What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-24 · 50 added, 45 removed, 202 unchanged (32% of the section changed)

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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” and “Risk Factors” and others discussed elsewhere in this Form 10-K.

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof.

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We may also experience fluctuations in operating results and cash flows depending on our revenue level.

2022 was an exceptional year for Axcelis despite logistical challenges brought on by the geo-political environment and the COVID-19 pandemic.

As a result of the strength of the overall electronics market and the continued growth of the Purion product family in 2022, we delivered record full year revenue, operating profit and gross margin since our first full year as a public company in 2001.

2023 was an exceptional year for Axcelis despite an industry downturn.

As a result of the demand for the Company’s products and aftermarket support, we delivered record full year revenue and operating profit since our first full year as a public company in 2001.

Revenue for 2023 was $1,130.6 million, an increase of 22.9% from 2022 revenue of $920.0 million.

Systems revenue for 2023 was $883.6 million, compared to $692.1 million in 2022.

Gross margin percent for the year was 43.5% compared to 43.7% in 2022.

Operating profit was $265.8 million in 2023, compared to $212.4 million in 2022.

Gross margin for the year was 43.7% compared to 43.2% in 2021.

Net income for the year was $183.1 million, an increase of 85.6% following a 97.4% increase in revenue from the prior year.

Net income for the year was $246.3 million, an increase of 34.5% from 2022, following an 85.6% increase in net income from 2021.

The Company is in a strong competitive position as we participated in a period of extended industry growth in 2022 and 2023.

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Axcelis had a number of important accomplishments in 2023:

● Axcelis’ revenue grew 39% year over year;

● Our full year revenue, gross margins and operating profit were all at record levels since our first full year as a public company in 2001;

● The market for mature semiconductor devices grew rapidly, producing greater than 80% of our systems shipments, and within that total, the electrification of the automotive market drove the power device market to contribute approximately 39% of our systems shipments;

● Our global footprint in growing markets continued to expand, including through multiple evaluations at key customers in memory, mature process technologies and advanced logic, sales of our Purion product extensions into the Silicon Carbide market, follow-on orders for our Purion products in Japan, and device qualification for leading edge CMOS Image Sensor processes;

● Rapid growth of our manufacturing capabilities through solid execution, strong supply chain partnerships and bringing online new capacity at both our Beverly, Massachusetts facility and Axcelis Asia Operations Center in South Korea.

● Axcelis delivered record revenue of $1.130.6 million dollars in 2023, and record earnings per share of $7.43.

Our 23% revenue growth over 2022, despite a significant industry downturn, was enabled by the mature process technology segment, which represented 88% of the value of our 2023 system shipments.

● Axcelis is considered a technology leader and supplier of choice in the implant-intensive power device segment, which accounted for 59% of the value of our 2023 system shipments.

● We are continuously working to expand our footprint with existing and new customers, and currently have eight Purion evaluation systems in the field at strategic customer sites in key market segments.

● We opened the Axcelis Logistics Center in Beverly, Massachusetts in the third quarter of 2023, providing significant efficiencies to US manufacturing.

● We continued our investment in our CS&I aftermarket business to drive financial growth and increased customer satisfaction levels, including the “Digital Tool Box,” an innovative service offering with online training, remote diagnosis and install, and automated troubleshooting guide.

● Axcelis received nine customer satisfaction awards in 2023.

In addition, Axcelis was named to both the 2023 and 2024 editions of Forbes’ List of America’s Best Mid-Cap Companies and to Fortune’s 2023 Top 100 Fastest Growing Companies.

We continue to work diligently to ensure that manufacturing and operating expense levels remain well aligned to business conditions.

The market for our systems and aftermarket products and services is represented by a relatively small number of companies.

In 2022, the top 20 semiconductor chip manufacturers accounted for approximately 89.0% of total semiconductor capital equipment spending, down from 92.0% in 2021.

In 2023, the top 20 semiconductor chip manufacturers accounted for approximately 92.0% of total semiconductor capital equipment spending, up from 89.0% in 2022.

Our net revenue from our ten largest customers accounted for 51.7% of total revenue for the year ended December 31, 2023 compared to 59.4% and 69.5% of revenue for the years ended December 31, 2022 and 2021, respectively.

