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 March 31, 2022

☐

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, $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 May 2, 2022, there were 33,020,420 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 months ended March 31, 2022 and 2021	3
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021	4
	Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	5
	Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021	7
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	Overview	18
	Critical Accounting Estimates	18
	Results of Operations	19
	Liquidity and Capital Resources	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II - OTHER INFORMATION		26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	27

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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
	March 31,
	2022		2021
Revenue:
Product	$	196,531	$	126,609
Services		7,064		6,167
Total revenue		203,595		132,776
Cost of revenue:
Product		107,642		70,334
Services		6,187		6,007
Total cost of revenue		113,829		76,341
Gross profit		89,766		56,435
Operating expenses:
Research and development		16,973		15,685
Sales and marketing		11,291		10,387
General and administrative		12,579		10,013
Total operating expenses		40,843		36,085
Income from operations		48,923		20,350
Other (expense) income:
Interest income		95		33
Interest expense		(1,518)		(1,029)
Other, net		(1,617)		(1,153)
Total other expense		(3,040)		(2,149)
Income before income taxes		45,883		18,201
Income tax provision		4,269		1,721
Net income	$	41,614	$	16,480
Net income per share:
Basic	$	1.25	$	0.49
Diluted	$	1.22	$	0.48
Shares used in computing net income per share:
Basic weighted average common shares		33,245		33,715
Diluted weighted average common shares		33,974		34,643

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

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Axcelis Technologies, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)


	Three months ended
	March 31,
	2022		2021
Net income	$	41,614	$	16,480
Other comprehensive loss:
Foreign currency translation adjustments		(1,186)		(1,372)
Amortization of actuarial gain and other adjustments from pension plan, net of tax		9		20
Total other comprehensive loss		(1,177)		(1,352)
Comprehensive income	$	40,437	$	15,128

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

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Axcelis Technologies, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)


	March 31,		December 31,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	297,141	$	294,923
Accounts receivable, net		118,987		104,410
Inventories, net		203,838		194,984
Prepaid expenses and other current assets		28,740		24,929
Total current assets		648,706		619,246
Property, plant and equipment, net		35,500		34,972
Operating lease assets		9,403		9,242
Finance lease assets, net		18,914		19,238
Long-term restricted cash		755		757
Deferred income taxes		36,226		35,454
Other assets		32,692		34,331
Total assets	$	782,196	$	753,240
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	50,759	$	38,025
Accrued compensation		10,538		30,732
Warranty		7,203		6,424
Income taxes		1,734		887
Deferred revenue		60,477		60,454
Current portion of finance lease obligation		1,039		979
Other current liabilities		15,747		12,639
Total current liabilities		147,497		150,140
Long-term finance lease obligation		46,128		46,415
Long-term deferred revenue		14,363		7,982
Other long-term liabilities		14,935		9,744
Total liabilities		222,923		214,281
Commitments and contingencies (Note 16)
Stockholders’ equity:
Common stock, $0.001 par value, 75,000 shares authorized; 33,064 shares issued and outstanding at March 31, 2022; 33,240 shares issued and outstanding at December 31, 2021		33		33
Additional paid-in capital		554,633		559,883
Retained earnings (accumulated deficit)		4,019		(22,722)
Accumulated other comprehensive income		588		1,765
Total stockholders’ equity		559,273		538,959
Total liabilities and stockholders’ equity	$	782,196	$	753,240

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

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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, 2020	33,633	$	34	$	570,102	$	(91,969)	$	3,435	$	481,602
Net income	—		—		—		16,480		—		16,480
Foreign currency translation adjustments	—		—		—		—		(1,372)		(1,372)
Change in pension obligation	—		—		—		—		20		20
Exercise of stock options	268		—		2,512		—		—		2,512
Issuance of common shares on restricted stock units, net of shares withheld	81		—		(2,354)		—		—		(2,354)
Stock-based compensation expense	—		—		2,407		—		—		2,407
Repurchase of common stock	(303)		—		(5,468)		(6,167)		—		(11,635)
Balance at March 31, 2021	33,679	$	34	$	567,199	$	(81,656)	$	2,083	$	487,660


