Axcelis Technologies, Inc.

Good day, ladies and gentlemen, and welcome to the Excellus Technologies call to discuss the company's results for the first quarter 2021. My name is Chelsea, 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 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. 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 Puma, President and CEO of Excellus Technologies. Please proceed, ma'am.

Thank you, Chelsea. 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. Excel has posted another strong quarter as a result of overall strength in the semiconductor market, combined with the growing momentum of the Purion product line. Revenue for the first quarter was $132.8 million, with earnings per share 48 cents, driven by strong gross margins of 42.5 percent. Our aftermarket business, or what we refer to as CS&I, once again contributed significantly to our revenue and gross margin. CS&I revenue in Q1 was $51.8 million. This strong performance was a result of high FAB utilization, the growing period on installed base, and significant upgrades and used tool sales. We couldn't have achieved these results without the strong support of our employees. They have continued to manage well through the many complexities brought on by China trade tensions and the continuing pandemic. I'd like to thank them for their dedication through these difficult and challenging times. In the first quarter, the growing mature process technology markets continued to be an area of strength for Excellus, with 82% of Q1 shipments going to mature Foundry Logic customers. The other 18% of shipments went to NAND memory customers. Even with the expected increase in memory revenues later in the year, we believe the mature process technology segment will account for greater than 70% of system revenue for the full year 2021. During the fourth quarter of 2020, the U.S. government placed Chinese foundry customer SMIC on the entity list, meaning that export licenses are required for all Excellus U.S. shipments to SMIC. We applied immediately for these licenses but have found the approval process to be slower than anticipated. Since no licenses were issued in the first quarter, we were not able to ship any systems or parts to SMIC. Early in Q2, we were granted our first export licenses and began shipping approved systems and parts to SMIC. Our guidance reflects our expectations relative to this process. As a result, the geographic mix of our system shipments in the first quarter was Korea 44 percent, China 39 percent, and Europe 17 percent. Although the percentage of China shipments was down from last quarter, We have a strong domestic and multinational customer base in that country across multiple market segments. Business with domestic Chinese customers in the mature process technology segment in particular remains quite strong. For the second quarter, we expect revenue of between $135 and $140 million, gross margins of approximately 41.5%, operating profits between $19 and $21 million, and earnings per share between 43 and 47 cents. Hitting the midpoint of this Q2 revenue guidance will signify reaching the quarterly run rate of our $550 million model. In fact, Excellus is on track to exceed $550 million in revenue for the full year 2021, achieving this goal a year ahead of schedule. Given market trends and the strength appearing on base products and new product extensions, we have come to believe two things. First, that it's possible that we can also reach our $650 million model sooner than expected, perhaps hitting a quarterly run rate before the end of 2022. And second, that there is an implant-driven revenue model beyond $650 million that Excellus can achieve. These developments are very exciting and point to a potential path forward for stronger than expected growth. Before turning the call over to Kevin, I'd like to provide a short update on our products and key market segments. The power device and image sensor markets are very important to Excellus. As we have said before, we hold a leadership position in implants in both of these specialty markets. In the second quarter, we shipped multiple Purion VXCs to image sensor customers, as well as Purion H200 silicon carbide and Purion M silicon carbide systems to silicon carbide power device customers. With the shipment of the first Purion H200 silicon carbide tool, Excellus can now provide power device customers with a full suite of Purion products to support all of their ion implant needs. Evaluations are key to developing new customers, increasing footprint at existing customers, and penetrating new segments. We currently have six Purion evaluation tools in the field focused on supporting future growth. During the first quarter, we closed the evaluation of a Purion VXE and shipped a Purion XE Max evaluation to a second customer for use in advanced image sensor development. The six evaluation systems, which include a Purion Dragon, a Purion H200, two Purion Hs, and two Purion XE Maxes, are positioned across key target segments, including advanced logic, NAND, DRAM, image sensor, and power devices. We expect these systems to contribute to our future growth. Kevin?

Thank you, Mary, and good morning. Excellus delivers strong first quarter financial performance thanks to the continuing outstanding work of all of our employees and supply chain partners. 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 Excellus. Pandemic-related protocols that were implemented during 2020 remain in place. Our pandemic response team is closely monitoring the situation and continues to update these actions as required. We are excited about the accelerating growth that we believe can take us beyond our $650 million in revenue. We currently have sufficient manufacturing capacity in place to achieve this runway, but since we are seeing growth more quickly than anticipated, we have decided to bring on additional manufacturing capacity. Our operations team is focused on adding manufacturing capacity closer to some of our largest customers with a goal of increasing customer satisfaction. Turning to the first quarter financial results, Q1 revenue finished at $132.8 million compared to $122.2 million in Q4. Q1 system sales were $81 million compared to $64.2 million in Q4. Q1 CS&I revenue finished at $51.8 million compared to $58 million in Q4. CS&I revenue was driven by strong upgrades and used tool sales. We expect Q2 CS&I revenue of approximately $40 million and recommend modeling the second half at $42 million per quarter. Q1 sales to our top 10 customers accounted for 79.8 percent of our total sales, compared to 81.5 percent in Q4. One customer was above 10 percent in Q1, compared to 3 in Q4. Q1 system bookings were $148.4 million, compared to $131.5 million in Q4. For the Q1 book-to-bill ratio of 1.92, versus 1.98 in Q4. Backlog in Q1, including deferred revenues, finished at $186.5 million, a new record for Excellus, compared to $116.2 million in Q4. Q1 combined SG&A and R&D spending was $36.1 million, with 27.2 percent of revenues, compared to $38.9 million for 31.8 percent in Q4. SG&A in a quarter was $20.4 million, with R&D at 15.7. We expect Q2 spending to be similar to Q1 at approximately 27 percent of revenue. Q1 gross margin was 42.5 percent and above our guidance, driven by strength in CS&I, product mix, and continued cost-out activity. we are guiding Q2 gross margin of approximately 41.5 percent. Gross margin will continue to fluctuate quarter to quarter based on product and customer mix, the number of evaluation tools closed, and the level of revenue contribution from our CF and our business. We are continuing to experience some higher costs from freight and pandemic-related protocols, which I expect will linger throughout the year. Operating profit in Q1 finished at $20.3 million compared to $14.1 million in Q4. We are guiding Q2 operating profit of approximately $19 to $21 million. Q1 net income was $16.5 million, or $0.48 per share, compared to $14.7 million, or $0.43 per share, in Q4. for a guiding Q2 EPS of approximately 43 to 47 cents. This guidance reflects any known impact from the coronavirus in the export license situation. Q1 cash finished at $207.5 million compared to $204.2 million in Q4. In a quarter, we generated $15.1 million of cash from operations and repurchase shares worth $12.5 million. Q1 receivables were $75.9 million compared to $86.9 million in Q4. Q1 inventory ended at $174.4 million compared to $161.1 million in Q4. In the quarter, finished goods inventory increased due to the export license situation. Q1 inventory terms, excluding evaluation tools, finished at 2.0, the same as Q4. Q1 accounts payable were $40.5 million, compared to $24 million in Q4. I am excited about the ongoing strength of the industry and customer demand for Accel's products. We have a strong balance sheet, which is enabling the right level of business investment while returning capital to our shareholders through the Share Researches program. Additional manufacturing capacity is targeted at improving customer satisfaction and supporting our future growth. I hope that all of you and your families are staying healthy during this pandemic. Hopefully, as more people become vaccinated, we can finally get back to normal times. Thank you, and I'll turn the call back to Mary for a closing comment.