For the year ended December 31, 2022, we had two customers representing 13.1% and 11.5% of total revenue, respectively.

For the year ended December 31, 2023, no customers represented ten percent or more of total revenue.

Critical Accounting Estimates

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The following year-to-year comparative statements include the 2023 and 2022 year periods.

For comparative statements for 2021 and 2020 periods, please refer to our 2021 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 25, 2022.

For comparative statements for the 2022 and 2021 periods, please refer to our 2022 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 24, 2023.

The following table sets forth our results of operations as a percentage of total revenue:

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Income from operations

Other (expense) income:

Other income (expense):

Interest income

Interest expense

Total other expense

Total other income (expense)

Income before income taxes

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Period-to-Period

(dollars in thousands)

Percentage of revenue

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The total amount of deferred revenue at December 31, 2023 and 2022 was $210.9 million and $154.8 million, respectively.

The increase was primarily due to increases in system prepayments and the volume of systems sold.

The increase was primarily due to an increase in system prepayments.

Services revenue, which includes the labor component of maintenance and service contracts and fees for service hours provided by on-site service personnel, was $35.0 million, or 3.1% of revenue for 2023, compared with $29.4 million, or 3.2% of revenue for 2022.

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Period-to-Period

(dollars in thousands)

Gross Profit:

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Gross margin from services revenue was 10.7% for the twelve months ended December 31, 2023, compared to 11.3% for the twelve months ended December 31, 2022.

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

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

Operating Expenses

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Period-to-Period

(dollars in thousands)

Research and development

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Period-to-Period

(dollars in thousands)

Research and development

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Research and development (“R&D”) expense was $96.9 million in 2023, an increase of $18.6 million, or 23.7%, compared with $78.4 million in 2022.

The increase was primarily due to higher payroll related costs due to increased headcount and incentive based pay as well as increased material and supplies expense to support ongoing R&D projects.

The increase was primarily due to higher payroll related costs due to increased headcount as well as increased outside services, materials and supplies expense to support ongoing R&D projects.

Sales and Marketing

Period-to-Period

(dollars in thousands)

Sales and marketing

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Sales and marketing expense was $62.8 million in 2023, an increase of $9.2 million, or 17.2%, compared with $53.6 million in 2022.

The increase was primarily due to higher payroll related costs due to increased headcount and incentive based pay as well as increased freight and travel expense.

The increase was primarily due to higher payroll related costs due to increased headcount and travel expense.

General and Administrative

Period-to-Period

(dollars in thousands)

General and administrative

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The increase was primarily due to higher payroll related costs due to increased headcount and incentive based pay as well as increases in various other expenses to support growth.

Other (Expense) Income

Other (expense) income consists of interest expense relating to the lease obligation we incurred in connection with the 2015 sale of our headquarters facility (“sale leaseback”) and other financing obligations, foreign exchange gains and losses attributable to fluctuations of the U.S.

dollar against the local currencies of certain of the countries in which we operate, as well as interest earned on our invested cash balances.

Other Income (Expense)

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

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

Period-to-Period

Other expense

(dollars in thousands)

Other income (expense):

Percentage of revenue

Other expense for the year ended December 31, 2022 was $7.5 million, which includes $5.0 million of interest expense related to our sale leaseback obligation and $6.4 million of foreign currency translation losses, partially offset by interest income $4.6 million.

Other expense for the year ended December 31, 2021 was $6.9 million, which includes $5.1 million of interest expense related to our sale leaseback obligation and $2.5 million of foreign currency translation loss, slightly offset by other miscellaneous income of $0.3 million, a reversal of interest expense of $0.2 million relating to a tax position for which the statute of limitations expired and interest income of $0.2 million.

Other income for the year ended December 31, 2023 was $12.8 million, which includes $18.2 million of interest income on our investments, partially offset by $5.3 million of interest expense related to our sale leaseback obligation.

Other expense for the year ended December 31, 2022 was $7.5 million, which includes $5.0 million of interest expense related to our sale leaseback obligation and $6.4 million of foreign currency translation loss, partially offset by interest income of $4.6 million.