						(Accumulated		Accumulated
				Additional		Deficit)		Other		Total
	Common Stock			Paid-in		Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		Income (Loss)		Equity
Balance at December 31, 2021	33,240	$	33	$	559,883	$	(22,722)	$	1,765	$	538,959
Net income	—		—		—		41,614		—		41,614
Foreign currency translation adjustments	—		—		—		—		(1,186)		(1,186)
Change in pension obligation	—		—		—		—		9		9
Exercise of stock options	41		—		491		—				491
Issuance of common shares on restricted stock units, net of shares withheld	67		—		(3,315)		—		—		(3,315)
Stock-based compensation expense	—		—		2,701		—		—		2,701
Repurchase of common stock	(284)		—		(5,127)		(14,873)		—		(20,000)
Balance at March 31, 2022	33,064	$	33	$	554,633	$	4,019	$	588	$	559,273

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

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Axcelis Technologies, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three months ended
	March 31,
	2022		2021
Cash flows from operating activities
Net income	$	41,614	$	16,480
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,848		2,645
Deferred income taxes		2,252		1,613
Stock-based compensation expense		2,701		2,407
Provision for excess and obsolete inventory		1,027		984
Changes in operating assets and liabilities:
Accounts receivable		(15,199)		10,431
Inventories		(11,490)		(16,503)
Prepaid expenses and other current assets		(1,852)		(3,325)
Accounts payable and other current liabilities		(3,582)		(1,008)
Deferred revenue		6,418		(909)
Income taxes		858		2
Other assets and liabilities		175		2,281
Net cash provided by operating activities		25,770		15,098

Cash flows from investing activities
Expenditures for property, plant and equipment and capitalized software		(1,503)		(1,347)
Net cash used in investing activities		(1,503)		(1,347)

Cash flows from financing activities
Net settlement on restricted stock grants		(3,315)		(2,354)
Repurchase of common stock		(20,000)		(11,635)
Principal payments on finance lease obligation		(229)		(175)
Proceeds from exercise of stock options		491		2,512
Net cash used in financing activities		(23,053)		(11,652)

Effect of exchange rate changes on cash and cash equivalents		1,002		1,188
Net increase in cash, cash equivalents and restricted cash		2,216		3,287

Cash, cash equivalents and restricted cash at beginning of period		295,680		204,232
Cash, cash equivalents and restricted cash at end of period	$	297,896	$	207,519

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

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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, 2021 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Axcelis Technologies, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021.

Note 2. Stock-Based Compensation

We maintain the Axcelis Technologies, Inc. 2012 Equity Incentive Plan, as amended (the “2012 Equity Plan”), an Internal Revenue Code Section 423 plan, which became effective on May 2, 2012, and permits the issuance of options, restricted stock, restricted stock units (“RSUs”) and performance awards to selected employees, directors and consultants of the Company.

The 2012 Equity Plan is more fully described in Note 13 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.

We recognized stock-based compensation expense of $2.7 million and $2.4 million for the three-month periods ended March 31, 2022 and 2021, respectively. These amounts include compensation expense related to RSUs and non-qualified stock options.

In the three-month periods ended March 31, 2022 and 2021, we issued 0.1 million and 0.3 million shares of common stock, respectively, upon stock option exercises and vesting of RSUs. In the three-month periods ended March 31, 2022 and 2021, we received proceeds of $0.5 million and $2.5 million, respectively, in connection with the exercise of stock options.

Note 3. Leases

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

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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 one to five years. The exercise of lease renewal options is 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:


		March 31,		December 31,
Leases	Classification	2022		2021

Assets		(in thousands)
Operating leases	Operating lease assets	$	9,403	$	9,242
Finance lease	Finance lease assets *		18,914		19,238
Total leased assets		$	28,317	$	28,480
Liabilities
Current
Operating	Other current liabilities	$	5,106	$	4,716
Finance	Current portion of finance lease obligation		1,039		979
Noncurrent
Operating	Other long-term liabilities		4,170		4,357
Finance	Finance lease obligation		46,128		46,415
Total lease liabilities		$	56,443	$	56,467

*Finance lease assets are recorded net of accumulated depreciation of $48.9 million and includes $0.6 million of prepaid financing costs as of March 31, 2022. Finance lease assets are recorded net of accumulated depreciation of $48.6 million and includes $0.7 million of prepaid financing costs as of December 31, 2021.

