What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-05 · 99 added, 45 removed, 139 unchanged (51% of the section changed)

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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 64.7% of total revenue for the three months ended March 31, 2023.

The first three months of 2023 exhibited continued strong demand for our capital equipment, despite a downturn in the memory segment of our industry that is causing other semiconductor equipment makers to experience lower revenues than the same period in the prior year.

Our ten largest customers accounted for 57.6% of total revenue for the six months ended June 30, 2023.

The first half of 2023 exhibited continued strong demand for our capital equipment, despite a downturn in the memory segment of our industry that is causing other semiconductor equipment makers to experience lower revenues than the same period in the prior year.

Supply chain performance improved, but has not completely recovered from the challenges seen in prior periods.

Axcelis’ strong results in the first three months of 2023 demonstrate our ability to meet demand and manage supply chain difficulties.

Our performance is closely related to the growing mature process technology market, with 89% of shipments during the first three months of 2023 going to mature foundry/logic customers.

Axcelis’ strong results in the first half of 2023 demonstrate our ability to meet demand and manage supply chain difficulties.

Our performance is closely related to the growing mature process technology market, with 93% of shipments during the first half of 2023 going to mature foundry/logic customers.

Critical Accounting Estimates

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Total revenue

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Percentage of revenue

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Total revenue

Product revenue, which includes systems sales, sales of spare parts, product upgrades and used systems was $246.0 million, or 96.8% of revenue, during the three months ended March 31, 2023, compared with $196.5 million, or 96.5% of revenue, for the three months ended March 31, 2022.

The $49.5 million increase in product revenue for the three-month period ending March 31, 2023, in comparison to the same period in 2022, was primarily driven by an increase in systems revenue.

Three months ended June 30, 2023 Compared with Three months ended June 30, 2022

Product revenue, which includes systems sales, sales of spare parts, product upgrades and used systems was $265.7 million, or 97.0% of revenue, during the three months ended June 30, 2023, compared with $213.9 million, or 96.7% of revenue, for the three months ended June 30, 2022.

The $51.7 million increase in product revenue for the three-

month period ended June 30, 2023, in comparison to the same period in 2022, was primarily driven by an increase in the number of systems sold.

Deferred revenue includes payments received in advance of system sales as well as deferral of revenue from systems sales for installation and other future performance obligations.

The total amount of deferred revenue at March 31, 2023 and December 31, 2022 was $201.7 million and $154.7 million, respectively.

The total amount of deferred revenue at June 30, 2023 and December 31, 2022 was $182.5 million and $154.7 million, respectively.

The increase in deferred revenue was primarily due to payments received in advance of sales.

Services revenue, which includes the labor component of maintenance and service contracts and fees for service hours provided by on-site service personnel, was $8.0 million, or 3.2% of revenue, for the three months ended March 31, 2023, compared with $7.1 million, or 3.5% of revenue, for the three months ended March 31, 2022.

Services revenue, which includes the labor component of maintenance and service contracts and fees for service hours provided by on-site service personnel, was $8.3 million, or 3.0% of revenue, for the three months ended June 30, 2023, compared with $7.3 million, or 3.3% of revenue, for the three months ended June 30, 2022.

Although services revenue typically increases with the expansion of the installed base of systems, it can fluctuate from period to period based on capacity utilization at customers’ manufacturing facilities, which affects the need for equipment service.

Six months ended June 30, 2023 Compared with Six months ended June 30, 2022

Product revenue was $511.7 million, or 96.9% of revenue, during the six months ended June 30, 2023, compared with $410.5 million, or 96.6% of revenue, for the six months ended June 30, 2022.

The $101.2 million increase in product revenue for the six-month period ended June 30, 2023, in comparison to the same period in 2022, was primarily driven by an increase in the number of systems sold.

Services revenue was $16.3 million, or 3.1% of revenue, for the six months ended June 30, 2023, compared with $14.3 million, or 3.4% of revenue, for the six months ended June 30, 2022.

