Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements within "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements that involve risks and uncertainties. Words such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such forward-looking statements. The forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Factors that might cause such a difference include, among other things, those set forth under "Liquidity and Capital Resources" below and under “Risk Factors” in Part I, Item 1A to our annual report on Form 10-K for the year ended December 31, 2019 , in Part II, Item 1A of our Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, and in Part II, Item 1A to this report on Form 10-Q, which discussion is incorporated herein by reference. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as may be required by law.
Overview
We are primarily a producer of ion implantation equipment used in the fabrication of semiconductor chips in the United States, Europe and Asia. In addition, we provide extensive worldwide aftermarket service and support, including spare parts, equipment upgrades and maintenance services to the semiconductor industry. Our product development and manufacturing activities occur primarily in the United States. Our equipment and service products are highly technical and are sold through a direct sales force in the United States, Europe and Asia. Consolidation and partnering within the semiconductor manufacturing industry has resulted in a small number of customers representing a substantial portion of our business. Our ten largest customers accounted for 76.3% of total revenue for the nine months ended September 30, 2020.
In the first nine months of 2020, we delivered strong financial performance driven by demand for our Purion systems. The semiconductor supply chain was identified as a critical infrastructure sector in the Advisory Memorandum issued by the U.S. Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (“CISA”) on March 19, 2020 and updated on March 28, 2020. CISA’s list has been incorporated in orders by the Governor of Massachusetts and other states, which urge critical infrastructure sector businesses to continue to operate despite governmental restrictions imposed on general business operations during the COVID-19 pandemic. Accordingly, Axcelis has continued to operate throughout 2020, with a combination of work from home and the implementation of protocols for social distancing and other practices in our facilities, as recommended by the U.S. Centers for Disease Control and Prevention. Business travel has been substantially curtailed. Operations outside of the U.S. have also been conducted in accordance with applicable local governmental laws and public health recommendations. We are closely monitoring the impact of the pandemic on our business and will adjust operations as needed.
The ultimate consequence of the pandemic on the semiconductor industry will be the aggregation of both positive and negative forces on various customer market segments . For example, the pandemic is driving enhanced investment in PCs, video streaming and communications technologies. On the other hand, it has dampened the demand for semiconductors for some automotive and industrial applications. Our customers are adapting to the changes in the demand for different types of semiconductors, which could cause uncertainty and ultimately a delay in investments that could impact Axcelis. However, we are continuing to work closely with our customers across market segments, even during this difficult time, to provide them with the best ion implant solutions for their specific manufacturing challenges.
Currently implemented, and potential additional disruptions and restrictions on our operations and ability to travel, including similar disruptions and restrictions impacting our suppliers or customers, could adversely affect our sales and operating results. Axcelis’ products rely on an extensive global supply chain, and shortages of certain parts could impact our ability to meet customers’ shipment expectations, negatively affecting our revenues. The COVID-19 pandemic may drive changes in the demand for certain of our customers’ products, resulting in a delay or cancelation of purchases from us. Travel restrictions imposed by various countries during the pandemic may also impact our ability, and our customers’ readiness, to have purchased systems installed on planned schedules, causing delays. The extent to which COVID-19 may impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including the severity and duration of the current pandemic. We managed to achieve strong performance in the first nine months of
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2020, despite the pandemic-related business risks described in this paragraph. At this time, however, there can be no assurance that these risks will not affect our future performance.
Effective June 29, 2020, the U.S. Commerce Department adopted a rule, Export Administration Regulations Section 744.21, which requires U.S. exporters to obtain U.S. licenses to ship listed products to customers in China who are military end users or that support military end use (the “MEU Rule”). Several types of semiconductor equipment, including certain ion implanters and specially designed parts, not generally restricted for shipment to China, were included in the list of products subject to the MEU Rule. Subsequently, on September 25, 2020, the Commerce Department sent certain semiconductor equipment exporters, including Axcelis, a letter regarding Semiconductor Manufacturing International Corporation (“SMIC”), indicating that the U.S. government was reviewing SMIC and its subsidiaries in relation to the MEU Rule, and required the exporters to submit applications for licenses prior to shipping MEU listed products to SMIC or its subsidiaries.
Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations included herein and in our Annual Report on Form 10-K for the year ended December 31, 2019 are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions. Management’s estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management has not identified any need to make any material change in, and has not changed, any of our critical accounting estimates and judgments as described in Management’s Discussion and Analysis of Financial Conditions and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2019.
