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Form 10-Q AXCELIS TECHNOLOGIES For: Mar 31

May 5, 2022 2:08 PM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to               

Commission file number 000-30941

AXCELIS TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware

34-1818596

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

108 Cherry Hill Drive

Beverly, Massachusetts 01915

(Address of principal executive offices, including zip code)

(978787-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $0.001 par value

ACLS

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No .

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company

If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes  No 

As of May 2, 2022, there were 33,020,420 shares of the registrant’s common stock outstanding.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021

3

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021

4

Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

5

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021

6

Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

7

Notes to Consolidated Financial Statements (Unaudited)

8

Item 2.

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

18

Overview

18

Critical Accounting Estimates

18

Results of Operations

19

Liquidity and Capital Resources

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II - OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

27

2

PART 1—FINANCIAL INFORMATION

Item 1.    Financial Statements.

Axcelis Technologies, Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

Three months ended

March 31,

    

2022

    

2021

    

Revenue:

Product

$

196,531

$

126,609

Services

 

7,064

 

6,167

Total revenue

 

203,595

 

132,776

Cost of revenue:

Product

 

107,642

 

70,334

Services

 

6,187

 

6,007

Total cost of revenue

 

113,829

 

76,341

Gross profit

 

89,766

 

56,435

Operating expenses:

Research and development

 

16,973

 

15,685

Sales and marketing

 

11,291

 

10,387

General and administrative

 

12,579

 

10,013

Total operating expenses

 

40,843

 

36,085

Income from operations

 

48,923

 

20,350

Other (expense) income:

Interest income

 

95

 

33

Interest expense

 

(1,518)

 

(1,029)

Other, net

 

(1,617)

 

(1,153)

Total other expense

 

(3,040)

 

(2,149)

Income before income taxes

 

45,883

 

18,201

Income tax provision

 

4,269

 

1,721

Net income

$

41,614

$

16,480

Net income per share:

Basic

$

1.25

$

0.49

Diluted

$

1.22

$

0.48

Shares used in computing net income per share:

Basic weighted average common shares

 

33,245

 

33,715

Diluted weighted average common shares

 

33,974

 

34,643

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

3

Axcelis Technologies, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Three months ended

March 31,

    

2022

    

2021

    

Net income

$

41,614

$

16,480

Other comprehensive loss:

Foreign currency translation adjustments

 

(1,186)

 

(1,372)

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

 

9

 

20

Total other comprehensive loss

(1,177)

(1,352)

Comprehensive income

$

40,437

$

15,128

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

4

Axcelis Technologies, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)

    

March 31,

    

December 31,

 

2022

2021

 

ASSETS

Current assets:

Cash and cash equivalents

$

297,141

$

294,923

Accounts receivable, net

 

118,987

 

104,410

Inventories, net

 

203,838

 

194,984

Prepaid expenses and other current assets

 

28,740

 

24,929

Total current assets

 

648,706

 

619,246

Property, plant and equipment, net

 

35,500

 

34,972

Operating lease assets

9,403

9,242

Finance lease assets, net

18,914

19,238

Long-term restricted cash

 

755

 

757

Deferred income taxes

36,226

35,454

Other assets

 

32,692

 

34,331

Total assets

$

782,196

$

753,240

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

50,759

$

38,025

Accrued compensation

 

10,538

 

30,732

Warranty

 

7,203

 

6,424

Income taxes

 

1,734

 

887

Deferred revenue

 

60,477

 

60,454

Current portion of finance lease obligation

 

1,039

 

979

Other current liabilities

 

15,747

 

12,639

Total current liabilities

 

147,497

 

150,140

Long-term finance lease obligation

 

46,128

 

46,415

Long-term deferred revenue

 

14,363

 

7,982

Other long-term liabilities

 

14,935

 

9,744

Total liabilities

 

222,923

 

214,281

Commitments and contingencies (Note 16)

Stockholders’ equity:

Common stock, $0.001 par value, 75,000 shares authorized; 33,064 shares issued and outstanding at March 31, 2022; 33,240 shares issued and outstanding at December 31, 2021

 

33

 

33

Additional paid-in capital

 

554,633

 

559,883

Retained earnings (accumulated deficit)

 

4,019

 

(22,722)

Accumulated other comprehensive income

 

588

 

1,765

Total stockholders’ equity

 

559,273

 

538,959

Total liabilities and stockholders’ equity

$

782,196

$

753,240

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

5

Axcelis Technologies, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

Accumulated

 

Additional

Other

Total

 

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

    

Equity

 

