stock-based compensation expense	—		—		2,246		—		—		2,246
Repurchase of common stock	(885)		(1)		(14,034)		—		—		(14,035)
Balance at June 30, 2019	32,297	$	32	$	556,283	$	(150,642)	$	(207)	$	405,466
Net income	—		—		—		704		—		704
Foreign currency translation adjustments	—		—		—		—		(1,132)		(1,132)
Change in pension obligation	—		—		—		—		29		29
Exercise of stock options	97		—		642		—		—		642
Issuance of restricted common shares, net of shares withheld	3		—		(11)		—		—		(11)
Stock-based compensation expense	—		—		2,149		—		—		2,149
Balance at September 30, 2019	32,397	$	32	$	559,063	$	(149,938)	$	(1,310)	$	407,847

See accompanying Notes to these Consolidated Financial Statements

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Axcelis Technologies, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)


								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		Income (Loss)		Equity
Balance at December 31, 2019	32,585	$	33	$	559,878	$	(140,226)	$	(258)	$	419,427
Net income	—		—		—		11,221		—		11,221
Foreign currency translation adjustments	—		—		—		—		(1,112)		(1,112)
Change in pension obligation	—		—		—		—		57		57
Exercise of stock options	540		1		4,498		—				4,499
Issuance of shares under Employee Stock Purchase Plan	1		—		19		—		—		19
Issuance of restricted common shares, net of shares withheld	69		—		(1,162)		—		—		(1,162)
Stock-based compensation expense	—		—		1,724		—		—		1,724
Repurchase of common stock	(358)		(1)		(5,775)		(1,725)		—		(7,501)
Balance at March 31, 2020	32,837	$	33	$	559,182	$	(130,730)	$	(1,313)	$	427,172
Net income	—		—		—		13,302		—		13,302
Foreign currency translation adjustments	—		—		—		—		836		836
Change in pension obligation	—		—		—		—		57		57
Exercise of stock options	343		—		2,783		—		—		2,783
Issuance of shares under Employee Stock Purchase Plan	21		—		490		—		—		490
Issuance of restricted common shares, net of shares withheld	232		—		(2,698)		—		—		(2,698)
Stock-based compensation expense	—		—		3,082		—		—		3,082
Balance at June 30, 2020	33,433	$	33	$	562,839	$	(117,428)	$	(420)	$	445,024
Net income	—		—		—		10,785		—		10,785
Foreign currency translation adjustments	—		—		—		—		1,437		1,437
Change in pension obligation	—		—		—		—		61		61
Exercise of stock options	53		—		458		—		—		458
Issuance of restricted common shares, net of shares withheld	5		—		(28)		—		—		(28)
Stock-based compensation expense	—		—		2,926		—		—		2,926
Balance at September 30, 2020	33,491	$	33	$	566,195	$	(106,643)	$	1,078	$	460,663

See accompanying Notes to these Consolidated Financial Statements

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Axcelis Technologies, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine months ended
	September 30,
	2020		2019
Cash flows from operating activities
Net income	$	35,308	$	7,322
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		7,346		5,583
Deferred income taxes		5,399		818
Stock-based compensation expense		7,727		6,140
Provision for excess and obsolete inventory		2,736		1,961
Changes in operating assets & liabilities:
Accounts receivable		39,109		29,232
Inventories		(18,611)		(16,602)
Prepaid expenses and other current assets		(2,704)		(155)
Accounts payable and other current liabilities		10,540		(22,887)
Deferred revenue		(12,292)		4,864
Income taxes		29		(185)
Other assets and liabilities		1,080		(16,436)
Net cash provided by (used in) operating activities		75,667		(345)

Cash flows from investing activities
Expenditures for property, plant and equipment and capitalized software		(5,567)		(11,064)
Net cash used in investing activities		(5,567)		(11,064)

Cash flows from financing activities
Net settlement on restricted stock grants		(3,888)		(1,602)
Repurchase of common stock		(7,501)		(14,035)
Proceeds from Employee Stock Purchase Plan		509		407
Principal payments on finance lease obligation		(252)		—
Proceeds from exercise of stock options		7,740		3,039
Net cash used in financing activities		(3,392)		(12,191)

Effect of exchange rate changes on cash and cash equivalents		(525)		871
Net increase (decrease) in cash, cash equivalents and restricted cash		66,183		(22,729)

Cash, cash equivalents and restricted cash at beginning of period		146,534		184,902
Cash, cash equivalents and restricted cash at end of period	$	212,717	$	162,173

See accompanying Notes to these Consolidated Financial Statements

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Axcelis Technologies, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Nature of Business

Axcelis Technologies, Inc. (“Axcelis” or the “Company”) was incorporated in Delaware in 1995, and is a producer of ion implantation equipment used in the fabrication of semiconductor chips in the United States, Europe and Asia. In addition, we provide extensive worldwide aftermarket service and support, including spare parts, equipment upgrades, used equipment and maintenance services to the semiconductor industry.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments which are of a normal recurring nature and considered necessary for a fair presentation of these financial statements have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for other interim periods or for the year as a whole.