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Results of Operations
The following table sets forth our results of operations as a percentage of total revenue:
Three months ended
Nine months ended
September 30,
September 30,
2020
2019
2020
2019
Revenue:
Product
94.9
%
92.6
%
94.8
%
92.3
%
Services
5.1
7.4
5.2
7.7
Total revenue
100.0
100.0
100.0
100.0
Cost of revenue:
Product
51.1
48.4
53.7
50.2
Services
5.3
7.6
5.0
7.4
Total cost of revenue
56.4
56.0
58.7
57.6
Gross profit
43.6
44.0
41.3
42.4
Operating expenses:
Research and development
13.5
18.6
12.9
17.1
Sales and marketing
8.8
11.6
7.8
10.8
General and administrative
8.7
11.1
8.2
9.8
Total operating expenses
31.0
41.3
28.9
37.7
Income from operations
12.6
2.7
12.4
4.7
Other (expense) income:
Interest income
0.1
1.0
0.2
1.0
Interest expense
(1.2)
(1.9)
(1.1)
(1.6)
Other, net
0.8
(1.3)
0.2
(0.5)
Total other expense
(0.3)
(2.2)
(0.7)
(1.1)
Income before income taxes
12.3
0.5
11.7
3.6
Income tax provision (benefit)
2.5
(0.5)
1.7
0.4
Net income
9.8
%
1.0
%
10.0
%
3.2
%
Revenue
The following table sets forth our product and services revenue:
Three months ended
Period-to-Period
Nine months ended
Period-to-Period
September 30,
Change
September 30,
Change
2020
2019
$
%
2020
2019
$
%
(dollars in thousands)
Revenue:
Product
$
104,799
$
64,290
$
40,509
63.0
%
$
334,126
$
217,201
$
116,925
53.8
%
Percentage of revenue
94.9
%
92.6
%
94.8
%
92.3
%
Services
5,606
5,163
443
8.6
%
18,235
18,034
201
1.1
%
Percentage of revenue
5.1
%
7.4
%
5.2
%
7.7
%
Total revenue
$
110,405
$
69,453
$
40,952
59.0
%
$
352,361
$
235,235
$
117,126
49.8
%
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Three months ended September 30, 2020 Compared with Three months ended September 30, 2019
Product
Product revenue, which includes systems sales, sales of spare parts, product upgrades and used systems was $104.8 million, or 94.9% of revenue during the three months ended September 30, 2020, compared with $64.3 million, or 92.6% of revenue for the three months ended September 30, 2019. The $40.5 million increase in product revenue for the three month period ending September 30, 2020, in comparison to the same period in 2019, was primarily driven by an increase in the number of systems sold.
A portion of our revenue from systems sales is deferred until installation and other services related to future performance obligations are performed. The total amount of deferred revenue at September 30, 2020 and December 31, 2019 was $17.0 million and $29.3 million, respectively. The net decrease in deferred revenue was primarily due to the recognition of revenue on tools that were paid in advance.
Services
Services revenue, which includes the labor component of maintenance and service contracts and fees for service hours provided by on-site service personnel, was $5.6 million, or 5.1% of revenue for the three months ended September 30, 2020, compared with $5.2 million, or 7.4% of revenue for the three months ended September 30, 2019. Although services revenue typically increases with the expansion of the installed base of systems, it can fluctuate from period to period based on capacity utilization at customers’ manufacturing facilities, which affects the need for equipment service.
Nine months ended September 30, 2020 Compared with Nine months ended September 30, 2019
Product
Product revenue was $334.1 million, or 94.8% of revenue during the nine months ended September 30, 2020, compared with $217.2 million, or 92.3% of revenue for the nine months ended September 30, 2019. The $116.9 million increase in product revenue for the nine month period ended September 30, 2020, in comparison to the same period in 2019, was primarily driven by an increase in the number of systems sold.
Services
Services revenue was $18.2 million, or 5.2% of revenue for the nine months ended September 30, 2020, compared with $18.0 million, or 7.7% of revenue for the nine months ended September 30, 2019.
