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Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-02-23 · 44 added, 55 removed, 197 unchanged (33% of the section changed)

11 unchanged sentences

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

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.

Revenue for 2024 was $1,017.9 million, compared to $1,130.6 million in 2023.

Systems revenue for 2024 was $782.6 million, compared to $883.6 million in 2023.

1 unchanged sentence

Operating profit was $210.8 million in 2024, compared to $265.8 million in 2023.

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.

Net income for the year was $201.0 million, compared to $246.3 million in 2023.

The Company is in a strong competitive position.

A focused strategy on ion implant, combined with the hard work and dedication of our employees and the encouragement and support of our customers and suppliers, enabled us to achieve numerous critical milestones in our drive to market leadership.

Axcelis had a number of important accomplishments in 2023:

● 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.

Important accomplishments in 2024 included:

● We delivered revenue of $1,017.9 million in 2024 and earnings per share of $6.15.

● We remained a technology leader and supplier of choice in the implant-intensive power device segment, which accounted for 56% of the value of our 2024 system shipments.

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

● We continued our investment in our Customer Solutions & Innovation (“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.

● We received 22 customer satisfaction awards in 2024.

In addition, Axcelis was named to both the 2023 and 2024 editions of Forbes’ List of America’s Best Mid-Cap Companies and to both the Fortune Magazine’s 2023 and 2024 lists of the 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 2023, the top 20 semiconductor chip manufacturers accounted for approximately 92.0% of total semiconductor capital equipment spending, up from 89.0% in 2022.

In 2024, the top 20 semiconductor chip manufacturers accounted for approximately 87.6% of total semiconductor capital equipment spending, down from 92.0% in 2023.

Our net revenue from our ten largest customers accounted for 45.9% of total revenue for the year ended December 31, 2024 compared to 51.7% and 59.4% of revenue for the years ended December 31, 2023 and 2022, respectively.

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Our accounting policies relating to the recognition of revenue require management to make estimates, determinations and judgments based on historical experience and on various other assumptions, which include (i) the existence of a contract with the customer, (ii) the identification of the performance obligations in the contract, (iii) the value of any variable consideration in the contract, (iv) the standalone selling price of multiple obligations in the contract, for the purpose of allocating the consideration in the contract, and (v) determining when a performance obligation has been met.

Our revenue recognition policies are set forth in section (i) of Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements for the year ended December 31, 2023 included in this Annual Report on Form 10-K.

Our revenue recognition policies are set forth in section (j) of Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements for the year ended December 31, 2024 included in this Annual Report on Form 10-K.

Recognition of revenue based on incorrect judgments, including an erroneous allocation of the estimated sales price between the units of accounting, could result in inappropriate recognition of revenue, or incorrect timing of revenue recognition, which could have a material effect on our financial condition and results of operations.

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Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax basis, and net operating loss and tax credit carryforwards.

Our consolidated financial statements contain certain deferred tax assets which have arisen primarily as a result of operating losses, as well as other temporary differences between financial and income tax accounting.

We establish a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

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The following year-to-year comparative statements include the 2024 and 2023 year periods.

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.

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

and Exchange Commission on February 23, 2024, as amended by Amendment No.

1 thereto, filed with the Securities and Exchange Commission on February 28, 2024.

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

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Interest expense

Total other income (expense)

Total other income

Income before income taxes

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Product revenue, which includes new system sales, sales of spare parts, product upgrades and used system sales was $976.9 million or 96.0% of revenue in 2024, compared with $1,095.7 million or 96.9% of revenue in 2023.

The increase in product revenue in 2023 was primarily driven by an increase in the number of Purion systems sold.

The decrease in product revenue in 2024 was primarily driven by a decrease in the number of Purion systems sold.

A portion of our revenue from system sales is deferred until installation and other services related to future deliverables are performed.

The total amount of deferred revenue at December 31, 2024 and 2023 was $138.2 million and $210.9 million, respectively.

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

The decrease was primarily due to a decrease 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 $41.0 million, or 4.0% of revenue for 2024, compared with $35.0 million, or 3.1% of revenue for 2023.

Although services revenue should increase 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.

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.

Revenue Categories used by Management

1 unchanged sentence

Management regularly disaggregates revenue in the following categories, which it finds relevant and useful:

● Systems and Customer Solutions and Innovation (also known as “aftermarket”) revenue, in which “CS&I” or “Aftermarket” revenue is

● Systems and Customer Solutions and Innovation (“CS&I”, or “aftermarket”) revenue is

The portion of Product revenue relating to spare parts, product upgrades and used systems combined with;

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Gross margin from product revenue was 46.3% for the twelve months ended December 31, 2024, compared to 44.5% for the twelve months ended December 31, 2023.

The slight decrease in gross margin is primarily attributable to changes in the mix of products.

The increase in gross margin resulted from a favorable mix of system shipments and improved margins on Purion systems .

Gross margin from services revenue was 5.4% for the twelve months ended December 31, 2024, compared to 10.7% for the twelve months ended December 31, 2023.

