AXCELIS TECHNOLOGIES INC (ACLS) FY 2021 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve risks and uncertainties. Words such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such forward-looking statements. The forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Factors that might cause such a difference include, among other things, those set forth under “Liquidity and Capital Resources” 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. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as may be required by law.
Overview
The semiconductor capital equipment industry is subject to cyclical swings in capital spending by semiconductor chip manufacturers. Capital spending is influenced by demand for semiconductors and the products using them, the utilization rate and capacity of existing semiconductor chip manufacturing facilities and changes in semiconductor technology, all of which are outside of our control. As a result, our revenue may fluctuate from year to year and period to period. Our established cost structure does not vary significantly with changes in volume. We may also experience fluctuations in operating results and cash flows depending on our revenue level.
2021 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 2021, we delivered record full year revenue, operating profit and gross margin since becoming an independent public company in 2001. Revenue for 2021 was $662.4 million, an increase of 39.6% from 2020 revenue of $474.6 million. Systems revenue for 2021 was $454.6 million, compared to $293.6 million in 2020. Operating profit was $127.3 million in 2021, compared to $58.0 million in 2020. Gross margin for the year was 43.2% compared to 41.8% in 2020. Net income for the year was $98.7 million, an increase of 97.4% following a 39.6% increase in revenue from the prior year.
The Company is in a strong competitive position as we participate in a period of extended industry growth. 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. We were able to rapidly grow our manufacturing and supply chain capabilities through smart capacity planning and execution, including the opening of our new Axcelis Asia Operations Center in South Korea and the expansion of clean manufacturing in Beverly. In 2021, we continued to expand the Purion installed base, growing our large and diverse group of customers mainly in the mature process technology segment. We continued our focus on the mature process technology segment in 2021, launching new Purion product extensions including the Purion H200™ high current implanter, targeted for the production of power devices, and the Purion XEmax™ used to manufacture image sensors. Through the introduction of these new products and continuous cost reduction measures, we increased our gross margin year over year, making this the fourth consecutive year with gross margin greater than 40 percent.
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 2021, the top 20 semiconductor chip manufacturers accounted for approximately 92.0% of total semiconductor capital equipment spending, up from 90.4% in 2020. Our net revenue from our ten largest customers accounted for 69.5% of total revenue for the year ended December 31, 2021 compared to 74.0% and 74.1% of revenue for the years ended December 31, 2020 and 2019, respectively. For the year ended December 31, 2021, we had two customers representing 17.8% and 15.4% of total revenue, respectively.
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Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations are based upon Axcelis’ consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions. Management’s estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following accounting policies are critical in the portrayal of our financial condition and results of operations and require management’s most significant judgments and estimates in the preparation of our consolidated financial statements. For additional accounting policies, see Note 2 to the consolidated financial statements for the year ended December 31, 2021 included in this Annual Report on Form 10-K.
Revenue Recognition
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, 2021 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.
Inventory—Provision for Excess and Obsolescence and Lower of Cost or Net Realizable Value
We record a provision for estimated excess and obsolete inventory and lower of cost or net realizable value. The provision is determined using management’s assumptions of materials usage, based on estimates of forecasted and historical demand and market conditions. Specifically, our assumptions of forecasted system sales and the size and utilization of the installed base of systems may have a significant effect on estimated materials usage. If actual market conditions become less favorable than those projected by management, additional inventory write-downs may be required.
Although we make every effort to ensure the accuracy of our forecasts or product demand and pricing assumptions, any significant unanticipated changes in demand, pricing, or technical developments would significantly impact the value of our inventory and our reported operating results. In the future, if we determine that inventory needs to be written down, we will recognize such costs in our cost of revenue at the time of such determination. If we subsequently sell product that has previously been written down, our gross margin in that period will be favorably impacted.
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 relative 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.
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Income Taxes
We record income taxes using the asset and liability method. 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. Significant management judgment is required in determining our provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against those net deferred tax assets.
We evaluate the weight of all available evidence such as historical losses, the expected timing of the reversals of existing temporary differences and projected future taxable income to determine whether it is more likely than not that some portion or all of the net deferred income tax assets will not be realized.
Our income tax expense includes the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax positions may cause a change to the effective tax rate. We recognize accrued interest related to unrecognized tax benefits as interest expense and penalties as operating expense.
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Results of Operations
The following year-to-year comparative statements include the 2021 and 2020 year periods. For comparative statements for 2020 and 2019 periods, please refer to our 2020 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 26, 2021.
The following table sets forth our results of operations as a percentage of total revenue:
| | | | | | | |
|---|---|---|---|---|---|---|
| | | Year ended | | | ||
| | | December 31, | | | ||
| | 2021 | 2020 | ||||
| Revenue: | | | | | | |
| Product | | 95.8 | % | 94.8 | % | |
| Services | 4.2 | 5.2 | ||||
| Total revenue | 100.0 | 100.0 | ||||
| Cost of revenue: | | | | | | |
| Product | 52.8 | 53.2 | ||||
| Services | 4.0 | 5.0 | ||||
| Total cost of revenue | 56.8 | 58.2 | ||||
| Gross profit | 43.2 | 41.8 | ||||
| Operating expenses: | | | | | | |
| Research and development | 9.9 | 13.0 | ||||
| Sales and marketing | 7.1 | 8.2 | ||||
| General and administrative | 7.0 | 8.4 | ||||
| Total operating expenses | 24.0 | 29.6 | ||||
| Income from operations | 19.2 | 12.2 | ||||
| Other (expense) income: | | | | | | |
| Interest income | — | 0.2 | ||||
| Interest expense | (0.7) | (1.1) | ||||
| Other, net | (0.3) | 0.5 | ||||
| Total other expense | (1.0) | (0.4) | ||||
| Income before income taxes | 18.2 | 11.8 | ||||
| Income tax provision | 3.3 | 1.2 | ||||
| Net income | | 14.9 | % | 10.6 | % | |
Revenue
The following table sets forth our revenue:
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year ended | | Period-to-Period | | ||||||||
| | | December 31, | | Change | | ||||||||
| | | 2021 | | 2020 | | $ | | % | | ||||
| | | (dollars in thousands) | | | |||||||||
| Revenue: | | | | | | ||||||||
| Product | | $ | 634,445 | | $ | 449,903 | | $ | 184,542 | | 41.0 | % | |
| Percentage of revenue | | | 95.8 | % | | 94.8 | % | | | | | | |
| Services | | 27,983 | | 24,657 | | | 3,326 | | 13.5 | % | | ||
| Percentage of revenue | | | 4.2 | % | | 5.2 | % | | | | | | |
| Total revenue | | $ | 662,428 | | $ | 474,560 | | $ | 187,868 | | 39.6 | % | |
Product
Product revenue, which includes new system sales, sales of spare parts, product upgrades and used system sales was $634.4 million or 95.8% of revenue in 2021, compared with $449.9 million or 94.8% of revenue in 2020. The increase in product revenue in 2021 was primarily driven by an increase in the number of Purion systems sold.
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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, 2021 and 2020 was $68.4 million and $23.1 million, respectively. The increase was primarily due to an increase in system prepayments in the current year and the number of systems sold.
Services
Services revenue, which includes the labor component of maintenance and service contracts and fees for service hours provided by on-site service personnel, was $28.0 million, or 4.2% of revenue for 2021, compared with $24.7 million, or 5.2% of revenue for 2020. 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.
Revenue Categories used by Management
In addition to the line item revenue categories discussed above, management also uses revenue categorizations which break down revenue into other groupings. Management regularly disaggregates revenue in the following categories, which it finds relevant and useful:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Systems and Customer Satisfaction and Innovation (also known as “aftermarket”) revenue, in which “CS&I” or “Aftermarket” revenue is |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| A. | The portion of Product revenue relating to spare parts, product upgrades and used systems combined with; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| B. | Service revenue, which is the labor component of aftermarket revenues |
Aftermarket revenue reflect current fab utilization as opposed to System revenue, which reflects capital investment decisions by our customers, which have differing economic drivers;
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Revenue by geographic regions, since economic factors impacting customer purchasing decisions may vary by geographic region; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Revenue by our customers’ end markets, since they tend to be subject to different economic environments at different periods of time, impacting a customer’s likelihood of purchasing capital equipment during any particular period; currently, management uses three end market categories: Memory, mature process technology and leading edge foundry and logic. |
The CS&I/aftermarket revenue categories for the twelve month periods ended December 31, 2021 and 2020 are discussed below.
CS&I/Aftermarket
Revenue from our aftermarket business was $207.8 million in 2021, compared to $180.9 million for 2020. Aftermarket revenue generally increases with the expansion of the installed base of systems but can fluctuate from period to period based on capacity utilization at customers’ manufacturing facilities which affects the sale of spare parts and demand for equipment service.
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Gross Profit / Gross Margin
The following table sets forth our gross profit (dollars in thousands):
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year ended | | Period-to-Period | | ||||||||
| | | December 31, | | Change | | ||||||||
| | | 2021 | | 2020 | $ | | % | ||||||
| | | (dollars in thousands) | | | |||||||||
| Gross Profit: | | | | | | ||||||||
| Product | | $ | 284,887 | | $ | 197,513 | | $ | 87,374 | | 44.2 | % | |
| Product gross margin | | | 44.9 | % | | 43.9 | % | | | | | | |
| | | | | | | | | | | | | | |
| Services | | 1,558 | | | 1,071 | | | 487 | | 45.5 | % | | |
| Services gross margin | | | 5.6 | % | | 4.3 | % | | | | | | |
| Total gross profit | | $ | 286,445 | | $ | 198,584 | | $ | 87,861 | | 44.2 | % | |
| Gross margin | | | 43.2 | % | | 41.8 | % | | | | | | |
Product
Gross margin from product revenue was 44.9% for the twelve months ended December 31, 2021, compared to 43.9% for the twelve months ended December 31, 2020. The increase in gross margin resulted from improved margins on Purion systems.
Services
Gross margin from services revenue was 5.6% for the twelve months ended December 31, 2021, compared to 4.3% for the twelve months ended December 31, 2020. The increase in gross margin is attributable to changes in the mix of service contracts.
Operating Expenses
The following table sets forth our operating expenses:
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year ended | | Period-to-Period | | ||||||||
| | | December 31, | | Change | | ||||||||
| | | 2021 | | 2020 | | $ | | % | | ||||
| | | (dollars in thousands) | | | |||||||||
| Research and development | $ | 65,431 | $ | 61,833 | $ | 3,598 | 5.8 | % | |||||
| Percentage of revenue | | | 9.9 | % | | 13.0 | % | | | | | | |
| Sales and marketing | | 47,548 | | 38,746 | | | 8,802 | | 22.7 | % | | ||
| Percentage of revenue | | | 7.1 | % | | 8.2 | % | | | | | | |
| General and administrative | | 46,141 | | 39,964 | | | 6,177 | | 15.5 | % | | ||
| Percentage of revenue | | | 7.0 | % | | 8.4 | % | | | | | | |
| Total operating expenses | | $ | 159,120 | | $ | 140,543 | | $ | 18,577 | | 13.2 | % | |
| Percentage of revenue | | | 24.0 | % | | 29.6 | % | | | | | | |
Our operating expenses consist primarily of personnel costs, including salaries, commissions, bonuses, stock-based compensation and related benefits and taxes; project material costs related to the design and development of new products and enhancement of existing products; and professional fees, travel and depreciation expenses. Personnel costs are our largest expense, representing $100.3 million, or 63.1% of our total operating expenses, for the year ended December 31, 2021; and $90.1 million, or 64.1% of our total operating expenses for the year ended December 31, 2020.
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Research and Development
| | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year ended | | | | Period-to-Period | | |||||||
| | | December 31, | | | | Change | | |||||||
| | | 2021 | | 2020 | | | | $ | | % | | |||
| | | (dollars in thousands) | | | ||||||||||
| Research and development | | $ | 65,431 | $ | 61,833 | | $ | 3,598 | 5.8 | % | ||||
| Percentage of revenue | | | 9.9 | % | | 13.0 | % | | | | | | | |
Our ability to remain competitive depends largely on continuously developing innovative technology, with new and enhanced features and systems and introducing them at competitive prices on a timely basis. Accordingly, based on our strategic plan, we establish annual research and development budgets to fund programs that we expect will drive competitive advantages.
Research and development expense was $65.4 million in 2021, an increase of $3.6 million, or 5.8%, compared with $61.8 million in 2020. 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 and depreciation associated with capital additions to support ongoing projects.
Sales and Marketing
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year ended | | Period-to-Period | | ||||||||
| | | December 31, | | Change | | ||||||||
| | | 2021 | | 2020 | | $ | | % | | ||||
| | | (dollars in thousands) | | | |||||||||
| Sales and marketing | $ | 47,548 | $ | 38,746 | $ | 8,802 | 22.7 | % | |||||
| Percentage of revenue | | | 7.1 | % | | 8.2 | % | | | | | | |
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 $47.5 million in 2021, an increase of $8.8 million, or 22.7%, compared with $38.7 million in 2020. The increase was primarily due to higher payroll related costs due to increased headcount and incentive based pay as well as increased freight and project materials expense.
General and Administrative
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year ended | | Period-to-Period | | ||||||||
| | | December 31, | | Change | | ||||||||
| | | 2021 | | 2020 | | $ | | % | | ||||
| | | (dollars in thousands) | | | |||||||||
| General and administrative | $ | 46,141 | $ | 39,964 | $ | 6,177 | 15.5 | % | |||||
| Percentage of revenue | | | 7.0 | % | | 8.4 | % | | | | | | |
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 $46.1 million in 2021, an increase of $6.2 million, or 15.5% compared with $40.0 million in 2020. 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 primarily 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.
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| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year ended | | Period-to-period | | ||||||||
| | | December 31, | | change | | ||||||||
| | | 2021 | | 2020 | | $ | | % | | ||||
| | | (dollars in thousands) | | | |||||||||
| Other expense | $ | (6,897) | $ | (2,155) | $ | (4,742) | 220.0 | % | | ||||
| Percentage of revenue | | (1.0) | % | (0.4) | % | | | | | | |
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 losses, 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 expense for the year ended December 31, 2020 was $2.2 million, which includes $5.2 million of interest expense related to our sale leaseback obligation, offset partially by $1.4 million of foreign currency translation gains, other miscellaneous income of $0.9 million and interest income of $0.7 million.
Income Taxes
| | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year ended | | Period-to-period | | |||||||||
| | | December 31, | | change | | |||||||||
| | | 2021 | | 2020 | | $ | | % | | |||||
| | | (dollars in thousands) | | | ||||||||||
| Income tax provision | $ | 21,778 | | $ | 5,904 | $ | 15,874 | 268.9 | % | | ||||
| Percentage of revenue | | 3.3 | % | | 1.2 | % | | | | | | |
Income tax expense was $21.8 million for the year ended December 31, 2021 compared to $5.9 million in the previous year. The effective tax rate for the year ended December 31, 2021 was 18.1% compared to 10.6% for year the ended December 31, 2020. The increase in the effective tax rate is primarily due to a previously unrecognized tax benefit of $4.3 million in the prior year. We have significant net operating loss carryforwards in the United States and certain European jurisdictions, and as a result, we do not currently pay significant income taxes in those jurisdictions.
At December 31, 2021, we had $35.5 million of net deferred tax assets worldwide relating to net operating loss carryforwards, tax credit carryforwards and other temporary differences, which are available to reduce income taxes in future years. We have recorded a $7.7 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.
Liquidity and Capital Resources
Our liquidity is affected by many factors. Some of these relate specifically to the operations of our business. For example, our sales and other factors are influenced by the uncertainties of global economies, including the availability of credit and the condition of the overall semiconductor capital equipment industry. Our established cost structure does not vary significantly with changes in volume. We experience fluctuations in operating results and cash flows depending on fluctuations in our revenue level.
In 2021, $150.2 million of cash was provided by operating activities. This compares to $69.7 million of cash provided by operations in 2020. Cash and cash equivalents at December 31, 2021 was $294.9 million, compared to $203.5 million at December 31, 2020. Approximately $32.6 million of cash was located in foreign jurisdictions as of December 31, 2021. In addition to the cash and cash equivalent balance at December 31, 2021, 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. Working capital at December 31, 2021 was $469.1 million. At December 31, 2021, we had no bank debt.
Capital expenditures were $8.7 million for the year ended December 31, 2021. Capital expenditures were $7.4 million for the year ended December 31, 2020. Total capital expenditures for 2022 are projected to be approximately
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$13.0 million. Future capital expenditures beyond 2022 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, 2021 was $52.4 million, which consisted of $50.0 million related to our stock repurchase program, $6.6 million related to net settlement of restricted stock issuances and $0.8 million related to principal reduction on our financing lease. These amounts were partially offset by $3.7 million in proceeds of stock option exercises and $1.2 million in proceeds from our employee stock purchase plan. Cash used in financing activities was $2.4 million for the year ended December 31, 2020, which consisted of $7.5 million related to our stock repurchase program, $3.9 million related to net settlement of restricted stock issuances, and $0.4 million of principal payment on our finance lease obligation. These uses of cash were partially offset by $8.4 million in proceeds of stock option exercises and $1.0 million in proceeds from our employee stock purchase plan.
We have outstanding letters of credit, surety bonds and deposits in the amount of $14.4 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.
The following represents our commercial commitments as of December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | Amount of | ||||||||
| | | | | | Commitment | ||||||||
| | | | | | Expiration by Period | ||||||||
| Other Commercial Commitments | Total | 2022 | | 2023 | 2024 | ||||||||
| Surety bonds | | $ | 7,707 | | $ | 4,322 | | $ | 893 | | $ | 2,492 | |
| Standby letters of credit and deposits | | 6,647 | | 6,575 | | — | | 72 | | ||||
| Total | | $ | 14,354 | | $ | 10,897 | | $ | 893 | | $ | 2,564 | |
The following represents our contractual obligations as of December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | Payments Due by Period | |||||||||||
| Contractual Obligations | Total | 2022 | 2023-2024 | 2025-2026 | 2027 - Beyond | |||||||||||
| Sale leaseback obligation | | $ | 97,999 | | $ | 5,980 | | $ | 12,366 | | $ | 11,938 | | $ | 67,715 | |
| Purchase order commitments | | 226,448 | | 223,922 | | 2,441 | | 19 | | | 66 | | ||||
| Operating leases | | 9,760 | | 4,939 | | 3,512 | | 1,236 | | | 73 | | ||||
| Total | | $ | 334,207 | | $ | 234,841 | | $ | 18,319 | | $ | 13,193 | | $ | 67,854 | |
We have no off-balance sheet arrangements as of December 31, 2021.
We have net operating loss and tax credit carryforwards, the tax effect of which aggregate $33.7 million at December 31, 2021. These carryforwards, which expire principally between 2022 and 2034, are available to reduce future income tax liabilities in the United States and certain foreign jurisdictions.
We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2021, to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. As of December 31, 2021, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $10.4 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. 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.
Under the rules of the U.S. Securities and Exchange Commission (the “SEC”), we qualify as a “well-known seasoned issuer,” which allows us to file shelf registration statements to register an unspecified amount of securities that are effective upon filing. On May 29, 2020, we filed such a shelf registration statement with the SEC for the issuance of an unspecified amount of common stock, preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, from time to time at prices and on terms to be determined at the time of any such offering. This registration statement was effective upon filing and will remain in effect for up to three years from
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filing, prior to which time we may file another shelf registration statement to maintain the availability of this financing option.
On July 31, 2020, we entered into a Senior Secured Credit Facilities Credit Agreement (the “Credit Agreement”) with Silicon Valley Bank. The Credit Agreement provides for a revolving credit facility in an aggregate principal amount not to exceed $40.0 million. Our obligations under the Credit Agreement are secured by a security interest, senior to any current and future debts and to any security interest, in all of our rights, title, and interest in, to and under substantially all of our assets, subject to limited exceptions, including permitted liens. The revolving credit facility terminates on July 31, 2023. As of December 31, 2021, 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.
We believe that based on our current market, revenue, expense and cash flow forecasts, our existing cash, cash equivalents and borrowing capacity will be sufficient to satisfy our anticipated cash requirements for the short and long-term.
Related-Party Transactions
There are no significant related-party transactions that require disclosure in the consolidated financial statements for the year ended December 31, 2021, or in this Annual Report on Form 10-K.
Recent Accounting Pronouncements
A discussion of recent accounting pronouncements, the impact of some of which may be material, is included in Note 2 to the consolidated financial statements for the year ended December 31, 2021 included in this Annual Report on Form 10-K.