Revenue Categories used by Management
In addition to the line item revenue categories discussed above, management also regularly disaggregates revenue in the following categories, which it finds relevant and useful:
● Ion implant revenue separate from revenue from legacy non-implant product lines, given that ion implantation systems are the primary driver of our growth and strategic objectives;
● Systems and Aftermarket revenues, in which “Aftermarket” is
A. the portion of Product revenue relating to spare parts, product upgrades and used equipment combined with
B. Services revenue, which is the labor component of Aftermarket revenues;
Aftermarket purchases reflect current fab utilization as opposed to Systems purchases which reflect capital investment decisions by our customers, which have differing economic drivers;
● Revenue by geographic regions, since economic factors impacting customer purchasing decisions may
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vary by geographic region; and
● Revenue by our customer market segments, since they can be subject to different economic drivers at different periods of time, impacting a customer’s likelihood of purchasing capital equipment during any particular period. Currently, management references three customer market segments: memory, mature technology processes and leading edge foundry and logic.
The ion implant and Aftermarket revenue categories for recent periods are discussed below.
Three months ended September 30, 2020 Compared with Three months ended September 30, 2019
Ion Implant
Included in total revenue of $110.4 million during the three months ended September 30, 2020 is revenue from sales of ion implant products and services of $106.0 million, or 96.0% of total revenue, compared with $65.2 million, or 93.9%, of total revenue for the three months ended September 30, 2019. The remaining $4.4 million of revenue for the three months ended September 30, 2020 was non-ion implant parts and services.
Aftermarket
Included in total revenue of $110.4 million during the three months ended September 30, 2020 is revenue from our Aftermarket business of $40.2 million, compared to $32.6 million for the three months ended September 30, 2019. The remaining $70.2 million of revenue for the three months ended September 30, 2020 was from system sales. Aftermarket revenue fluctuates from period to period based on capacity utilization at customers’ manufacturing facilities, which affects the sale of spare parts and demand for equipment service. Aftermarket revenue can also fluctuate from period to period based on the demand for system upgrades or used equipment.
Nine months ended September 30, 2020 Compared with Nine months ended September 30, 2019
Ion Implant
Included in total revenue of $352.4 million during the nine months ended September 30, 2020 is revenue from sales of ion implant products and services of $339.8 million, or 96.4% of total revenue, compared with $222.4 million, or 94.5%, of total revenue for the nine months ended September 30, 2019. The remaining $12.6 million of revenue for the nine months ended September 30, 2020 was non-ion implant parts and services.
Aftermarket
Included in total revenue of $352.4 million during the nine months ended September 30, 2020 is revenue from our Aftermarket business of $123.0 million, compared to $104.1 million for the nine months ended September 30, 2019. The remaining $229.4 million of revenue for the nine months ended September 30, 2020 was from system sales.
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Gross Profit / Gross Margin
The following table sets forth our gross profit / gross margin:
Three months ended
Period-to-Period
Nine months ended
Period-to-Period
September 30,
Change
September 30,
Change
2020
2019
$
%
2020
2019
$
%
(dollars in thousands)
Gross Profit:
Product
$
48,372
$
30,703
$
17,669
57.5
%
$
145,008
$
99,096
$
45,912
46.3
%
Product gross margin
46.2
%
47.8
%
43.4
%
45.6
%
Services
(211)
(122)
(89)
(73.0)
%
601
740
(139)
(18.8)
%
Services gross margin
(3.8)
%
(2.4)
%
3.3
%
4.1
%
Total gross profit
$
48,161
$
30,581
$
17,580
57.5
%
$
145,609
$
99,836
$
45,773
45.8
%
Gross margin
43.6
%
44.0
%
41.3
%
42.4
%
Three months ended September 30, 2020 Compared with Three months ended September 30, 2019
Product
Gross margin from product revenue was 46.2% for the three months ended September 30, 2020, compared to 47.8% for the three months ended September 30, 2019. The decrease in gross margin resulted from a decreased mix of higher margin parts and upgrades and changes in the mix of Purion systems.
Services
Gross margin from services revenue was (3.8)% for the three month periods ended September 30, 2020, compared to (2.4)% for the three months ended September 30, 2019. The decrease in gross margin is attributable to changes in the mix of service contracts.
Nine months ended September 30, 2020 Compared with Nine months ended September 30, 2019
Product
Gross margin from product revenue was 43.4% for the nine months ended September 30, 2020, compared to 45.6% for the nine months ended September 30, 2019. The decrease in gross margin resulted from a decreased mix of higher margin parts and upgrades and changes in the mix of Purion systems.
Services
Gross margin from services revenue was 3.3% for the nine months ended September 30, 2020, compared to 4.1% for the nine months ended September 30, 2019. The decrease in gross margin is attributable to changes in the mix of service contracts.