Revenue Categories used by Management

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Aftermarket and Systems Revenue

Included in total revenue of $254.0 million during the three months ended March 31, 2023 is revenue from our Aftermarket business of $58.8 million, compared with $51.8 million of Aftermarket revenue for the three months ended March 31, 2022.

Three months ended June 30, 2023 Compared with Three months ended June 30, 2022

Included in total revenue of $274.0 million during the three months ended June 30, 2023 is revenue from our Aftermarket business of $58.8 million, compared with $55.8 million of Aftermarket revenue for the three months ended June 30, 2022.

Aftermarket revenue fluctuates from period to period based on capacity utilization at customers’ manufacturing facilities, which affects the sale of spare parts and demand for equipment service.

Aftermarket revenue can also fluctuate from period to period based on the demand for system upgrades or used equipment.

The remaining $195.2 million of revenue for the three months ended March 31, 2023 was from system sales, compared with $151.8 million of systems revenue for the three months ended March 31, 2022.

The remaining $215.2 million of revenue for the three months ended June 30, 2023 was from system sales, compared with $165.4 million of systems revenue for the three months ended June 30, 2022.

Systems revenue fluctuates from period to period based on our customers’ capital spending.

Six months ended June 30, 2023 Compared with Six months ended June 30, 2022

Included in total revenue of $528.0 million during the six months ended June 30, 2023 is revenue from our Aftermarket business of $117.6 million, compared with $107.6 million of Aftermarket revenue for the six months ended June 30, 2022.

The remaining $410.4 million of revenue for the six months ended June 30, 2023 was from system sales, compared with $317.2 million of systems revenue for the six months ended June 30, 2022.

Gross Profit / Gross Margin

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Total gross profit

Gross margin from product revenue was 42.0% for the three months ended March 31, 2023, compared to 45.2% for the three months ended March 31, 2022.

The decrease in gross margin primarily resulted from a less favorable mix of system shipments and to a lessor extent, higher supply chain costs.

Gross margin from services revenue was 9.8% for the three months ended March 31, 2023, compared to 12.4% for the three months ended March 31, 2022.

Three months ended June 30, 2023 Compared with Three months ended June 30, 2022

Gross margin from product revenue was 44.8% for the three months ended June 30, 2023, compared to 45.9% for the three months ended June 30, 2022.

The decrease in gross margin primarily resulted from a less favorable mix of system revenue.

Gross margin from services revenue was 9.3% for the three months ended June 30, 2023, compared to 13.9% for the three months ended June 30, 2022.

The decrease in gross margin is attributable to changes in the mix of service contracts .

Six months ended June 30, 2023 Compared with Six months ended June 30, 2022

Gross margin from product revenue was 43.4% for the six months ended June 30, 2023, compared to 45.6% for the six months ended June 30, 2022.

The decrease in gross margin primarily resulted from a less favorable mix of system revenue.

Gross margin from services revenue was 9.5% for the six months ended June 30, 2023, compared to 13.2% for the six months ended June 30, 2022.

The decrease in gross margin is attributable to changes in the mix of service contracts .

Operating Expenses

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Research and development

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and professional fees, travel and depreciation expenses.

Personnel costs are our largest expense, representing $30.7 million or 58.2%, of our total operating expenses for the three months ended March 31, 2023, compared to $24.2 million or 59.2%, of our total operating expenses for the three months ended March 31, 2022.

The higher personnel costs for the three months ended March 31, 2023 are primarily due to increases in personnel-related expenses to support growth.

Personnel costs are our largest expense, representing $33.8 million, or 60.4%, of our total operating expenses for the three months ended June 30, 2023, compared to $27.4 million, or 60.9%, of our total operating expenses for the three months ended June 30, 2022.

Personnel costs were $64.5 million, or 59.3% of our total operating expenses for the six months ended June 30, 2023, compared to $51.6 million, or 60.1% of our total operating expenses for the six months ended June 30, 2022.

