Axcelis Technologies, Inc.

Good day, ladies and gentlemen, and welcome to the Excellus Technologies call to discuss the company's results for the second quarter 2020. My name is Kevin, and I'll be your coordinator for today. At this time, while participants are in a listen-only mode, we will be facilitating a question-and-answer session towards the end of the 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 Excellus Technologies. Please proceed, ma'am.

Thank you, Kevin. With me today is Kevin Gruer, 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 Safe Harbor provision. 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. Good morning and thank you for joining us. We have successfully completed our second quarter. while continuing to operate in the COVID-19 environment. We hope you and your families are healthy, especially as the virus has aggressively spread in many different regions of the world. At Excellus, we are carefully managing the situation. Although we are dealing daily with this constantly changing environment, we remain laser focused on the strategic objectives outlined at our investor day last September. During the second quarter, we realized two key milestones along the path to capturing market leadership in ion implantation and achieving our long-term business models. This involves shipping two new Purion product evaluations, our second Purion Dragon eval to a large memory customer for a DRAM application, and the first Purion Xe Max eval to a large image sensor customer. In the second half of 2020, Exelis expects to ship additional evaluation systems of both Purion extensions and Purion-based products to customers for new applications. These evaluation systems will increase our footprint and enable our long-term business objectives. While during a time like this it can be difficult to deliver short-term commitments and stay focused on the future, The dedication and determination of our employees has made this possible. Maintaining their health and safety continues to be our top priority. So once again, I would like to personally give a heartfelt thank you to our extraordinary employees in the factory, in global field locations, and those that come 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 second quarter financial performance was very strong. Revenue for the second quarter was $123 million with earnings per share of 39 cents Gross margins of 42.2% and a cash balance of $197 million at quarter end. Our aftermarket business, or what we refer to as CS&I, contributed significantly to our revenue and gross margin in the quarter, exceeding our expectations. During the second quarter, memory accounted for 35% of our shipments, 16% DRAM and 19% NAND. The remaining 65% of shipments went to mature foundry logic customers. The geographic mix of our systems shipments in the second quarter was China 59%, Korea 36%, and Taiwan 5%. This mix highlights the strength of the mature foundry logic market in both China and Korea. China shipments will likely remain strong in the third quarter. While 2021 is expected to be a very strong year for the semiconductor equipment industry as the memory market recovers, uncertainty relative to the second half of 2020 still exists. The impact of COVID-19 continues to create supply chain installation and other logistics challenges. The current geopolitical climate has impacted the plans of some customers, with the stability of the global economy also contributing uncertainty to the mix. Despite all of this, the market demand for semiconductors overall continues to be very strong. Last quarter we did not provide guidance due to this uncertainty. This quarter we will, but we caution that visibility remains limited. For the third quarter, we expect revenue of approximately $110 million, with gross margins of approximately 42.5%, operating income in the range of $10.5 million to $11.5 million, and earnings per share of approximately 24 cents. Excel has had a very strong first half due to robust customer demand, and our ability to successfully mitigate pandemic-related issues in the supply chain and factory. This allowed us to ship systems on time and to accommodate customer requests for earlier deliveries. While our Q3 guidance is down slightly as a result of our first strong half performance, through the first three quarters of 2020, we expect year-over-year revenue to be up 50%. While the COVID-19 pandemic has generated uncertainty and presented new challenges in 2020, it is important to understand that the semiconductor industry is critical in today's world and remains fundamentally strong. Investment in both technology and capacity will accelerate as we enter 2021. We expect to see individual customers and market segments continue to respond differently to COVID-19 challenges. Semiconductor products required for working from home are currently 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 in ion implantation allows us to work closely with our customers across all of these market segments, regardless of their particular market dynamics. to provide them with the best ion implant solutions for their emerging manufacturing challenges. As a result of these relationships, we have developed new Purion products that provide both Excelis and our customers a significant competitive advantage. This has been critical to developing our large and diverse customer base. Last September, we introduced four new Purion products, two are in the high current segment, which represents greater than 50% of the ion implant TAM, and two are in the high energy segment, representing approximately 30% of the TAM. The two new products in the high current segment are the Purion Dragon for advanced logic and memory applications, and the Purion H200 for advanced power device applications. These new products, combined with the latest versions of the Purion HBase product, are the key to our growth in high current, the largest segment of the ion implant market. The two new high energy products are the Purion XE silicon carbide for advanced silicon carbide power devices and the Purion XE Max for advanced energy sensors. These new products, combined with the popular Purion DXE, will extend Exelis' market and technology leadership in the growing high-energy market. To date, three of the four new products have already shipped to customers, and we expect shipment of the fourth, the Purion H200, during the third quarter. We also plan to place more evaluations of the new Purion product extensions and the base Purion products in the second half of this year as we set the table to achieve our $650 million target business model. Now I'd like to turn it over to Kevin to discuss our financials and some operational details. Kevin?

Thank you, Mary. Good morning. Before I discuss our very strong second quarter performance, I'll provide an update on Excel's management of the pandemic. At this point, all areas of our business and supply chain are operating well as a result of the extraordinary effort of our employees and suppliers and continuing customer demand for our products. The health and well-being of our employees remains a top priority. We are doing our best to create a safe work environment for everyone at Accelvis. For those who must work in our factory, we continue to enforce safeguards like physical distancing, and required use of face masks. Everyone who can work from home is working from home and will continue to do so for now. Field-based teams are supporting our customers while following both government and customer required safety protocols. We've added further flexibility for installation teams using skilled third-party support and creative virtual solutions. We remain focused on our $550 and $650 million target models and continue to make sizable investments in evaluation tools and new products. Cost of initiatives and growing percentage of revenue from these new products are driving gross market improvement. Although the current environment has created challenges, the actions we have taken have allowed us to successfully navigate through this pandemic so far. Now turning to the second quarter results Q2 revenue finished at $123 million well above consensus compared to $119 million in Q1 Q2 system sales were $76.8 million compared to $82.3 million in Q1 Q2 CS&I revenue finished at $46.2 million compared to $36.7 million in Q1 CS&I was exceptionally strong this quarter, with spares and consumables running higher than expected, driven by fabulization and customers likely maintaining a higher level of spares to minimize supply chain disruption. We also shipped several used tools in the quarter, which comprise approximately $7 million of our total CS&I revenues. We do not expect used tools shipments to report at that level as a result, Q3 CS&R revenue should be in the $36 million range. Q2 sales for our top 10 customers accounted for 83.6% of total sales compared to 85.9% in Q1. Three customers were at 10% or above. Q2 system bookings were $56.2 million compared to $115.1 million in Q1. For the Q2 book-to-bill ratio of 0.73,