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Operating Expenses
The following table sets forth our operating expenses:
Three months ended
Period-to-Period
Nine months ended
Period-to-Period
September 30,
Change
September 30,
Change
2020
2019
$
%
2020
2019
$
%
(dollars in thousands)
Research and development
$
14,867
$
12,930
$
1,937
15.0
%
$
45,513
$
40,335
$
5,178
12.8
%
Percentage of revenue
13.5
%
18.6
%
12.9
%
17.1
%
Sales and marketing
9,763
8,057
1,706
21.2
%
27,404
25,411
1,993
7.8
%
Percentage of revenue
8.8
%
11.6
%
7.8
%
10.8
%
General and administrative
9,649
7,707
1,942
25.2
%
28,726
23,097
5,629
24.4
%
Percentage of revenue
8.7
%
11.1
%
8.2
%
9.8
%
Total operating expenses
$
34,279
$
28,694
$
5,585
19.5
%
$
101,643
$
88,843
$
12,800
14.4
%
Percentage of revenue
31.0
%
41.3
%
28.9
%
37.7
%
Our operating expenses consist primarily of personnel costs, including salaries, commissions, expected incentive plan payouts, stock-based compensation and related benefits and taxes; project material costs related to the design and development of new products and enhancement of existing products; and professional fees, travel and depreciation expenses.
Personnel costs are our largest expense, representing $22.2 million or 64.8% of our total operating expenses for the three month period ended September 30, 2020, compared to $16.9 million or 58.5% of our total operating expenses for the three month period ended September 30, 2019. Personnel costs were $65.0 million or 63.9% of our total operating expenses for the nine month period ended September 30, 2020, compared to $52.6 million or 59.0% of our total operating expenses for the nine month period ended September 30, 2019. The higher personnel costs for the three and nine month periods ended September 30, 2020 are primarily due to higher incentive based pay expense.
Research and Development
Three months ended
Period-to-Period
Nine months ended
Period-to-Period
September 30,
Change
September 30,
Change
2020
2019
$
%
2020
2019
$
%
(dollars in thousands)
Research and development
$
14,867
$
12,930
$
1,937
15.0
%
$
45,513
$
40,335
$
5,178
12.8
%
Percentage of revenue
13.5
%
18.6
%
12.9
%
17.1
%
Our ability to remain competitive depends largely on continuously developing innovative technology, with new and enhanced features and systems and introducing them at competitive prices on a timely basis. Accordingly, based on our strategic plan, we establish annual R&D budgets to fund programs that we expect will solve customers’ high value, high impact, ion implantation challenges.
Three months ended September 30, 2020 Compared with Three months ended September 30, 2019
Research and development expense was $14.9 million during the three months ended September 30, 2020, an increase of $1.9 million, or 15.0%, compared with $12.9 million during the three months ended September 30, 2019. The increase is primarily due to higher incentive based pay expense, supplies and materials costs for ongoing projects and increased depreciation associated with capital additions.
Nine months ended September 30, 2020 Compared with Nine months ended September 30, 2019
Research and development expense was $45.5 million during the nine months ended September 30, 2020, an increase of $5.2 million, or 12.8%, compared with $40.3 million during the nine months ended September 30, 2019. The increase is primarily due to higher incentive based pay expense and costs for ongoing projects and increased depreciation associated with capital additions.
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Sales and Marketing
Three months ended
Period-to-Period
Nine months ended
Period-to-Period
September 30,
Change
September 30,
Change
2020
2019
$
%
2020
2019
$
%
(dollars in thousands)
Sales and marketing
$
9,763
$
8,057
$
1,706
21.2
%
$
27,404
$
25,411
$
1,993
7.8
%
Percentage of revenue
8.8
%
11.6
%
7.8
%
10.8
%
Our sales and marketing expenses result primarily from the sale of our equipment and services through our direct sales force.
Three months ended September 30, 2020 Compared with Three months ended September 30, 2019
Sales and marketing expense was $9.8 million during the three months ended September 30, 2020, an increase of $1.7 million, or 21.2%, compared with $8.1 million during the three months ended September 30, 2019. The increase is primarily due to higher incentive based pay and commission expense.
Nine months ended September 30, 2020 Compared with Nine months ended September 30, 2019
Sales and marketing expense was $27.4 million during the nine months ended September 30, 2020, an increase of $2.0 million, or 7.8%, compared with $25.4 million during the nine months ended September 30, 2019. The increase is primarily due to higher incentive based pay expense.