Balance at December 31, 2020

33,633

$

34

$

570,102

$

(91,969)

$

3,435

$

481,602

Net income

 

 

 

 

16,480

 

 

16,480

Foreign currency translation adjustments

 

 

 

 

 

(1,372)

 

(1,372)

Change in pension obligation

 

 

 

 

 

20

 

20

Exercise of stock options

 

268

 

 

2,512

 

 

 

2,512

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

 

81

 

 

(2,354)

 

 

 

(2,354)

Stock-based compensation expense

2,407

2,407

Repurchase of common stock

 

(303)

 

 

(5,468)

 

(6,167)

 

 

(11,635)

Balance at March 31, 2021

 

33,679

$

34

$

567,199

$

(81,656)

$

2,083

$

487,660

(Accumulated

Accumulated

Additional

Deficit)

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Earnings

    

Income (Loss)

    

Equity

Balance at December 31, 2021

33,240

$

33

$

559,883

$

(22,722)

$

1,765

$

538,959

Net income

 

 

 

 

41,614

 

 

41,614

Foreign currency translation adjustments

 

 

 

 

 

(1,186)

 

(1,186)

Change in pension obligation

 

 

 

 

 

9

 

9

Exercise of stock options

 

41

 

 

491

 

 

 

491

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

 

67

 

 

(3,315)

 

 

 

(3,315)

Stock-based compensation expense

 

 

2,701

 

 

 

2,701

Repurchase of common stock

 

(284)

 

 

(5,127)

 

(14,873)

 

 

(20,000)

Balance at March 31, 2022

 

33,064

$

33

$

554,633

$

4,019

$

588

$

559,273

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

6

Axcelis Technologies, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three months ended

March 31,

    

2022

    

2021

    

Cash flows from operating activities

Net income

$

41,614

$

16,480

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

Depreciation and amortization

 

2,848

 

2,645

Deferred income taxes

 

2,252

 

1,613

Stock-based compensation expense

 

2,701

 

2,407

Provision for excess and obsolete inventory

 

1,027

 

984

Changes in operating assets and liabilities:

Accounts receivable

 

(15,199)

 

10,431

Inventories

 

(11,490)

 

(16,503)

Prepaid expenses and other current assets

 

(1,852)

 

(3,325)

Accounts payable and other current liabilities

 

(3,582)

 

(1,008)

Deferred revenue

 

6,418

 

(909)

Income taxes

 

858

 

2

Other assets and liabilities

 

175

 

2,281

Net cash provided by operating activities

 

25,770

 

15,098

Cash flows from investing activities

Expenditures for property, plant and equipment and capitalized software

 

(1,503)

 

(1,347)

Net cash used in investing activities

 

(1,503)

 

(1,347)

Cash flows from financing activities

Net settlement on restricted stock grants

 

(3,315)

 

(2,354)

Repurchase of common stock

 

(20,000)

 

(11,635)

Principal payments on finance lease obligation

(229)

(175)

Proceeds from exercise of stock options

491

2,512

Net cash used in financing activities

 

(23,053)

 

(11,652)

Effect of exchange rate changes on cash and cash equivalents

 

1,002

 

1,188

Net increase in cash, cash equivalents and restricted cash

 

2,216

 

3,287

Cash, cash equivalents and restricted cash at beginning of period

 

295,680

 

204,232

Cash, cash equivalents and restricted cash at end of period

$

297,896

$

207,519

See accompanying Notes to these Consolidated Financial Statements (Unaudited)

7

Axcelis Technologies, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 1.  Nature of Business

Axcelis Technologies, Inc. (“Axcelis” or the “Company”) was incorporated in Delaware in 1995 and is a producer of ion implantation equipment used in the fabrication of semiconductor chips in the United States, Europe and Asia. In addition, we provide extensive worldwide aftermarket service and support, including spare parts, equipment upgrades, used equipment and maintenance services to the semiconductor industry.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments which are of a normal recurring nature and considered necessary for a fair presentation of these financial statements have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for other interim periods or for the year as a whole.

The balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Axcelis Technologies, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021.

Note 2.  Stock-Based Compensation

We maintain the Axcelis Technologies, Inc. 2012 Equity Incentive Plan, as amended (the “2012 Equity Plan”), an Internal Revenue Code Section 423 plan, which became effective on May 2, 2012, and permits the issuance of options, restricted stock, restricted stock units (“RSUs”) and performance awards to selected employees, directors and consultants of the Company.

The 2012 Equity Plan is more fully described in Note 13 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.