The higher personnel costs for the three and six months ended June 30, 2023 are primarily due to increases in personnel-related expenses to support growth.

Research and Development

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Research and development

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Accordingly, based on our strategic plan, we establish annual research and development budgets to fund programs that we expect will solve customers’ high value, high impact, ion implantation challenges.

Research and development expense was $23.8 million during the three months ended March 31, 2023, an increase of $6.8 million, or 40.1%, compared with $17.0 million during the three months ended March 31, 2022.

Three months ended June 30, 2023 Compared with Three months ended June 30, 2022

Research and development expense was $24.1 million during the three months ended June 30, 2023, an increase of $5.4 million, or 28.8%, compared with $18.7 million during the three months ended June 30, 2022.

The increase is primarily due to higher personnel expenses as well as an increase in the cost of project materials and related services for ongoing projects.

Six months ended June 30, 2023 Compared with Six months ended June 30, 2022

Research and development expense was $47.9 million during the six months ended June 30, 2023, an increase of $12.2 million, or 34.2%, compared with $35.7 million during the six months ended June 30, 2022.

The increase is primarily due to higher personnel expenses as well as an increase in the cost of project materials and related services for ongoing projects.

Sales and Marketing

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Sales and marketing

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Our sales and marketing expenses result primarily from the sale of our equipment and services through our direct sales force.

Sales and marketing expense was $14.1 million during the three months ended March 31, 2023, an increase of $2.9 million, or 25.3%, compared with $11.3 million during the three months ended March 31, 2022.

Three months ended June 30, 2023 Compared with Three months ended June 30, 2022

Sales and marketing expense was $15.5 million during the three months ended June 30, 2023, an increase of $2.8 million, or 22.3%, compared with $12.7 million during the three months ended June 30, 2022.

The increase is primarily due to higher personnel expenses and travel-related expense.

Six months ended June 30, 2023 Compared with Six months ended June 30, 2022

Sales and marketing expense was $29.7 million during the six months ended June 30, 2023, an increase of $5.7 million, or 23.7%, compared with $24.0 million during the six months ended June 30, 2022.

The increase is primarily due to higher personnel expenses and travel-related expense.

General and Administrative

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General and administrative

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Our general and administrative expenses result primarily from the costs associated with our executive, finance, information technology, legal and human resource functions.

General and administrative expense was $14.7 million during the three months ended March 31, 2023, an increase of $2.2 million, or 17.2%, compared with $12.6 million during the three months ended March 31, 2022.

Three months ended June 30, 2023 Compared with Three months ended June 30, 2022

General and administrative expense was $16.3 million during the three months ended June 30, 2023, an increase of $2.7 million, or 20.0%, compared with $13.6 million during the three months ended June 30, 2022.

The increase is primarily due to an increase in personnel expenses and consulting fees.

Six months ended June 30, 2023 Compared with Six months ended June 30, 2022

General and administrative expense was $31.1 million during the six months ended June 30, 2023, an increase of $4.9 million, or 18.7%, compared with $26.2 million during the six months ended June 30, 2022.

The increase is primarily due to an increase in personnel expenses and to a lesser extent, consulting fees.

Other Income (Expense)

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Other income (expense) consists of interest earned on our invested cash balances, interest expense relating to the finance lease obligation we incurred in connection with the 2015 sale of our headquarters facility and other financing obligations as well as foreign exchange gains and losses attributable to fluctuations of the U.S.

dollar against local currencies of certain of the countries in which we operate.

Other income was $1.5 million for the three months ended March 31, 2023, compared with other expense of $3.0 million for the three months ended March 31, 2022.

Other income (expense) consists of interest earned and accretion on our invested cash balances, interest expense relating to the finance lease obligation we incurred in connection with the 2015 sale of our headquarters facility and other financing obligations as well as foreign exchange gains and losses attributable to fluctuations of the U.S.

dollar against local currencies of the countries in which we operate.