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Research and development (“R&D”) expense was $105.5 million in 2024, an increase of $8.6 million, or 8.9%, compared with $96.9 million in 2023.

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.

The increase was primarily due to increased outside services, materials and supplies expense to support ongoing R&D projects as well as higher personnel expenses associated with an increase in wages and benefits partially offset by a decrease in variable compensation expense and temporary employee expenses.

Sales and Marketing

5 unchanged sentences

Sales and marketing expense was $68.0 million in 2024, an increase of $5.2 million, or 8.3%, compared with $62.8 million in 2023.

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

The increase was primarily due to higher personnel expenses associated with an increase in wages and stock compensation partially offset by a decrease in variable compensation expense.

General and Administrative

5 unchanged sentences

General and administrative expense was $70.3 million in 2024, an increase of $4.5 million, or 6.9%, compared with $65.8 million in 2023.

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.

The increase was primarily due to higher bad debt expense and higher personnel expenses associated with an increase in wages and benefits partially offset by a decrease in variable compensation expense.

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.

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 (“sale

leaseback”) as well as foreign exchange gains and losses attributable to both fluctuations of the U.S.

dollar against the local currencies of certain of the countries in which we operate and forward currency exchange contracts.

Period-to-period

2 unchanged sentences

Percentage of revenue

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.

Other income for the year ended December 31, 2024 was $19.5 million, which includes $24.4 million of interest income on our investments, partially offset by $5.5 million of interest expense related to our sale leaseback obligation and $9.1 million of foreign exchange losses, offset by $9.1 million of foreign exchange gains from forward exchange contracts.

Other expense 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.

Period-to-period

4 unchanged sentences

The effective tax rate for the year ended December 31, 2024 was 12.7% compared to 11.6% for year the ended December 31, 2023.

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.

We have recorded a $11.0 million valuation allowance 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.

We believe it is more likely than not that such assets will be realized;

however, ultimate realization could be impacted by market conditions and other variables not known or anticipated at this time.

The increase in the effective tax rate in 2024 is primarily due to a decrease in the benefit associated with stock-based compensation.

Liquidity and Capital Resources

8 unchanged sentences

Approximately $41.8 million of cash was located in foreign jurisdictions as of December 31, 2024.

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.

In addition to the cash and cash equivalent balance at December 31, 2024, we had $7.6 million in restricted cash which relates to a $5.9 million cash collateral relating to our lease for our headquarters in Beverly, Massachusetts, a $0.9 million letter of credit for customs purposes, 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, 2024 was $916.1 million.

At December 31, 2024, we had no bank debt.

In 2023, $100.9 million of cash was used in investing activities.

Capital expenditures were $20.7 million for the year ended December 31, 2023.

In 2024, $108.7 million of cash was used in investing activities, $12.2 million of which was used for capital expenditures.

We used $539.1 million of cash for purchases of short-term investments in 2024, partially offset by maturities of short-term investment of $442.6 million.

We held $447.8 million of short-term investments at December 31, 2024.

1 unchanged sentence

Government securities and agency investments.

In 2022, $10.7 million was used in investing activities for capital expenditures.

In 2023, $100.9 million of cash was used in investing activities, $20.7 million of which was used for capital expenditures.

We used $388.8 million of cash for purchases of short-term investments in 2023, partially offset by maturities of short-term investments of $308.6 million.

Total capital expenditures for 2025 are projected to be approximately $20 million.

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.

Future capital expenditures beyond 2025

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, 2024 was $71.2 million, which consisted of $60.5 million related to our stock repurchase program, $11.6 million related to net settlement of restricted stock issuances and $1.5 million related to principal reduction on our finance lease.

These amounts were partially offset by $2.4 million in proceeds from our employee stock purchase plan.

Cash used in financing activities was $68.3 million for the year ended December 31, 2023, 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 of principal reduction on our finance lease.

These uses of cash 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.

We have outstanding letters of credit, surety bonds and deposits in the amount of $17.5 million to cover the security deposit under the lease of our headquarters, our workers’ compensation insurance program, customs and bank deposits and certain value added tax claims in Europe.

9 unchanged sentences

Operating leases

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

We have no off-balance sheet arrangements as of December 31, 2024.

See Note 18 – Income Taxes in the Notes to the Consolidated Financial Statements for information related to our unrecognized tax benefits.

1 unchanged sentence

income taxes have been provided thereon.

As of December 31, 2023, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $11.8 million.

We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with any domestic debt service requirements.

As of December 31, 2024, there was no cash associated with indefinitely reinvested foreign earnings.

We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business.

Upon repatriation of those earnings, in the form of dividends or otherwise, we could be subject to withholding taxes payable to the various foreign tax jurisdictions.

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

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.

We have a cash collateralized letter of credit of $5.9 million, which is classified as long-term restricted cash on our balance sheet at December 31, 2024.

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

Related-Party Transactions

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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