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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 March 31, 2024

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 of
incorporation or organization)

(IRS Employer
Identification No.)

108 Cherry Hill Drive

Beverly, Massachusetts 01915

(Address of principal executive offices, including zip code)

(978787-4000

(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 April 30, 2024, there were 32,532,498 shares of the registrant’s common stock outstanding.

Table of Contents

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023

3

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023

4

Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

5

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023

6

Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

7

Notes to Consolidated Financial Statements (Unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Overview

20

Critical Accounting Estimates

20

Results of Operations

21

Liquidity and Capital Resources

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

PART II - OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

28

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

29

2

Table of Contents

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,

    

2024

    

2023

    

Revenue:

Product

$

243,418

$

246,007

Services

 

8,954

 

8,013

Total revenue

 

252,372

 

254,020

Cost of revenue:

Product

 

127,912

 

142,771

Services

 

8,409

 

7,230

Total cost of revenue

 

136,321

 

150,001

Gross profit

 

116,051

 

104,019

Operating expenses:

Research and development

 

25,662

 

23,773

Sales and marketing

 

17,445

 

14,144

General and administrative

 

16,405

 

14,745

Total operating expenses

 

59,512

 

52,662

Income from operations

 

56,539

 

51,357

Other income (expense):

Interest income

 

5,516

 

3,936

Interest expense

 

(1,346)

 

(1,353)

Other, net

 

(1,710)

 

(1,038)

Total other income

 

2,460

 

1,545

Income before income taxes

 

58,999

 

52,902

Income tax provision

 

7,404

 

5,205

Net income

$

51,595

$

47,697

Net income per share:

Basic

$

1.58

$

1.46

Diluted

$

1.57

$

1.43

Shares used in computing net income per share:

Basic weighted average shares of common stock

 

32,638

 

32,744

Diluted weighted average shares of common stock

 

32,926

 

33,293

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

3

Table of Contents

Axcelis Technologies, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Three months ended

March 31,

    

2024

    

2023

    

Net income

$

51,595

$

47,697

Other comprehensive (loss) / income:

Foreign currency translation adjustments

 

(1,731)

 

50

Amortization of actuarial net gain and other adjustments from pension plan, net of tax

 

5

 

Total other comprehensive (loss) / income

(1,726)

50

Comprehensive income

$

49,869

$

47,747

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

4

Table of Contents

Axcelis Technologies, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)

    

March 31,

    

December 31,

 

2024

2023

 

ASSETS

Current assets:

Cash and cash equivalents

$

133,963

$

167,297

Short-term investments

 

396,228

 

338,851

Accounts receivable, net

 

208,544

 

217,964

Inventories, net

 

312,170

 

306,482

Prepaid expenses and other current assets

 

54,544

 

49,397

Total current assets

 

1,105,449

 

1,079,991

Property, plant and equipment, net

 

53,032

 

53,971

Operating lease assets

29,557

30,716

Finance lease assets, net

16,310

16,632

Long-term restricted cash

 

6,652

 

6,654

Deferred income taxes

54,525

53,428

Other assets

 

41,094

 

40,575

Total assets

$

1,306,619

$

1,281,967

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

39,853

$

54,400

Accrued compensation

 

16,413

 

31,445

Warranty

 

14,355

 

14,098

Income taxes

 

26,850

 

6,164

Deferred revenue

 

164,700

 

164,677

Current portion of finance lease obligation

 

1,503

 

1,511

Other current liabilities

 

12,894

 

12,834

Total current liabilities

 

276,568

 

285,129

Long-term finance lease obligation

 

43,328

 

43,674

Long-term deferred revenue

 

43,718

 

46,208

Other long-term liabilities

 

41,262

 

42,074

Total liabilities

 

404,876

 

417,085

Commitments and contingencies (Note 17)

Stockholders’ equity:

Common stock, $0.001 par value, 75,000 shares authorized; 32,605 shares issued and outstanding at March 31, 2024; 32,685 shares issued and outstanding at December 31, 2023

 

33

 

33

Additional paid-in capital

 

546,979

 

547,189

Retained earnings

 

358,303

 

319,506

Accumulated other comprehensive loss

 

(3,572)

 

(1,846)

Total stockholders’ equity

 

901,743

 

864,882

Total liabilities and stockholders’ equity

$

1,306,619

$

1,281,967

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

5

Table of Contents

Axcelis Technologies, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

Accumulated

 

Additional

Other

Total

 

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

Earnings

    

(Loss)

    

Equity

 

Balance at December 31, 2022

32,775

$

33

$

550,299

$

118,892

$

(1,968)

$

667,256

Net income

 

 

 

 

47,697

 

 

47,697

Foreign currency translation adjustments

 

 

 

 

 

50

 

50

Exercise of stock options

 

2

 

 

25

 

 

 