Other income was $0.9 million for the three months ended June 30, 2023, compared with other expense of $5.9 million for the three months ended June 30, 2022.

The $6.9 million change in other income (expense) compared to the same prior year period was primarily due to an increase in interest income of $4.0 million and a decrease in exchange loss of $2.9 million.

During the three-month periods ended March 31, 2023 and 2022, we had no significant off-balance sheet risk such as exchange contracts, option contracts or other hedging arrangements.

Other income was $2.5 million for the six months ended June 30, 2023, compared with other expense of $9.0 million for the six months ended June 30, 2022.

The $11.4 million change in other income (expense) compared to the same prior year period was primarily due to an increase in interest income of $7.8 million and a decrease in exchange loss of $3.2 million.

During the six-month periods ended June 30, 2023 and 2022, we had no significant off-balance sheet risk such as exchange contracts, option contracts or other hedging arrangements.

Income Tax Provision

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Income tax provision

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Income tax expense was $5.2 million for the three months ended March 31, 2023, compared to $4.3 million for the three months ended March 31, 2022.

The $0.9 million increase was primarily due to an increase in taxable income.

The effective tax rate for the three months ended March 31, 2023 was less than the U.S.

Income tax expense was $3.0 million for the three months ended June 30, 2023, compared to $4.0 million for the three months ended June 30, 2022.

The $1.0 million decrease was primarily due to a higher stock compensation deduction driven by an increase in stock price offset partially by an increase in pre-tax financial reporting income.

Income tax expense was $8.2 million for the six months ended June 30, 2023, compared to $8.3 million for the six months ended June 30, 2022.

The effective tax rate for the three and six months ended June 30, 2023 was less than the U.S.

statutory rate of 21% due to a forecasted Foreign Derived Intangible Income deduction, Federal research and development tax credits and a favorable discrete item related to equity compensation that reduces the annual tax rate.

The deferred income taxes of $35.4 million and $31.7 million as of March 31, 2023 and December 31, 2022, respectively, reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carryforwards.

As of March 31, 2023, we have recorded a $10.9 million valuation allowance in the U.S.

against certain tax credits and state net operating losses due to the uncertainty of their realization.

The deferred income taxes of $38.9 million and $31.7 million as of June 30, 2023 and December 31, 2022, respectively, reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carryforwards.

As of June 30, 2023, we have recorded a $10.6 million valuation allowance in the U.S.

against certain tax credits and state net

operating losses due to the uncertainty of their realization.

Realization of our net deferred tax assets is dependent on future taxable income.

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Liquidity and Capital Resources

At March 31, 2023, we had $164.5 million in unrestricted cash and cash equivalents and $280.2 million in short-term investments, in addition to $6.7 million in restricted cash.

At June 30, 2023, we had $132.5 million in unrestricted cash and cash equivalents and $320.4 million in short-term investments, in addition to $6.7 million in restricted cash.

Management believes that maintaining a strong cash balance is necessary to fund a continuing ramp in our business which can require significant cash investment to meet sudden demand.

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Stock repurchases, as discussed below, also reduce our cash balances.

During the three months ended March 31, 2023 and 2022, we generated $34.6 million and $25.8 million, respectively, of cash related to operating activities.

Investing activities for the three months ended March 31, 2023 resulted in cash outflows of $33.0 million, $2.2 million of which was used for capital expenditures and $61.8 million of which was used to purchase short-term investments, offset by $31.0 million related to maturities of short-term investments.

Investing activities for the three months ended March 31, 2022 resulted in cash outflows of $1.5 million used for capital expenditures.

Financing activities for the three months ended March 31, 2023 resulted in a cash usage of $16.7 million.

During the first three months of 2023, $12.5 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 units are withheld by the Company to cover taxes, as well as $0.3 million relating to the reduction of the liability under the finance lease of our corporate headquarters.