We recognized stock-based compensation expense of $2.7 million and $2.4 million for the three-month periods ended March 31, 2022 and 2021, respectively. These amounts include compensation expense related to RSUs and non-qualified stock options.

In the three-month periods ended March 31, 2022 and 2021, we issued 0.1 million and 0.3 million shares of common stock, respectively, upon stock option exercises and vesting of RSUs. In the three-month periods ended March 31, 2022 and 2021, we received proceeds of $0.5 million and $2.5 million, respectively, in connection with the exercise of stock options.

Note 3.  Leases

We have operating leases for office space, warehouse space, a manufacturing plant, computer and office equipment as well as vehicles used in our business operations. We have a finance lease as a result of the 2015 sale-leaseback of our corporate headquarters in Beverly, Massachusetts. All new agreements are reviewed to determine if they contain a lease component. A lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment over a period of time in exchange for consideration. We recognize the lease obligation on a discounted basis using the explicit or implicit discount rate stated within the agreement. We recognize a corresponding right-of-use asset, which is initially determined based upon the net present value of the associated liability and is adjusted for deferred costs and possible impairment, if any. For those lease agreements that do not indicate the applicable discount rate, we use our incremental borrowing rate. We have made the following policy elections: (i) operating leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet; (ii) we recognize lease expense for

8

operating leases on a straight-line basis over the lease term; and (iii) we account for lease components and non-lease components that are fixed payments as one component. Some of our operating leases include one or more options to renew, with renewal terms that can extend the respective lease term one to five years. The exercise of lease renewal options is at our sole discretion. For lease extensions that are reasonably certain to occur, we have included these renewal periods in our calculation of the net present value of the lease obligation and related right-of-use asset. Certain leases also include options to purchase the leased property. The depreciable life of certain assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The amounts of operating and finance lease right-of-use assets and related lease obligations recorded within our consolidated balance sheets are as follows:

March 31,

December 31,

Leases

Classification

2022

    

2021

    

 

Assets

(in thousands)

 

Operating leases

Operating lease assets

$

9,403

$

9,242

Finance lease

Finance lease assets *

 

18,914

 

19,238

Total leased assets

$

28,317

$

28,480

Liabilities

Current

Operating

Other current liabilities

$

5,106

$

4,716

Finance

Current portion of finance lease obligation

1,039

979

Noncurrent

Operating

Other long-term liabilities

4,170

4,357

Finance

Finance lease obligation

 

46,128

 

46,415

Total lease liabilities

$

56,443

$

56,467

*Finance lease assets are recorded net of accumulated depreciation of $48.9 million and includes $0.6 million of prepaid financing costs as of March 31, 2022. Finance lease assets are recorded net of accumulated depreciation of $48.6 million and includes $0.7 million of prepaid financing costs as of December 31, 2021.

All of our operating lease office locations support selling and servicing functions. Our Axcelis Asia Operations Center facility in South Korea brings production capability closer to our Asia-based customers. Operating lease expense and depreciation and interest expense relating to our finance lease obligation are recognized within our consolidated statement of operations for the three months ended March 31, 2022 and 2021 as follows:

9

Three months ended

 

March 31,

Lease cost

Classification

2022

    

2021

    

    

 

Operating lease cost

(in thousands)

 

Product / Services

Cost of revenue

$

1,210

$

639

Research and development

Operating expenses

 

56

 

130

Sales and marketing*

Operating expenses

 

418

 

378

General and administrative*

Operating expenses

 

211

 

260

Total operating lease cost

$

1,895

$

1,407

Finance lease cost

Depreciation of leased assets

Cost of revenue, R&D, Sales and marketing and G&A

$

324

$

328

Interest on lease liabilities

Interest expense

 

1,258

 

1,279

Total finance lease cost

$

1,582

$

1,607

Total lease cost

$

3,477

$

3,014

* Sales and marketing and general and administrative expense also includes short-term lease and variable lease costs of approximately $0.5 million and $0.4 million for the three months ended March 31, 2022 and 2021, respectively.

The lease of our corporate headquarters, shown below under finance leases, had an original lease term of 22 years, beginning in January 2015 and expiring in January 2037, with renewal options. All other locations are treated as operating leases, with lease terms ranging from one to ten years. The tables below reflect the minimum cash outflow regarding our current lease obligations as well as the weighted-average remaining lease term and weighted-average discount rates used in our calculation of our lease obligations and right-of-use assets as of March 31, 2022:

Finance

Operating

    

Total

 

Maturity of Lease Liabilities

Leases

Leases

Leases

(in thousands)

2022

$

4,493

$

4,075

$

8,568

2023

 

6,114

 

3,188

 

9,302

2024

 

6,252

 

1,032

 

7,284

2025

 

5,930

 

718

 

6,648

2026

6,008

482

6,490

Thereafter

67,715

78

67,793

Total lease payments

$

96,512

$

9,573

$

106,085

Less interest portion*

(49,345)

(297)

(49,642)

Finance lease and operating lease obligations

$

47,167

$

9,276

$

56,443

* Finance lease interest calculated using the implied interest rate; operating lease interest calculated using estimated corporate borrowing rate.