25

Issuance of common stock on restricted stock units, net of shares withheld

 

56

 

 

(3,907)

 

 

 

(3,907)

Stock-based compensation expense

 

 

3,199

 

 

 

3,199

Repurchase of common stock

 

(107)

 

 

(1,924)

 

(10,575)

 

 

(12,499)

Balance at March 31, 2023

 

32,726

$

33

$

547,692

$

156,014

$

(1,918)

$

701,821

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Earnings

    

(Loss)

    

Equity

Balance at December 31, 2023

32,685

$

33

$

547,189

$

319,506

$

(1,846)

$

864,882

Net income

 

 

 

 

51,595

 

 

51,595

Foreign currency translation adjustments

 

 

 

 

 

(1,731)

 

(1,731)

Change in pension obligation

 

 

 

 

 

5

 

5

Issuance of common stock on restricted stock units, net of shares withheld

 

42

 

 

(2,699)

 

 

 

(2,699)

Stock-based compensation expense

 

 

4,690

 

 

 

4,690

Repurchase of common stock

 

(122)

 

 

(2,201)

 

(12,798)

 

 

(14,999)

Balance at March 31, 2024

 

32,605

$

33

$

546,979

$

358,303

$

(3,572)

$

901,743

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

6

Table of Contents

Axcelis Technologies, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three months ended

March 31,

    

2024

    

2023

    

Cash flows from operating activities

Net income

$

51,595

$

47,697

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

3,775

 

3,100

Deferred income taxes

 

(1,097)

 

(3,621)

Stock-based compensation expense

 

4,690

 

3,199

Provision for doubtful accounts

(459)

Provision for excess and obsolete inventory

 

1,445

 

1,069

Accretion of discounts and premiums on marketable securities

(3,306)

(2,840)

Currency loss on foreign denominated transactions

6,560

1,343

Changes in operating assets and liabilities:

Accounts receivable

 

7,042

 

(20,762)

Inventories

 

(11,427)

 

(21,105)

Prepaid expenses and other current assets

 

(5,489)

 

(4,794)

Accounts payable and other current liabilities

 

(29,118)

 

(22,976)

Deferred revenue

 

(1,963)

 

47,160

Income taxes

 

21,374

 

8,891

Other assets and liabilities

 

(1,399)

 

(1,802)

Net cash provided by operating activities

 

42,223

 

34,559

Cash flows from investing activities

Expenditures for property, plant and equipment and capitalized software

 

(1,620)

 

(2,240)

Purchase of short-term investments

 

(145,121)

 

(61,809)

Maturities of short-term investments

 

91,050

 

31,000

Net cash used in investing activities

 

(55,691)

 

(33,049)

Cash flows from financing activities

Net settlement on restricted stock grants

 

(2,699)

 

(3,907)

Repurchase of common stock

 

(14,999)

 

(12,499)

Principal payments on finance lease obligation

(357)

(289)

Proceeds from exercise of stock options

25

Net cash used in financing activities

 

(18,055)

 

(16,670)

Effect of exchange rate changes on cash and cash equivalents

 

(1,813)

 

(55)

Net decrease in cash, cash equivalents and restricted cash

 

(33,336)

 

(15,215)

Cash, cash equivalents and restricted cash at beginning of period

 

173,951

 

186,347

Cash, cash equivalents and restricted cash at end of period

$

140,615

$

171,132

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

7

Table of Contents

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, 2023 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 March 31, 2024, there have been no material changes in the Company’s significant accounting policies, other than with respect to the Company’s accounting policy for derivative financial instruments, which it had not held in prior periods, as described in Note 2 below. 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, 2023, filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2024, as amended by Amendment No. 1 thereto, filed with the SEC on February 28, 2024 (as so amended, the “2023 Form 10-K”).

Note 2. Significant Accounting Policies

Derivative instruments

We are exposed to certain risks relating to our ongoing business operations, including market risks relating to fluctuations in foreign currency exchange rates. We have entered into forward exchange contracts in order to mitigate risks associated with fluctuations in exchange rates on forecasted transactions denominated in foreign currencies and to minimize the impact of foreign currency fluctuations on our earnings and cash flows. These contracts have month-to-month settlement dates. As of March 31, 2024, we had open contracts with a notional value of $100 million. We measure these instruments at fair value and recognize assets or liabilities associated with the intrinsic value on these open contracts on the Consolidated Balance Sheets at the end of each reporting period. At March 31, 2024, the recognized unrealized gain on these forward exchange contracts was approximately $18 thousand and is included in other current assets within our Consolidated Balance Sheets. Unrealized gains and losses are shown in our cash flows from operating activities within our Consolidated Statement of Cash Flows. We have not designated these forward exchange contracts as hedging instruments and we record changes in the fair values at each measurement date in Other, net on the Consolidated Statements of Operations. For the three months ended March 31, 2024, we recorded $1.5 million of gain on forward currency exchange contracts.

