Axcelis Technologies, Inc.

Good day ladies and gentlemen and welcome to the Excellus Technologies call to discuss the company's results for the third quarter 2021. My name is Daniel 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. 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 Accelus Technologies. Please proceed, ma'am.

Thank you, Daniel. With me today is Kevin Brewer, Executive Vice President and CFO, and Doug Lawson, Executive Vice President of Corporate Marketing and Strategies. 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. Excellus posted a very strong quarter due to the growing momentum of the Purion product line and strength of the semiconductor industry, particularly the mature process technology segment. Revenue for the third quarter was $176.7 million dollars with earnings per share of 81 cents, driven by strong gross margins of 43.3 percent. Quarterly system sales increased significantly to $126.2 million, an implant systems record. CS&I, our aftermarket business, continued to provide a major contribution to our top line and gross margin, with Q3 revenue of $50.5 million. In the third quarter, 91 percent of shipments went to mature Foundry Logic customers and 9 percent to memory customers, with an even split between DRAM and NAND. Due to growing strength in the mature process technology market, we now estimate that segment will account for greater than 80 percent of system revenue for the full year 2021. The geographic mix of our systems shipments in the third quarter was China, 70 percent, Europe 15%, Korea 5%, and the rest of the world 10%. In Q4, although China will continue to account for our largest percent of systems revenue, we expect the overall regional mix to be more balanced. Turning to fourth quarter guidance, we expect revenue of approximately $190 million, gross margins of approximately 41.5%, operating profit of approximately $37 million and earnings per share of approximately 84 cents. We now expect to exceed $640 million in revenue for the full year 2021. The increase in revenue since the last quarter has been driven by the continued growth of the mature process technology segment and the early stages of a memory capacity build. We believe both market segments will contribute to what we expect will be a strong 2022 for the industry and for Exelis. Our visibility into the first half of next year is very good as we are currently booking systems into Q3 2022. Overall demand for capital equipment in the semiconductor industry is being driven by several factors, including chip shortages, high fab utilization across all segments causing significant new fab investment, government incentive programs creating geographical expansion opportunities for our customers, the rapid growth of the power device market, both silicon and silicon carbide, to support automotive industry plans for electrification, and finally, the fundamental underlying drivers that started this growth cycle, 5G, data analytics, and AI. We believe that the implant TAM has increased significantly. This is driven by an overall increase in wafer starts, by the growth of foundries serving the mature markets where ion implant is a fab bottleneck due to the large mix of products, and lastly, by the power and image sensor markets, which are more implant-intensive and require our more advanced Purion product extensions. The mature and specialty markets are generating sustainable growth with Purion product extensions designed to serve the power device and image sensor market. This is the case across all implant types, high current, medium current, and high energy. We have invested significantly in products for these markets over the last several years, and we continue to invest to maintain the leadership our Purion products enjoy. In Q3, we successfully closed an evaluation of a Purion H200 for a silicon power customer, highlighting our continued strength in the power segment. We believe the power segment will comprise 25 to 30 percent of our system's revenue for 2021, with the image sensor segment accounting for 20 to 25 percent. Strength in these segments contribute significantly to our margin expansion. Our growth in these segments is clear and sustainable, and most importantly, it is tied to long-term trends beyond any increases driven by semiconductor shortages. Turning to the memory market, since the end of Q3 and early into Q4, we have seen an increase in memory shipments for both NAND and DRAM applications. Last week, we announced that we shipped multiple systems to a memory customer, and successfully closed the evaluation of a Purion H for a new NAND high-current customer. This customer now has both the Purion H and Purion XE qualified for production. Revenue for that system will be recognized in the fourth quarter. We maintain a strong and growing position in memory, and we expect 2022 to see continued capacity additions. We believe DRAM will be stronger in the first half of the year with a subsequent pickup in land later in 2022. We continue to see a high degree of activity in the VS logic, where we have a Purion H evaluation underway that is expected to successfully close in Q4. This qualification will open the door for production buys in 2022 and 2023. We are also seeing an increase in activity in the Japanese market, especially related to power devices, image sensors, and general mature devices. Interest is strong for both our Perion and Legacy tools. In fact, earlier this week, we announced the launch of GSD Ovation high-current and high-energy batch implanters. We expect these enhanced Legacy products to be well-received by 200-millimeter customers and to provide potential CS&I upgrade opportunities to our large installed base. Evaluations are key to developing new customers, increasing footprint at existing customers, and penetrating new segments. We currently have five Purion evaluation tools in the field focused on supporting future growth. These include a Purion Dragon, a Purion H, a Purion XE Silicon Carbide, and two Purion XE Maxes, which are positioned across key target segments, including advanced logic, DRAM, image sensor, and power devices. We expect to close multiple evaluations in Q4 and plan to ship additional evaluations in the fourth quarter and throughout 2022. In 2021, we are closing in on our $650 million revenue model thanks to the success of Purion and a very strong semiconductor market. As a result, we are developing an implant-driven revenue model beyond $650 million that we will introduce at a virtual investor day currently planned for December 9th. Now I'll turn the call over to Kevin to discuss third quarter financial details, as well as several operational topics, including supply chain management and progress with our Korean manufacturing site. Kevin?