10

March 31,

Lease term and discount rate

    

2022

Weighted-average remaining lease term (years):

Operating leases

2.6

Finance leases

 

14.8

Weighted-average discount rate:

Operating leases

 

4.5%

Finance leases

 

10.5%

Our cash outflows from our operating leases include rent expense and other charges associated with these leases. These cash flows are included within the operating activities section of our statement of cash flows. Our cash flows from our finance lease include both an interest component and payment of principal component. The table below shows our cash outflows, by lease type and related section of our statement of cash flows, as well as the non-cash amount capitalized on our balance sheet in relation to our operating lease right-of-use assets for the three months ending March 31, 2022 and 2021, respectively:

Three months ended March 31,

Cash paid for amounts included in the measurement of lease liabilities

    

2022

    

2021

    

(in thousands)

Operating cash outflows from operating leases

$

1,896

$

1,407

Operating cash outflows from finance leases

 

1,258

 

1,279

Financing cash outflows from finance leases

 

229

 

175

Operating lease assets obtained in exchange for operating lease liabilities

 

1,638

 

791

Finance lease assets obtained in exchange for new finance lease liabilities

 

 

Note 4. Revenue

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

Revenue by categories used by management are as follows:

Three months ended

March 31,

2022

2021

(in thousands)

Systems

$

151,801

$

80,991

Aftermarket

51,794

51,785

Total Revenue

$

203,595

$

132,776

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

11

Three months ended

March 31,

2022

2021

(in thousands)

North America

$

24,913

$

9,508

Asia Pacific

149,240

103,391

Europe

29,442

19,877

Total Revenue

$

203,595

$

132,776

Our system sales revenue transactions give rise to contract liabilities (in the case of pre-payments and the fair value of goods and services to be delivered after the system delivery, such as installation and certain warranty obligations).

Contract liabilities are as follows:

March 31,

December 31,

2022

2021

(in thousands)

Contract liabilities

$

74,840

$

68,436

Contract liabilities are reflected as deferred revenue on the consolidated balance sheet and relate to payments invoiced or received in advance of completion of performance obligations under a contract. Contract liabilities are recognized as revenue upon the fulfillment of performance obligations.

Three months ended

March 31,

2022

2021

(in thousands)

Balance, beginning of the period

$

68,436

$

23,058

Deferral of revenue

23,394

11,264

Recognition of deferred revenue

(16,990)

(12,180)

Balance, end of the period

$

74,840

$

22,142

The majority of our system transactions have payment terms of 90% due upon shipment of the system and 10% due upon acceptance. Aftermarket transaction payment terms usually provide that payment is due either within 30 or 60 days after the service is provided or parts delivered.

Note 5. Receivables and Allowances for Credit Losses

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

Axcelis maintains an allowance for credit losses, which represent an estimate of expected losses over the remaining contractual life of our receivables, considering current market conditions and estimates for supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing assessments and evaluations of collectability, historical loss experience, and future expectations in estimating credit losses in our receivable portfolio. Axcelis uses historical loss experience rates and applies them to a related aging analysis while also considering customer and/or economic risk where appropriate. Determination of the proper amount of allowances requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and, as a result, net earnings. The allowance takes into consideration numerous quantitative and qualitative factors that include receivable type, historical loss experience, loss migration, delinquency trends, collection experience, current economic conditions, estimates for supportable forecasts, when appropriate, and credit risk characteristics.

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Axcelis evaluates the credit risk of the customer when extending credit based on a combination of various financial and qualitative factors that may affect our customers’ ability to pay. These factors may include the customer’s financial condition, past payment experience, and credit bureau report, as well as the value of the underlying collateral.

Management performs detailed reviews of Axcelis’ receivables on a quarterly basis to assess the adequacy of the allowances and to determine if any impairment has occurred. Amounts determined to be uncollectable are charged directly against the allowances, while amounts recovered on previously written-off accounts increase the allowances. Changes to the allowances for credit losses are maintained through adjustments to the provision for credit losses, which are charged to current period earnings.

