Axcelis Technologies, Inc.

Good day, ladies and gentlemen, and welcome to the Axalis Technologies call to discuss the company's results for the fourth quarter and full year 2020. My name is Jerome, and I will be your coordinator for today. At this time, all 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. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mary Kuma, President and CEO of Axis Technologies. Please proceed, ma'am.

Thank you, Jerome. 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 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. Good morning and thank you for joining us. As a result of the strength of the overall electronics market and the growth of the Purion product family in 2020, Xcel has delivered its highest annual revenue in the last 15 years. To achieve this, our employees managed through many difficult logistical challenges brought on by the geopolitical environment and the continuing pandemic. I'd like to thank our employees for delivering these results while continuing to serve our customers and adhering to safety protocols. This challenging environment has continued into 2021, but despite this, we are planning for another year of growth at Excellus, The semiconductor industry is forecast to gain strength across all markets, and the Purion product family is poised for significant growth. Our fourth quarter financial performance was in line with our updated increased guidance. Revenue for the fourth quarter was $122.2 million, with earnings per share of 43 cents, gross margins of 43.4 percent, and a year-end cash balance of $204.2 million. EPS was favorably impacted by a previously unrecognized tax benefit of 11 cents per diluted share. For the full year 2020, revenue was $47.6 million with an EPS of $1.46. Our aftermarket business, or what we refer to as CS&I, once again contributed significantly to our revenue and gross margin. CS&I revenue was $58 million in Q4 and $181 million for the full year 2020. This strong performance was a result of high FAB utilization, the growing period on install base, and additional buying activity from one customer as a result of the current geopolitical situation. The growing mature process technology market continues to be an area of strength for Excellus, with 75% of Q4 shipments going to mature Foundry Logic customers. The other 25% went to memory customers, with NAND accounting for 15% and DRAM 10%. For the year, the mature process technology market accounted for 71% of shipments, with memory accounting for 29%. China continues to be a strong market for Excellus. The geographic mix of our system shipments in the fourth quarter was China 56%, the U.S. 20%, Korea 18%, and Taiwan 6%. For the year, our geographic split was China 54%, Korea 28%, the U.S. 5%, Europe 3%, Japan 2%, and Taiwan 8%. We expect the memory market will improve in 2021, but as a result of the continued growth in the mature markets and the strength of Excellus' product offerings in these segments, We expect that the mature markets will account for approximately 60 to 70 percent of our total shipments in 2021. During the fourth quarter, the U.S. government placed Chinese foundry customer SMIC on the entity list, meaning that licenses are required for all Excellus U.S. shipments to SMIC. We have applied for licenses and are prepared to ship these tools against customer requirements in the first quarter. As a result of the uncertainty related to these licenses, we are providing wider-than-usual guidance. For the first quarter, we expect revenue of between $118 and $138 million, gross margins of approximately 40 percent, operating profit of between $11 and $19 million, and earnings per share of between 22 and 42 cents. Continued growth of Purion products is the key to achieving our long-term business models. We shipped the first Purion 200 revenue tool to a second customer for use in power device manufacturing. The power device market is a critical market for Excellus, and targeted Purion products for silicon carbide, including the Purion H200, will play a key role in increasing our customer base and revenues in this segment. We currently have six period on evaluation tools in the field focused on supporting growth towards our $650 million business model. During the first quarter, we expect to close one of these evaluations and ship an additional new one, resulting in a balance of six evaluation systems in the field as we head into the second quarter. Before Kevin reviews the financials, I would like to summarize four key takeaways. First, The mature process technology market is very strong and growing, and Excellus is the ion implant market leader in this segment. Second, memory is expected to recover in 2021 and will be additive to our strong, mature process technology performance. Third, China will continue to be an important market for Excellus, driven by many customers, both domestic and multinational. And fourth, The Purion product family is extremely well positioned to support future growth and our $650 million business model. Now I'd like to turn it over to Kevin to discuss our financials and some operational details. Kevin?