All of our operating lease office locations support selling and servicing functions. Our Axcelis Asia Operations Center facility in South Korea brings production capability closer to our Asia-based customers. Operating lease expense and depreciation and interest expense relating to our finance lease obligation are recognized within our consolidated statement of operations for the three months ended March 31, 2022 and 2021 as follows:

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		Three months ended
		March 31,
Lease cost	Classification	2022		2021

Operating lease cost		(in thousands)
Product / Services	Cost of revenue	$	1,210	$	639
Research and development	Operating expenses		56		130
Sales and marketing*	Operating expenses		418		378
General and administrative*	Operating expenses		211		260
Total operating lease cost		$	1,895	$	1,407
Finance lease cost
Depreciation of leased assets	Cost of revenue, R&D, Sales and marketing and G&A	$	324	$	328
Interest on lease liabilities	Interest expense		1,258		1,279
Total finance lease cost		$	1,582	$	1,607

Total lease cost		$	3,477	$	3,014

* Sales and marketing and general and administrative expense also includes short-term lease and variable lease costs of approximately $0.5 million and $0.4 million for the three months ended March 31, 2022 and 2021, 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 ten 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 March 31, 2022:


	Finance		Operating		Total
Maturity of Lease Liabilities	Leases		Leases		Leases

	(in thousands)
2022	$	4,493	$	4,075	$	8,568
2023		6,114		3,188		9,302
2024		6,252		1,032		7,284
2025		5,930		718		6,648
2026		6,008		482		6,490
Thereafter		67,715		78		67,793
Total lease payments	$	96,512	$	9,573	$	106,085
Less interest portion*		(49,345)		(297)		(49,642)
Finance lease and operating lease obligations	$	47,167	$	9,276	$	56,443

* Finance lease interest calculated using the implied interest rate; operating lease interest calculated using estimated corporate borrowing rate.

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	March 31,
Lease term and discount rate	2022
Weighted-average remaining lease term (years):
Operating leases		2.6
Finance leases		14.8
Weighted-average discount rate:
Operating leases		4.5%
Finance leases		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 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 for the three months ending March 31, 2022 and 2021, respectively:



	Three months ended March 31,
Cash paid for amounts included in the measurement of lease liabilities	2022		2021

	(in thousands)
Operating cash outflows from operating leases	$	1,896	$	1,407
Operating cash outflows from finance leases		1,258		1,279
Financing cash outflows from finance leases		229		175
Operating lease assets obtained in exchange for operating lease liabilities		1,638		791
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:


	Three months ended
	March 31,
	2022		2021

	(in thousands)
Systems	$	151,801	$	80,991
Aftermarket		51,794		51,785
Total Revenue	$	203,595	$	132,776

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:

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	Three months ended
	March 31,
	2022		2021

	(in thousands)
North America	$	24,913	$	9,508
Asia Pacific		149,240		103,391
Europe		29,442		19,877
Total Revenue	$	203,595	$	132,776

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:


	March 31,		December 31,
	2022		2021

	(in thousands)
Contract liabilities	$	74,840	$	68,436

Contract liabilities are reflected as deferred revenue on the consolidated balance sheet and relate to payments invoiced or received in advance of completion of performance obligations under a contract. Contract liabilities are recognized as revenue upon the fulfillment of performance obligations.


	Three months ended
	March 31,
	2022		2021

	(in thousands)
Balance, beginning of the period	$	68,436	$	23,058
Deferral of revenue		23,394		11,264
Recognition of deferred revenue		(16,990)		(12,180)
Balance, end of the period	$	74,840	$	22,142

The majority of our system transactions have payment terms of 90% due upon shipment of the system and 10% due upon acceptance. Aftermarket transaction payment terms usually 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.

Axcelis maintains an allowance for credit losses, which represent an estimate of expected losses over the remaining contractual life of our receivables, considering current market conditions and estimates for supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing assessments and evaluations of collectability, historical loss experience, and future expectations in estimating credit losses in our receivable portfolio. Axcelis uses historical loss experience rates and applies them to a related aging analysis while also considering customer and/or economic risk where appropriate. Determination of the proper amount of allowances requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and, as a result, net earnings. The allowance takes into consideration numerous quantitative and qualitative factors that include receivable type, historical loss experience, loss migration, delinquency trends, collection experience, current economic conditions, estimates for supportable forecasts, when appropriate, and credit risk characteristics.

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Axcelis evaluates the credit risk of the customer when extending credit based on a combination of various financial and qualitative factors that may affect our customers’ ability to pay. These factors may include the customer’s financial condition, past payment experience, and credit bureau report, as well as the value of the underlying collateral.

Management performs detailed reviews of Axcelis’ receivables on a quarterly basis to assess the adequacy of the allowances and to determine if any impairment has occurred. Amounts determined to be uncollectable are charged directly against the allowances, while amounts recovered on previously written-off accounts increase the allowances. Changes to the allowances for credit losses are maintained through adjustments to the provision for credit losses, which are charged to current period earnings.