We do not offset fair value amounts of derivative instruments. We do not use derivative instruments for speculative purposes.

Note 3.  Stock-Based Compensation

We maintain the Axcelis Technologies, Inc. 2012 Equity Incentive Plan, as amended (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.

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The 2012 Equity Plan is more fully described in Note 13 to the consolidated financial statements in our 2023 Form 10-K.

We recognized stock-based compensation expense of $4.7 million and $3.2 million for the three-month periods ended March 31, 2024 and 2023, respectively. These amounts include compensation expense related to RSUs and non-qualified stock options.

In the three-month period ended March 31, 2024, we issued 41,941 shares of common stock upon vesting of RSUs. In the three-month period ended March 31, 2023, we issued 57,604 shares of common stock upon vesting of RSUs and stock option exercises. In the three-month period ended March 31, 2024, we received no proceeds in connection with the exercise of stock options. In the three-month period ended March 31, 2023, we received proceeds of $25.0 thousand in connection with the exercise of stock options.

Note 4.  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 sheets; (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:

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March 31,

December 31,

Leases

Classification

2024

    

2023

    

 

Assets

(in thousands)

 

Operating leases

Operating lease assets

$

29,557

$

30,716

Finance lease

Finance lease assets*

 

16,310

 

16,632

Total leased assets

$

45,867

$

47,348

Liabilities

Current

Operating

Other current liabilities

$

4,645

$

4,978

Finance

Current portion of finance lease obligation

1,503

1,511

Non-current

Operating

Other long-term liabilities

24,963

25,724

Finance

Finance lease obligation

 

43,328

 

43,674

Total lease liabilities

$

74,439

$

75,887

*Finance lease assets are recorded net of accumulated depreciation of $46.7 million and include $0.6 million of prepaid financing costs as of March 31, 2024. Finance lease assets are recorded net of accumulated depreciation of $46.4 million and include $0.6 million of prepaid financing costs as of December 31, 2023.

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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 101,800 square foot logistics and flex manufacturing center was built to our specifications in Beverly, Massachusetts. 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, 2024 and 2023 as follows:

Three months ended

 

March 31,

Lease cost

Classification

2024

    

2023

 

Operating lease cost

(in thousands)

 

Product / services*

Cost of revenue

$

1,828

$

1,466

Research and development

Operating expenses

 

123

 

106

Sales and marketing*

Operating expenses

 

451

 

396

General and administrative*

Operating expenses

 

194

 

276

Total operating lease cost

$

2,596

$

2,244

Finance lease cost

Depreciation of leased assets

Cost of revenue, Research and development, Sales and marketing and General and administrative

$

319

$

319

Interest on lease liabilities

Interest expense

 

1,197

 

1,231

Total finance lease cost

$

1,516

$

1,550

Total lease cost

$

4,112

$

3,794

* 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 $0.5 million for the three months ended March 31, 2024 and 2023, 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 16 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, 2024:

Finance

Operating

    

Total

 

Maturity of Lease Liabilities

Leases

Leases

Leases

(in thousands)

2024

$

4,698

$

4,979

$

9,677

2025

 

5,930

 

3,484

 

9,414

2026

 

6,008

 

2,443

 

8,451

2027

 

6,128

 

1,915

 

8,043

2028

6,251

22,730

28,981

Thereafter

55,336

42,139

97,475

Total lease payments

$

84,351

$

77,690

$

162,041

Less interest portion*

(39,520)

(48,082)

(87,602)

Finance lease and operating lease obligations

$

44,831

$

29,608

$

74,439

* 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.

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March 31,

Lease term and discount rate

    

2024

Weighted-average remaining lease term (years):

Operating leases

11.5

Finance leases

 

12.8

Weighted-average discount rate:

Operating leases

 

5.5%

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 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 three months ended March 31, 2024 and 2023, respectively:

Three months ended March 31,

Cash paid for amounts included in the measurement of lease liabilities

    

2024

    

2023

(in thousands)

Operating cash outflows from operating leases

$

2,596

$

2,244

Operating cash outflows from finance leases

 

1,197

 

1,231

Financing cash outflows from finance leases

 

357

 

289

Operating lease assets obtained in exchange for operating lease liabilities

 

632

 

757

Finance lease assets obtained in exchange for new finance lease liabilities

 

 

Note 5. Revenue

To reflect the organization of our business operations, we divide revenue into two categories: revenue from sales of new systems and revenue arising from the sale of used systems, parts and labor to customers who own systems, which we refer to as “Aftermarket.”