Period-to-Period

(dollars in thousands)

Income tax provision

Percentage of revenue

Income tax expense was $21.8 million for the years ended December 31, 2022 and 2021.

Income tax expense was $32.3 million for the year ended December 31, 2023, compared to $21.8 million in 2022.

The effective tax rate for the year ended December 31, 2023 was 11.6% compared to 10.6% for year the ended December 31, 2022.

The decrease in the effective tax rate in 2022 is due to Foreign-derived intangible income (“FDII”), which is taxed at a lower tax rate than the U.S.

statutory rate, resulting in a tax benefit of $20.5 million in the current year.

The full utilization of the U.S.

federal net operating losses allowed us to make use of the FDII in the current year.

The increase in the effective tax rate in 2023 is due to an increase in the amount of limitation on executive compensation as well as an increase in foreign tax.

At December 31, 2023, we had $53.4 million of net deferred tax assets worldwide relating to capitalized research and development costs and other temporary differences, which are available to reduce income taxes in future years.

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Approximately $48.3 million of cash was located in foreign jurisdictions as of December 31, 2023.

In addition to the cash and cash equivalent balance at December 31, 2022, we had $0.8 million in restricted cash which relates to a $0.7 million letter of credit relating to workers’ compensation insurance and a $0.1 million deposit relating to customs activity.

In addition to the cash and cash equivalent balance at December 31, 2023, we had $6.7 million in restricted cash which relates to a $5.9 million cash collateral relating to our lease for our headquarters in Beverly, Massachusetts, a $0.7 million letter of credit relating to workers’ compensation insurance and a $0.1 million deposit relating to customs activity.

Working capital at December 31, 2023 was $794.9 million.

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Total capital expenditures for 2024 are projected to be approximately $20 million.

Future capital expenditures beyond 2023 will depend on a number of factors, including the timing and rate of expansion of our business and our ability to generate cash to fund them.

capital expenditures beyond 2024 will depend on a number of factors, including the timing and rate of expansion of our business and our ability to generate cash to fund them.

Cash used in financing activities for the year ended December 31, 2023 was $68.3 million, which consisted of $52.5 million related to our stock repurchase program, $16.6 million related to net settlement of restricted stock issuances and $1.2 million related to principal reduction on our financing lease.

These amounts were partially offset by $1.2 million in proceeds of stock option exercises and $1.7 million in proceeds from our employee stock purchase plan.

These amounts were partially offset by $2.1 million in proceeds from our employee stock purchase plan.

Cash used in financing activities was $65.5 million for the year ended December 31, 2022, which consisted of $57.5 million related to our stock repurchase program, $9.9 million related to net settlement of restricted stock issuances, and $1.0 million of principal reduction on our finance lease.

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Contractual Obligations

2028 - Beyond

Sale leaseback obligation

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Operating leases

The table above includes lease agreements signed but not yet commenced as of December 31, 2022 and is based on the expected contractual commencement dates.

We have no off-balance sheet arrangements as of December 31, 2023, other than leases signed but not commenced.

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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.

On August 3, 2023, 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 August 2026.

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 December 31, 2022, 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 reduces 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 entered into a First Amendment to the Credit Agreement with Silicon Valley Bank in March 2021 to (i) align the covenants with our 2021 stock repurchase program, and (ii) establish terms to transition from a Eurodollar based interest rate option to an interest rate benchmark using a secured overnight financing rate (known as “SOFR”) published by the Federal Reserve Bank of New York.

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.

The Credit Agreement provided for a revolving credit facility covering borrowings and letters of credit in an aggregate principal amount not to exceed $40.0 million.

Our obligations under the Credit Agreement were 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.

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

A letter of credit issued by 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 was terminated on December 28, 2023.

The underlying cash collateral held at Silicon Valley Bank was released on December 28, 2023, in conjunction with the letter of credit termination.

A replacement, cash collateralized, letter of credit was issued on December 14, 2023 with UBS Bank USA and is classified as long-term restricted cash on our balance sheet at December 31, 2023.

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

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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-K

Item 7. Management’s Discussion and Analysis