The following table shows changes of the allowances for credit losses related to trade receivables for the three months ended March 31, 2022 and 2021, respectively:


	Three months ended
	March 31,
	2022		2021

	(in thousands)
Balance, beginning of period	$	—	$	—
Provision for credit losses		—		—
Charge-offs		—		—
Recoveries		—		—
Balance, end of period	$	—	$	—

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 common shares outstanding (the denominator) for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased by the number of additional common shares that would have been outstanding if the potentially dilutive common shares issuable on exercise of stock options and vesting of RSUs had been issued, calculated using the treasury stock method.

The components of net earnings per share are as follows:


	Three months ended
	March 31,
	2022		2021

	(in thousands, except per share amounts)
Net income available to common stockholders	$	41,614	$	16,480
Weighted average common shares outstanding used in computing basic income per share		33,245		33,715
Incremental options and RSUs		729		928
Weighted average common shares used in computing diluted net income per share		33,974		34,643
Net income per share
Basic	$	1.25	$	0.49
Diluted	$	1.22	$	0.48

Diluted weighted average common shares outstanding does not include 4,706 and 1,429 common equivalent shares issuable with respect to outstanding equity awards for the three-month periods ended March 31, 2022 and 2021, respectively, as their effect would have been anti-dilutive.

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Note 7. Accumulated Other Comprehensive Income

The following table presents the changes in accumulated other comprehensive income, net of tax, by component, for the three months ended March 31, 2022:


	Foreign		Defined benefit
	currency		pension plan		Total

	(in thousands)
Balance at December 31, 2021	$	2,064	$	(299)	$	1,765
Other comprehensive loss and pension reclassification		(1,186)		9		(1,177)
Balance at March 31, 2022	$	878	$	(290)	$	588

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:


	March 31,		December 31,
	2022			2021

	(in thousands)
Cash and cash equivalents	$	297,141	$	294,923
Long-term restricted cash		755		757
Total cash, cash equivalents and restricted cash	$	297,896	$	295,680

As of March 31, 2022, we had $0.8 million in restricted cash representing the total of (i) cash collateral for a $0.7 million letter of credit relating to workers’ compensation insurance and (ii) a $0.1 million deposit relating to customs activity.

Note 9. Inventories, net

The components of inventories are as follows:


	March 31,		December 31,
	2022		2021

	(in thousands)
Raw materials	$	140,138	$	133,784
Work in process		45,537		43,164
Finished goods (completed systems)		18,163		18,036
Inventories, net	$	203,838	$	194,984

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.

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The changes in our standard product warranty liability are as follows:


	Three months ended
	March 31,
	2022		2021

	(in thousands)
Balance at January 1 (beginning of year)	$	6,924	$	4,612
Warranties issued during the period		2,140		1,288
Settlements made during the period		(1,430)		(968)
Changes in estimate of liability for pre-existing warranties during the period		375		(192)
Balance at March 31 (end of period)	$	8,009	$	4,740

Amount classified as current	$	7,203	$	4,181
Amount classified as long-term		806		559
Total warranty liability	$	8,009	$	4,740

Note 11. 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.

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The following table sets forth our assets by level within the fair value hierarchy:


	March 31, 2022
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total

	(in thousands)
Assets
Cash equivalents:
Money market funds, U.S. Government Securities and Agency Investments	$	264,892	$	—	$	—	$	264,892


	December 31, 2021
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total

	(in thousands)
Assets
Cash equivalents:
Money market funds, U.S. Government Securities and Agency Investments	$	261,090	$	—	$	—	$	261,090

(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 $47.2 million as of March 31, 2022. 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. 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 reduces our availability under our credit facility, as described in the next paragraph.

On July 31, 2020, we entered into a Senior Secured Credit Facilities Credit Agreement (the “Credit Agreement”) with Silicon Valley Bank, in its capacity as administrative agent and collateral agent for itself and as a lender, and such other banks and financial institutions or entities that from time to time join as lenders under the Credit Agreement. The Credit Agreement provides for a revolving credit facility in an aggregate principal amount not to exceed $40.0 million. Our obligations under the Credit Agreement are secured by a security interest, senior to any current and future debts and to any security interest, in all of our rights, title, and interest in, to and under substantially all of our assets, subject to limited exceptions, including permitted liens. The revolving credit facility terminates on July 31, 2023. As of March 31, 2022, we were in compliance with all covenant requirements of the Credit Agreement. As of such date,