Thank you, Mary, and good morning. Excel has delivered solid Q3 financial results, driven by strong gross margin performance and continued revenue growth. With our strength in a growing mature process technology market, we now expect to exceed $640 million in revenue for 2021. Growing systems and CS&I revenue, coupled with strong bookings and backlog, have set up a strong finish to 2021 and position us well for expected growth in 2022. We are seeing significant leverage in our business model and expect full-year operating expenses to be around 24 percent of revenue with gross margins above 42 percent. Full-year gross margin assumptions include higher pandemic and supply chain related costs and the impact of our investment in additional manufacturing capacity. Ongoing gross margin improvement will be driven by the timing of cost of initiatives, customer and product mix, and continued growth in our CS&I business. Based on the strength of the market and demand for our PRM products, we are developing new financial targets that will take us well beyond our current $650 million model. We will introduce these models at our Virtual Investor Day on December 9th. Before discussing the details of our Q3 financial performance, I'd like to provide an update on our supply chain and new manufacturing facility in South Korea. We have and will continue to provide guidance that reflects our current assessment of supply chain challenges. Beyond working closely with our established suppliers, we continue to qualify new sources of supply and carry a higher than normal level of inventory to help buffer supply chain disruption. Our sales team is also working with customers to provide purchase orders much earlier than in the past, which improves visibility for our manufacturing team. We are adding manufacturing operations closer to our customers with a goal of increasing customer satisfaction and capacity. Construction of the new facility in South Korea is complete. Manufacturing began this week with first shipments scheduled for the first quarter. This is an exciting opportunity for us, but I want to reiterate, especially with our recent rapid growth, that we currently have sufficient capacity in place to support our near-term demands and expect the Korea factory to play an important role in supporting future manufacturing requirements. I'll turn to our third quarter financial results. Q3 revenue finished at $176.7 million, compared to $147.3 million in Q2. Q3 system sales were $126.2 million in implant systems record compared to $100.1 million in Q2. Q3 CS&I revenue finished at $50.5 million compared to $47.1 million in Q2. CS&I revenue remained strong, driven by high fabulization, the growing period installed base, system upgrades, and customers purchasing safety stock. We expect Q4 CS&R revenue of approximately $50 million. Q3 sales, our top 10 customers accounted for 77.3% of our total sales compared to 75.1% in Q2. One customer was above 10% in Q3 compared to two in Q2. Q3 system bookings were $244.2 million, compared to $172.1 million in Q2, with a Q3 book-to-bill ratio of 1.86 versus 1.71 in Q2. We are currently booking into the third quarter of next year. Backlog in Q3, including deferred revenue, finished at $406.6 million, a new record for Excellus compared to our prior record of $271.2 million in Q2. Q3 combined SG&A and R&D spending was $40.1 million, or 22.7 percent of revenue, compared to $40 million, or 27.2 percent in Q2. SG&A in a quarter was $23.4 million, with R&D at $16.7 million. We expect Q4 combined SG&A and R&D spending to be approximately 22% of revenue. Q3 gross margin was 43.3%, driven by strength in CS&I, higher appearing power series shipments, and continued cost-out activity. We're guiding Q4 gross margin to be approximately 41.5%, driven by product mix and the expected closure of multiple evaluation systems. We expect full-year gross margins to be above 42 percent, including closure of these evaluation tools. Operating profit in Q3 finished at $36.4 million, or 20.6 percent of revenues, compared to $24 million in Q2. We are guiding Q4 operating profit of approximately $37 million. Q3 net income was $27.5 million, or 81 cents per share, compared to $18.9 million or $0.55 per share in Q2. We are guiding Q4 EPS of approximately $0.84. Q3 cash finished at $271.8 million compared to $220.5 million in Q2. In the quarter, we generated $66.2 million of cash from operations and settled share repurchases of $12.5 million. Also in the quarter, we received meaningful prepayments on system sales. Q3 receivables were $78.3 million compared to $79.5 million in Q2. Q3 inventory ended at $196.8 million compared to $192.3 million in Q2. Q3 inventory terms, excluding ship evaluation tools, finished at 2.4 compared to 2.1 in Q2. Q3 accounts payable were $35.5 million compared to $40.7 million in Q2. As always, I want to thank our employees and suppliers for their continuing efforts and outstanding execution supporting our steep business ramp. It is an exciting time for Excellus with unprecedented growth in the industry and solid customer demand for our products. Our balance sheet is strong, and we have the financial strength to invest in products, infrastructure, and our employees. We have also returned over $62 million of capital to our shareholders under a share repurchase program since 2019. Under the current program, we had $62.5 million of remaining authorization at the end of Q3. Thank you, and I'll turn the call back to Mary for her closing comments.