The following table shows changes of the allowances for credit losses related to trade receivables for the three months ended March 31, 2022 and 2021, respectively:

Three months ended

March 31,

2022

2021

(in thousands)

Balance, beginning of period

$

$

Provision for credit losses

Charge-offs

Recoveries

Balance, end of period

$

$

Note 6.  Computation of Net Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased by the number of additional common shares that would have been outstanding if the potentially dilutive common shares issuable on exercise of stock options and vesting of RSUs had been issued, calculated using the treasury stock method.

The components of net earnings per share are as follows:

Three months ended

March 31,

    

2022

    

2021

    

(in thousands, except per share amounts)

Net income available to common stockholders

$

41,614

$

16,480

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

 

33,245

 

33,715

Incremental options and RSUs

 

729

 

928

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

 

33,974

 

34,643

Net income per share

Basic

$

1.25

$

0.49

Diluted

$

1.22

$

0.48

Diluted weighted average common shares outstanding does not include 4,706 and 1,429 common equivalent shares issuable with respect to outstanding equity awards for the three-month periods ended March 31, 2022 and 2021, respectively, as their effect would have been anti-dilutive.

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Note 7.  Accumulated Other Comprehensive Income

The following table presents the changes in accumulated other comprehensive income, net of tax, by component, for the three months ended March 31, 2022:

    

Foreign

    

Defined benefit

    

 

currency

pension plan

Total

 

(in thousands)

 

Balance at December 31, 2021

$

2,064

$

(299)

$

1,765

Other comprehensive loss and pension reclassification

 

(1,186)

 

9

 

(1,177)

Balance at March 31, 2022

$

878

$

(290)

$

588

Note 8. Cash, cash equivalents and restricted cash

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

March 31,

December 31,

2022

2021

(in thousands)

Cash and cash equivalents

$

297,141

$

294,923

Long-term restricted cash

755

757

Total cash, cash equivalents and restricted cash

$

297,896

$

295,680

As of March 31, 2022, we had $0.8 million in restricted cash representing the total of (i) cash collateral for a $0.7 million letter of credit relating to workers’ compensation insurance and (ii) a $0.1 million deposit relating to customs activity.

Note 9.  Inventories, net

The components of inventories are as follows:

March 31,

December 31,

    

2022

    

2021

    

(in thousands)

Raw materials

$

140,138

$

133,784

Work in process

 

45,537

 

43,164

Finished goods (completed systems)

 

18,163

 

18,036

Inventories, net

$

203,838

$

194,984

When recorded, inventory reserves reduce the carrying value of inventories to their net realizable value. We establish inventory reserves when conditions exist that indicate inventory may be in excess of anticipated demand or is obsolete based upon assumptions about future demand for the Company’s products or market conditions. We regularly evaluate the ability to realize the value of inventories based on a combination of factors including the following: forecasted sales or usage, estimated product end of life dates, estimated current and future market value and new product introductions. Purchasing and usage alternatives are also explored to mitigate inventory exposure.

Note 10.  Product Warranty

We generally offer a one-year warranty for all of our systems, the terms and conditions of which vary depending upon the product sold. For all systems sold, we accrue a liability for the estimated cost of standard warranty at the time of system shipment and defer the portion of systems revenue attributable to the fair value of non-standard warranty. Costs for non-standard warranty are expensed as incurred. Factors that affect our warranty liability include the number of installed units, historical and anticipated product failure rates, material usage and service labor costs. We periodically assess the adequacy of our recorded liability and adjust the amount as necessary.

14

The changes in our standard product warranty liability are as follows:

Three months ended

March 31,

    

2022

    

2021

    

(in thousands)

Balance at January 1 (beginning of year)

$

6,924

$

4,612

Warranties issued during the period

 

2,140

 

1,288

Settlements made during the period

 

(1,430)

 

(968)

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

 

375

 

(192)

Balance at March 31 (end of period)

$

8,009

$

4,740

Amount classified as current

$

7,203

$

4,181

Amount classified as long-term

 

806

 

559

Total warranty liability

$

8,009

$

4,740

Note 11.  Fair Value Measurements

Certain assets on our balance sheets are reported at their fair value. Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

(a)  Fair Value Hierarchy

The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:

Level 1 - applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 - applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 - applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

(b)  Fair Value Measurements

Our money market funds and short-term investments are included in cash and cash equivalents in the consolidated balance sheets.

15

The following table sets forth our assets by level within the fair value hierarchy:

March 31, 2022

 

Fair Value Measurements

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

(in thousands)