Revenue by categories used by management are as follows:

Three months ended

March 31,

2024

2023

(in thousands)

Systems

$

195,432

$

195,198

Aftermarket

56,940

58,822

Total Revenue

$

252,372

$

254,020

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We also consider revenue by geography. Revenue is allocated to geographic markets based upon the location to which our products are shipped and in which our services are performed. Revenue in our principal geographic markets is as follows:

Three months ended

March 31,

2024

2023

(in thousands)

North America

$

45,503

$

45,166

Asia Pacific

188,217

191,103

Europe

18,652

17,751

Total Revenue

$

252,372

$

254,020

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,

2024

2023

(in thousands)

Contract liabilities

$

208,418

$

210,885

Contract liabilities are reflected as deferred revenue on the consolidated balance sheets and include payments received in advance of system sales as well as deferral of revenue from systems sales for installation and other future performance obligations. Contract liabilities are recognized as revenue upon the fulfillment of performance obligations.

Three months ended

March 31,

   

2024

2023

(in thousands)

Balance, beginning of the period

$

210,885

$

154,777

Deferral of revenue

42,974

88,048

Recognition of deferred revenue

(45,441)

(41,100)

Balance, end of the period

$

208,418

$

201,725

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%, with the remainder due upon shipment, less 10% due 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 6.  Receivables and Allowances for Credit Losses

All trade receivables are reported on the consolidated balance sheets at their amortized cost adjusted for any write-offs and net of allowances for credit losses.

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

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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 $0.5 million of recovery of bad debt expense for the three-month period ended March 31, 2024. We did not have any allowance or incur any credit losses or recoveries for the three-month period ended March 31, 2023. As of both March 31, 2024 and 2023, we had no provision for credit losses.

Note 7.  Computation of Net Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of 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:

Three months ended

March 31,

    

2024

    

2023

    

Net income available to common stockholders

$

51,595

$

47,697

Weighted average shares of common stock outstanding used in computing basic income per share

 

32,638

 

32,744

Incremental options and RSUs

 

288

 

549

Weighted average shares of common stock used in computing diluted net income per share

 

32,926

 

33,293

Net income per share

Basic

$

1.58

$

1.46

Diluted

$

1.57

$

1.43

Diluted weighted average shares of common stock outstanding does not include 19,548 and 1,120 common equivalent shares issuable with respect to outstanding equity awards for the three-month periods ended March 31, 2024 and 2023, respectively, as their effect would have been anti-dilutive.

Note 8.  Accumulated Other Comprehensive Loss

The following table presents the changes in accumulated other comprehensive loss, net of tax, by component, for the three months ended March 31, 2024:

    

Foreign

    

Defined benefit

    

 

currency

pension plan

Total

 

(in thousands)

 

Balance at December 31, 2023

$

(1,956)

$

110

$

(1,846)

Other comprehensive loss and pension reclassification

 

(1,731)

 

5

 

(1,726)

Balance at March 31, 2024

$

(3,687)

$

115

$

(3,572)

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Note 9. Cash, cash equivalents and restricted cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the total of the amounts shown in the statement of cash flows:

March 31,

December 31,

2024

2023

(in thousands)

Cash and cash equivalents

$

133,963

$

167,297

Long-term restricted cash

6,652

6,654

Total cash, cash equivalents and restricted cash

$

140,615

$

173,951

As of March 31, 2024, 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 13 for further discussion on the $5.9 million cash collateral.

Note 10.  Inventories, net

The components of inventories are as follows:

March 31,

December 31,

    

2024

    

2023

    

(in thousands)

Raw materials

$

236,480

$

231,200

Work in process

 

47,455

 

45,373

Finished goods (completed systems)

 

28,235

 

29,909

Inventories, net

$

312,170

$

306,482

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 our 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 11.  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, if applicable, defer the portion of systems revenue attributable to 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,

    

2024

    

2023

    

(in thousands)

Balance at January 1 (beginning of year)

$

16,757

$

10,487

Warranties issued during the period

 

2,809

 

2,629

Settlements made during the period

 

(3,022)

 

(2,587)

Changes in estimate of liability for pre-existing warranties during the period

 

88

 

865

Balance at March 31 (end of period)

$

16,632

$

11,394

Amount classified as current

$

14,355

$

9,599

Amount classified as long-term (within other long-term liabilities)

 

2,277

 

1,795

Total warranty liability

$

16,632

$

11,394

Note 12.  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:

March 31, 2024

 

Fair Value Measurements

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

(in thousands)

 

Assets

Cash equivalents and other short-term investments:

Cash equivalents (money market funds, U.S. Government Securities and Agency Investments)

$

74,229

$

$

$

74,229

Short-term investments (U.S. Government Securities and Agency Investments)

396,154

396,154

Mark-to-market adjustment on forward exchange contracts

18

18

Total

$

470,383

$

18

$

$

470,401

December 31, 2023

 

Fair Value Measurements

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

(in thousands)

 

Assets

Cash equivalents and other short-term investments:

Cash equivalents (money market funds, U.S. Government Securities and Agency Investments)

$

118,278

$