Thank you, Mary, and good morning. Accel has delivered exceptional fourth quarter and full year 2020 financial performance thanks to the continued outstanding work of our employees and supply chain partners. Strong execution across the board and significant leverage in our business model delivered 140 percent increase in operating profit and revenue growth of 38 percent. During this ongoing pandemic, 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 Excel. Pandemic-related protocols that were implemented during 2020 remain in place for 2021. Our pandemic response team will continue to closely monitor these actions and update as required. We remain focused on our target business model and expect 2021 to be another growth year for Accelvix. We will continue to invest in product, evaluation tools, and infrastructure needed to support our $650 million target model. Turning to fourth quarter and full year financial results, Q4 revenue finished at $122.2 million and above our updated guidance compared to $110.4 million in Q3. Q4 system sales was $64.2 million compared to $70.2 million in Q3. Q4 CS&I revenue finished at $58 million compared to $40.2 million in Q3. The unusually high CS&I revenue in Q4 was driven by fabulization, a growing period on install base, and significant buying in the quarter by one of our customers. We expect Q1 CS9 revenue approximately $42 million and recommend modeling at this quarterly level for 2021. Full year 2020 revenue was $474.6 million compared to $343 million in 2019. an increase of 38 percent. The system's revenue was $293.6 million compared to $202.6 million in 2019, an increase of 45 percent. The F&I revenue was $181 million compared to $140.4 million in 2019, an increase of 29 percent. Q4 sales to our top 10 customers accounted for 81.5% of our total sales, compared to 76% in Q3. Three customers were at 10% or above in Q4, the same as Q3. For the full year, 74% of revenue came from our top 10 customers, with two at 10% or above. Q4 system bookings were $131.5 million compared to $26.4 million in Q3, with a Q4 book-to-bill ratio of 1.98 versus 0.37 in Q3. Backlogging Q4 including deferred revenue finished at $93.2 million compared to $45.1 million in Q3. Q4 combined SG&A and R&D spending was $38.9 million with 31.8 percent of revenue compared to 34.3 million, or 31 percent, in Q3. Q4 combined SG&A and R&D spending was higher than forecast, primarily driven by variable compensation expense. SG&A in the quarter was $22.6 million, with R&D at $15.3 million. In Q1, we expect SG&A and R&D spending to be approximately $36 million, and run at this level through the remainder of 2021. Q4 gross margin was 43.4 percent and above our updated guidance. Q4 gross margin was driven by higher-than-forecast CS&I revenue and continued cost-out activity. Full-year gross margin was 41.8 percent compared to 42 percent in 2019. We're guiding Q1 gross margin of approximately 40 percent driven by a less favorable mix of products and enclosure of an evaluation system. Gross margins will fluctuate quarter to quarter based on product and customer mix, the number of evaluation tools closed, and a percent of revenue contribution for our creative CS&I business. We've made solid progress on gross margin improvements with cost of initiative, new care and product extension, and growth in our CS&I business. Our target models reflect additional gross margin improvement from incremental volume, higher sales of serum product extensions, and continued savings from lean manufacturing and value engineering. Operating profit in Q4 finished at $14.1 million, compared to $13.9 million in Q3. Full-year operating profit was $68 million, an increase of 140%, compared to $24.2 million in 2019. We had a guiding Q1 operating profit of between $11 and $19 million. Q4 net income was $14.7 million, or 43 cents per share, compared to 10.8, or 32 cents per share in Q3. Net income and EPS were favorably impacted by a previously unrecognized tax benefit of 11 cents per diluted share. Full unit income was $50 million, or $1.46 per share, compared to $17 million, or 50 cents per share, in 2019, resulting in a greater than 190% year-over-year increase. We're guiding Q1 earnings per share between 22 and 42 cents. Our Q1 guidance reflects our current assessment of the potential impact on a business from the coronavirus and the export control situation with a specific customer in China, which we will continue to closely monitor. Q4 cash finished at $204.2 million compared to $212.7 million in Q3. We announced a $100 million share repurchase program for 2021. Q4 receivables were $86.9 million compared to $45.2 million in Q3. Q4 inventory ended at $161 million compared to $159.7 million in Q3. Q4 inventory terms excluding evaluation tools finished at 2.0 compared to 1.8 in Q3. Q4 accounts payable were $24 million compared to $24.3 million in Q3. We finished 2020 with strong momentum and are excited about the prospects of recovery in the memory and automotive market. We continue to make the necessary investments in our product and the infrastructure needed for our $650 million target model. Our customers continue to have high expectations for our theorem product, which we intend to achieve. Thank you, and I'll now turn the call back to Mary for closing comments.