The balance sheet at December 31, 2019 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, 2019.

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 (“RSUs”) 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 options granted under the 2000 Stock Plan, which have a 10-year term, remain outstanding and subject to the terms of the 2000 Stock Plan. We also maintain the Axcelis Technologies, Inc. 2020 Employee Stock Purchase Plan (the “2020 ESPP”), an Internal Revenue Code Section 423 plan.

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, 2019. Note 13 also describes our prior Employee Stock Purchase Plan which expired on June 30, 2020 (the “Prior ESPP”). No shares have yet been issued under the 2020 ESPP, but its terms are substantially the same as those of the Prior ESPP.

We recognized stock-based compensation expense of $2.9 million and $2.1 million for the three month periods ended September 30, 2020 and 2019, respectively. We recognized stock-based compensation expense of $7.7 million and $6.1 million for the nine month periods ended September 30, 2020 and 2019, respectively. These amounts include compensation expense related to RSUs, non-qualified stock options and stock issued to participants under the Prior ESPP.

In both the three month periods ended September 30, 2020 and 2019, we issued 0.1 million shares of common stock, respectively, upon stock option exercises and vesting of RSUs. In the three month periods ended September 30, 2020 and 2019, we received proceeds of $0.5 million and $0.6 million, respectively, in connection with the exercise of stock options and Prior ESPP purchases.

In the nine month periods ended September 30, 2020 and 2019, we issued 1.3 million and 0.7 million shares of common stock, respectively, upon stock option exercises, purchases under the Prior ESPP and vesting of RSUs. In the nine month periods ended September 30, 2020 and 2019, we received proceeds of $8.3 million and $3.4 million, respectively, in connection with the exercise of stock options and Prior ESPP purchases.

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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 as a result of the 2015 sale-leaseback of our corporate headquarters in Beverly, Massachusetts. All new agreements are reviewed to determine if they contain a lease component. A lease is a contract or part of a contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. We recognize the lease obligation on a discounted basis using the explicit or implicit discount rate stated within the agreement. We recognize a corresponding right-of-use asset, which is initially determined based upon the net present value of the associated liability and is adjusted for deferred costs and possible impairment, if any. For those lease agreements that do not indicate the applicable discount rate, we use our incremental borrowing rate. We have made the following policy elections: (i) operating leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet; (ii) we recognize lease expense for operating leases on a straight-line basis over the lease term; and (iii) we account for lease components and non-lease components that are fixed payments as one component. Some of our operating leases include one or more options to renew, with renewal terms that can 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 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:


		September 30,		December 31,
Leases	Classification	2020		2019

Assets		(in thousands)
Operating lease	Operating lease assets	$	4,655	$	5,849
Finance lease	Finance lease assets *		20,872		21,880
Total leased assets		$	25,527	$	27,729
Liabilities
Current
Operating	Other current liabilities	$	2,632	$	3,144
Finance	Current portion of finance lease obligation		705		399
Noncurrent
Operating	Other long-term liabilities		1,955		2,553
Finance	Finance lease obligation		47,593		48,149
Total lease liabilities		$	52,885	$	54,245

* Finance lease assets are recorded net of accumulated depreciation of $48.1 million and include $0.7 million of prepaid financing costs as of September 30, 2020. Finance lease assets are recorded net of accumulated depreciation of $47.4 million and include $0.7 million of prepaid financing costs as of December 31, 2019.

All of our operating lease office locations support selling and servicing functions. 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, 2020 and 2019 as follows:

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		Three months ended				Nine months ended
		September 30,				September 30,
Lease cost	Classification	2020		2019		2020		2019

Operating lease cost		(in thousands)
Service	Cost of revenue	$	601	$	552	$	1,776	$	1,732
Research and development	Operating expenses		137		80		347		232
Sales and marketing*	Operating expenses		347		338		1,024		1,037
General and administrative*	Operating expenses		213		207		648		608
Total operating lease cost		$	1,298	$	1,177	$	3,795	$	3,609
Finance lease cost
Depreciation of leased assets	Cost of revenue, R&D, Sales and marketing and G&A	$	328	$	332	$	1,009	$	997
Interest on lease liabilities	Interest expense		1,296		1,308		3,898		3,849
Total finance lease cost		$	1,624	$	1,640	$	4,907	$	4,846

Total lease cost		$	2,922	$	2,817	$	8,702	$	8,455

* Sales and marketing, general and administrative expense includes short-term lease and variable lease costs of approximately $0.3 million and $0.8 million for the three and nine months ended September 30, 2020, respectively and 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 in our calculation of our lease obligations and right-of-use assets as of September 30, 2020:


	Finance		Operating		Total
Maturity of Lease Liabilities	Leases		Leases		Leases

	(in thousands)
2020	$	1,433	$	935	$	2,368
2021		5,848		2,447		8,295
2022		5,980		1,128		7,108
2023		6,114		337		6,451
2024		6,252		98		6,350
Thereafter