In comparison, financing activities for the three months ended March 31, 2022 resulted in cash usage of $23.1 million, $20.0 million of which related to the repurchase of our common stock and $3.3 million of which related to payments made to government tax authorities for income tax withholding on employee compensation arising from the vesting of RSUs, as well as $0.2 million relating to the reduction of our financing lease liability.

These amounts were partially offset by $0.5 million of proceeds related to the exercise of stock options during the first three months of 2022.

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 expire in May 2023.

We may file another shelf registration statement to maintain the availability of this financing option.

During the six months ended June 30, 2023 and 2022, we generated $67.3 million and $29.2 million, respectively, of cash related to operating activities.

Investing activities for the six months ended June 30, 2023 resulted in cash outflows of $73.2 million, $5.2 million of which was used for capital expenditures and $188.9 million of which was used to purchase short-term investments, offset by $120.9 million related to maturities of short-term investments.

Investing activities for the six months ended June 30, 2022 resulted in cash outflows of $3.4 million used for capital expenditures.

Financing activities for the six months ended June 30, 2023 resulted in a cash usage of $40.1 million.

During the first six months of 2023, $25.0 million in cash was used to repurchase our common stock and $15.5 million was used for payments to government tax authorities for income tax withholding on employee compensation arising from the vesting of RSUs, where units are withheld by the Company to cover taxes, as well as $0.6 million relating to the reduction of the liability under the finance lease of our corporate headquarters.

These amounts were partially offset by $1.0 million of proceeds related to the purchase of shares under our 2020 ESPP and exercise of stock options during the first six months of 2023.

In comparison, financing activities for the six months ended June 30, 2022 resulted in cash usage of $40.7 million, $32.5 million of which related to the repurchase of our common stock and $9.2 million of which related to payments made to government tax authorities for income tax withholding on employee compensation arising from the vesting of RSUs, as well as $0.5 million relating to the reduction of our financing lease liability.

These amounts were partially offset by $1.5 million of proceeds related to the purchase of shares under our ESPP and exercise of stock options during the first six months of 2022.

On April 5, 2023, we terminated the Senior Secured Credit Facilities Credit Agreement, as amended (the “Credit Agreement”), with Silicon Valley Bank that we entered into on July 31, 2020.

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Upon termination, these liens and all other obligations under the credit agreement, were released.

A letter of credit remained at Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (successor by purchase to the Federal Deposit Insurance Corporation as Receiver for Silicon Valley Bridge Bank, N.A.) as successor to Silicon Valley Bank, in the amount of $5.9 million, securing our lease on our corporate headquarters.

This letter of credit was transitioned to a cash collateral arrangment on March 30, 2023, and is classified as long-term restricted cash on our balance sheet at March 31, 2023.

A letter of credit remains at Silicon Valley Bank, a division of First Citizens Bank & Trust Company (successor by purchase to the Federal Deposit Insurance Corporation as Receiver for Silicon Valley Bridge Bank, N.A.) as successor to Silicon Valley Bank, in the amount of $5.9 million, securing our lease on our corporate headquarters.

This letter of credit was transitioned to a cash collateral arrangment on March 30, 2023, and is classified as long-term restricted cash on our balance sheet at June 30, 2023.

We believe that based on our current market, revenue, expense and cash flow forecasts, our existing cash and cash equivalents will be sufficient to satisfy our anticipated cash requirements for the short- and long-term.

Commitments and Contingencies

Significant commitments and contingencies at March 31, 2023 are consistent with those discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 16 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Significant commitments and contingencies at June 30, 2023 are consistent with those discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 16 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Quantitative and Qualitative Disclosures about Market Risk.

As of March 31, 2023, there have been no material changes to the quantitative information about market risk disclosed in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” included in our Annual Report on Form 10-K for the year ended December 31, 2022.

As of June 30, 2023, there have been no material changes to the quantitative information about market risk disclosed in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis