Axcelis Technologies, Inc.

Good day, ladies and gentlemen, and welcome to the Excelis Technologies call to discuss the company's results for the first quarter of 2020. My name is Julie, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. If at any time during the call you require assistance, please press star followed by zero, and a coordinator will be happy to assist you. I would now like to turn the presentation over to your host for today's call, Mary Puma, President and CEO of Excelis Technologies. Please proceed, ma'am.

Thank you, Julie. With me today is Kevin Brewer, Executive Vice President and CFO, and Doug Lawson, Executive Vice President of Corporate Marketing and Strategy. We are all participating in this call remotely, so I would like to apologize in advance for any technical difficulties. If you have not seen a copy of our press release issued last night, it is available on our website. Playback service will also be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits, and other results are forward-looking statements under the SEC's Safe Harbor provision. These forward-looking statements are based on management's current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form 10-K Annual Report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements. Thank you for joining us today. First, we received our first Purion order from Japan. Second, we closed the first Purion Dragon evaluation and received a follow-on order. The dedication of our employees has made these significant accomplishments possible, and our top priority is ensuring their health and safety while continuing to serve our customers. I would personally like to give a heartfelt thank you to our extraordinary employees in the factory, global field locations, and those at home in the U.S. and around the world who are working diligently to meet our customer commitments. I also want to thank our suppliers and customers for their support as we strive to meet the continuing high level of customer interest in our Purion products. Our first quarter financial performance was very strong. Revenue for the first quarter was $119 million. Earnings per share of 33 cents was well above guidance and consensus. During the first quarter, memory accounted for 52% of our shipments, 31% DRAM and 21% NAND. Mature Foundry Logic customers accounted for the remaining 48%. The geographic mix of our system shipments in the first quarter was China 38%, Korea 34%, Taiwan 20%, and the US and Europe 8%. While the COVID-19 pandemic has generated uncertainty and new challenges for 2020, it is important to understand that the semiconductor industry is critical in today's world and remains fundamentally strong. Thank you for joining us. for critical market segments. Excelis has done significant work to understand our customers' market segments and to develop products that provide a competitive advantage. We expect to see the individual market segments react differently to COVID-19 challenges. Currently, semiconductor products required for working from home and sheltering in place are in high demand. This includes products for PCs, video streaming, and communications. At the same time, demand for products related to automotive and aviation, for example, have slowed. Our knowledge and expertise allow us to work closely with our customers across these market segments, even during this difficult time, to provide them with the best ion implant solutions for their specific manufacturing challenges. We are well positioned as a result of investment in new Purion products during the down cycle and by the broad and highly diverse Purion customer base we have developed over the last several years. In the first quarter, we closed three evaluations, all for new memory applications. One of these evaluations was for the first Purion Dragon at a NAND customer. This is our newest and most technologically advanced high current implanter. We also received the first Purion Dragon follow-on order and shipped that tool in the first quarter as well. The interest level is also very high for two of our other new Purion systems, the Purion XE Max, a high-energy tool designed for the most advanced image sensor applications, and for the Purion H200, which is focused on the power device market. We also announced our first Purion order in Japan, a Purion XE for a power device customer It is easy during this difficult time to forget that the industry is beginning what will likely be an extended growth cycle driven by the new communications capability of 5G technology We still believe the 5G infrastructure build has begun and will accelerate in 2020 and into 2021 as the infrastructure expands, new 5G capable phones and other devices will drive a strong memory cycle beginning in 2021. Following this and beginning in 2022, there will be another cycle of industrial IoT applications, even bigger than the last, which will drive strong growth in the mature process technology segment. One thing that emerges very clearly from this pandemic, Thank you, Mary, and good morning.

Before I provide an update on our very strong first quarter performance, I'd like to take a minute to discuss some of the actions we have taken to respond to the current pandemic situation. I'll start by saying that all areas of our business remain operational due to the extraordinary effort of our employees, suppliers, and continuing customer demand for our products. During this time, the health and well-being of our employees remains a top priority. We are doing our best to create a safe work environment for all of Accel's employees. For those who must work in our factory, we have implemented safeguards like physical distancing and have required the use of masks. Everyone who can work from home is working from home. Field-based teams are continuing to support our customers while following both government and customer required safety protocols. Mary did not provide guidance for the quarter as she normally would. The pandemic and potential economic impact has limited our visibility. It could potentially put uncontrollable challenges in our path. As a result, we will not be providing formal guidance. However, I will highlight that Q1 bookings and backlogs finished at record levels, indicating the current strength and demand for Excel's products and services. and others. Rotation activity continues to be strong and customer discussions remain very active. Based on our current orders, Q2 revenue could be similar to Q1, but the many unknowns, including potential supply chain disruption, creates greater than normal uncertainty around our Q2 results. Now turning to the first quarter results. Q1 revenue finished at $119 million. well above our guidance compared to $107.7 million in Q4. Q1 system sales were $82.3 million compared to $71.4 million in Q4. Q1 CS&I revenue finished at $36.7 million compared to $36.3 million in Q4. Q1 sales to our top 10 customers accounted for 85.9% of our total sales compared to 85.5% in Q4. Board customers were at 10% or above, the same as in Q4. Q1 system bookings were $115.1 million compared to $77.2 million in Q4, with a Q1 book-to-bill ratio of 1.37 versus 1.06 in Q4. Bad laws in Q1, including deferred revenue finished at $127 million compared to $99.3 million in Q4. Q1 combined SG&A and R&D spending was $31.8 million and below our guidance of approximately $33 million due to timing of expenses. For the quarter, operating expenses were 26.8% of revenue compared to 28.9% in Q4. SG&A in a quarter was $17.2 million, with R&D at $14.6 million. Q1 gross margin was 38.38% and above guidance, compared to 41.1% in Q4. Q1 gross margin was lower than normal due to the closure of three evaluation tools, including the first period on Dragon. Although we are not providing formal Q2 guidance, We still expect full-year gross margin to be greater than 40%, and we remain on track to achieve our gross margin targets in our $550 million and $650 million target models. Operating profit in Q1 finished at $13.7 million compared to Q4 operating profit of $13.2 million. Q1 at income was $11.2 million, or $0.33 per share, and above guidance. compared to $9.7 million or $0.29 per share in Q4. Inventory ended at $136.1 million compared to $140.4 million in Q4. Q1 inventory returns excluding evaluation tools finished at 2.2 compared to 2.0 in Q4. Q1 accounts payable were $26.1 million Q1 cash finished at $181.4 million compared to $146.5 million in Q4. Cash from operations in a quarter was $39.7 million. In the quarter, we repurchased $7.5 million of our common stock, but have suspended a repurchase program. We will maintain a conservative cash investment strategy while continuing to invest in the business during these uncertain times. Excellus entered 2020 with great momentum. While the pandemic has thrown us some near-term challenges, We have not lost focus on achieving our $550 million and $650 million target models. Our customers continue to have high expectations for our Ethereum products, which we intend to achieve. I hope that all of you and your families are well during these challenging times. I will now turn the call back to Mary for her closing comments.