General and Administrative
Three months ended
Period-to-Period
Nine months ended
Period-to-Period
September 30,
Change
September 30,
Change
2020
2019
$
%
2020
2019
$
%
(dollars in thousands)
General and administrative
$
9,649
$
7,707
$
1,942
25.2
%
$
28,726
$
23,097
$
5,629
24.4
%
Percentage of revenue
8.7
%
11.1
%
8.2
%
9.8
%
Our general and administrative expenses result primarily from the costs associated with our executive, finance, information technology, legal and human resource functions.
Three months ended September 30, 2020 Compared with Three months ended September 30, 2019
General and administrative expense was $9.6 million during the three months ended September 30, 2020, an increase of $1.9 million, or 25.2%, compared with $7.7 million during the three months ended September 30, 2019. The increase is primarily due to an increase in incentive based pay expense.
Nine months ended September 30, 2020 Compared with Nine months ended September 30, 2019
General and administrative expense was $28.7 million during the nine months ended September 30, 2020, an increase of $5.6 million, or 24.4%, compared with $23.1 million during the nine months ended September 30, 2019. The increase is primarily due to an increase in incentive based pay expense.
Other (Expense) Income
Three months ended
Period-to-period
Nine months ended
Period-to-period
September 30,
change
September 30,
change
2020
2019
$
%
2020
2019
$
%
(dollars in thousands)
Other expense
$
(290)
$
(1,511)
$
(1,221)
(80.8)
%
$
(2,539)
$
(2,728)
$
(189)
(6.9)
%
Percentage of revenue
(0.3)
%
(2.2)
%
(0.7)
%
(1.1)
%
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Other (expense) income consists primarily of interest expense relating to the finance lease obligation we incurred in connection with the 2015 sale of our headquarters facility and other financing obligations, foreign exchange gains and losses attributable to fluctuations of the US dollar against local currencies of certain of the countries in which we operate as well as interest earned on our invested cash balances.
Other expense was $0.3 million for the three months ended September 30, 2020, compared with $1.5 million for the three months ended September 30, 2019. The decrease in other expense of $1.2 million for the three month period ended September 30, 2020 compared to the three month period ended September 30, 2019, was primarily due to foreign currency exchange gains of $0.8 million in the current year period compared to foreign currency exchange losses of $0.7 million in the same period in the prior year. This was partially offset by a reduction of $0.6 million in interest income for the three month period ended September 30, 2020 compared to the three month period ended September 30, 2019.
Other expense was $2.5 million for the nine months ended September 30, 2020, compared with $2.7 million for the nine months ended September 30, 2019. The decrease in other expense of $0.2 million for the nine month period ended September 30, 2020 compared to the nine month period ended September 30, 2019, was primarily due to foreign currency exchange gains, slightly offset by reduced interest income in the current year period compared to foreign currency exchange losses in the prior year.
During the nine month periods ended September 30, 2020 and 2019, we had no significant off-balance-sheet risk such as exchange contracts, option contracts or other hedging arrangements.
Income Tax Provision
Three months ended
Period-to-period
Nine months ended
Period-to-period
September 30,
change
September 30,
change
2020
2019
$
%
2020
2019
$
%
(dollars in thousands)
Income tax provision (benefit)
$
2,807
$
(328)
$
3,135
955.8
%
$
6,119
$
943
$
5,176
548.9
%
Percentage of revenue
2.5
%
(0.5)
%
1.7
%
0.4
%
Income tax expense was $2.8 million for the three months ended September 30, 2020, compared to a $0.3 million benefit for the three months ended September 30, 2019. The $3.1 million increase was primarily due to a $13.2 million increase in pretax income. The income tax provision was $6.1 million during the nine months ended September 30, 2020, compared to $0.9 million for the nine months ended September 30, 2019. The $5.2 million increase was primarily due to a $33.2 million increase in pretax income partially offset by a $2.0 million tax benefit relating to equity compensation. The effective tax rate for the three and nine months ended September 30, 2020 and 2019, respectively, was less than the U.S. statutory rate of 21% due to favorable discrete items related to equity compensation in those periods and Federal research and development tax credits that reduce the annual tax rate.
We had $58.2 million and $68.1 million of net deferred tax assets worldwide relating to net operating loss carryforwards, tax credit carryforwards and other temporary differences, as of September 30, 2020 and December 31, 2019, respectively. These deferred tax assets are available to reduce income taxes in future years. We have a $9.2 million valuation allowance in the U.S. against certain tax credits and state net operating losses due to the uncertainty of their realization based on long-term Company forecasts and the expiration dates on these tax assets. If future operating results of the Company within the U.S. or these foreign jurisdictions are significantly less than our expectations, it is reasonably possible that we would be required to record an additional valuation allowance on our deferred tax assets in the future.
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic
Security Act ("CARES Act"). The CARES Act, among other things, includes certain income tax provisions for individuals and corporations, however, these benefits do not materially impact our income tax provision.
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Liquidity and Capital Resources
We had $212.0 million in unrestricted cash and cash equivalents at September 30, 2020, in addition to $0.8 million in restricted cash. Management believes that maintaining a strong cash balance is necessary to provide funding for potential ramps in our business which can require significant cash investment to meet sudden demand. Additionally, we are considering both organic and inorganic opportunities to drive future growth, for which cash resources will be necessary.
Our liquidity is affected by many factors. Some of these relate specifically to the operations of our business, for example, the rate of sale of our products, and others relate to the uncertainties of global economic conditions, including the availability of credit and the condition of the overall semiconductor equipment industry. Our established cost structure, other than cost of goods sold, does not vary significantly with changes in volume. We experience fluctuations in operating results and cash flows depending on these factors. We may also engage in stock repurchases, as discussed below.
During the nine months ended September 30, 2020, we generated $75.7 million of cash related to operating activities. In comparison, during the nine months ended September 30, 2019, we used $0.3 million of cash from operations.
Investing activities for the nine months ended September 30, 2020 and 2019 resulted in cash outflows of $5.6 million and $11.1 million, respectively, used for capital expenditures.
Financing activities for the nine months ended September 30, 2020 resulted in a cash usage of $3.4 million. During the first nine months of 2020, $7.5 million in cash was used to repurchase our common stock and $3.9 million was used for payments to government tax authorities for income tax withholding on employee compensation arising from the vesting of RSUs, where shares are withheld by the Company, as well as $0.3 million relating to the reduction of the liability under the finance lease of our corporate headquarters. These amounts were partially offset by $8.3 million of proceeds from the exercise of stock options and purchases under the ESPP, during the first nine months of 2020. In comparison, financing activities for the nine months ended September 30, 2019 resulted in cash usage of $12.2 million, $14.0 million of which related to the repurchase of our common stock and $1.6 million related to payments made to government tax authorities for income tax withholding on employee compensation arising from the vesting of RSUs. These amounts were partially offset by $3.4 million of proceeds related to the exercise of stock options and purchase of shares under our ESPP during the first nine months of 2019.
Under the rules of the U.S. Securities and Exchange Commission (the “SEC”), we qualify as a “well-known seasoned issuer,” which allows us to file shelf registration statements to register an unspecified amount of securities that are effective upon filing. On May 29, 2020, we filed such a shelf registration statement with the SEC for the issuance of an unspecified amount of common stock, preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, from time to time at prices and on terms to be determined at the time of any such offering. This registration statement was effective upon filing and will remain in effect for up to three years from filing, prior to which time we may file another shelf registration statement to maintain the availability of this financing option.
On July 31, 2020, we entered into a Senior Secured Credit Facilities Credit Agreement (the “Credit Agreement”) with Silicon Valley Bank. 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 September 30, 2020, we were in compliance with all covenant requirements of the Credit Agreement. As of such date, no borrowings had been made under the Credit Agreement, although a letter of credit for $5.9 million, previously issued by Silicon Valley Bank, had been rolled under the Credit Agreement, reducing the funds available for borrowing under the credit line. We have no immediate plans to borrow under the Credit Agreement, but we will use the facility for letters of credit, for ongoing working capital needs and to fund general corporate purposes, as desired.
We believe that based on our current market, revenue, expense and cash flow forecasts, our existing cash, cash equivalents and equity and debt financing capacity will be sufficient to satisfy our anticipated cash requirements for the short and long-term.
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Commitments and Contingencies
Significant commitments and contingencies at September 30, 2020 are consistent with those discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 16 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As of September 30, 2020, there have been no material changes to the quantitative information about market risk disclosed in Item 7A to our Annual Report on Form 10-K for the year ended December 31, 2019.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.