Axcelis Technologies, Inc.

Good day, ladies and gentlemen, and welcome to the Excellus Technologies call to discuss the company's results for the fourth quarter and full year 2021. My name is Lateef, 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 the 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.

Mary Puma Thank you, Lateef. 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 today, 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 afternoon and thank you for joining us for our fourth quarter and year-end earnings call. 2021 was a good year for the semiconductor industry and a very good year for Excellus. Our full year revenue, gross margin, and operating profit were all records since we became an independent public company in 2001. And we surpassed our $650 million revenue model two years ahead of plan. We have benefited from unprecedented levels of CapEx spending, especially in the implant-intensive mature process technology markets. This has resulted in the ion implant TAM essentially doubling to approximately $2 billion. Adoption of the full Perion product family has been strong and continues to gain momentum across a broad customer base. To date, solid execution by our operations team has allowed us to keep up with this high level of customer demand. This has been the case for nearly two years now. Our employees have managed through many difficult logistical challenges brought on by the pandemic and supply chain. I would like to thank them once again for delivering these results while continuing to serve our customers and adhering to safety protocols. These challenges have continued into 2022, but demand for semiconductors and the equipment to build them remains extremely strong. As a result, we are planning for another year of significant growth, and we expect to achieve a quarterly revenue run rate supporting our $850 million revenue model this year. Our fourth quarter financial performance was well above our guidance. Revenue for the fourth quarter was $205.7 million, with earnings per share of $1.05, gross margin of 43.5%, and a year-end cash balance of $295.7 million, a company record. For the full year 2021, we surpassed our $650 million revenue model more than two years early with revenue of $662.4 million, a company record, earnings per share of $2.88, and gross margin of 43.2%, also a company record. Our aftermarket business, or what we refer to as CS&I, continued to contribute significantly to our revenue and gross margin. CS&I revenue in Q4 was $58.4 million and $207.8 million for the full year 2021, a company record. This strong performance was a result of high FAB utilization, the rapidly growing Purion installed base, and customers maintaining a higher level of spares and consumables. The growing mature process technology market continues to be an area of strength for Excellus. with 82% of fourth quarter shipments going to mature foundry logic customers, 2% to advanced logic customers, and 16% to memory customers, with NAND accounting for 6% and DRAM 10%. For the full year, the mature process technology market represented 82% of shipments, with memory accounting for 17%, comprised of 9% NAND and 8% DRAM. Advanced Logic accounted for 1%, resulting from revenue recognition for a Purion H high current evaluation system. China continues to be a strong market for Excellus due to robust investment, particularly by a large number of domestic customers serving the mature process technology market. The geographic mix of our system shipments in the fourth quarter was China 46%, Korea 20 percent, Europe 11 percent, the U.S. 5 percent, Taiwan 5 percent, and the rest of the world 13 percent. For the full year, our geographic split was China 54 percent, Korea 19 percent, Europe 14 percent, Taiwan 2 percent, the U.S. 2 percent, and the rest of the world 9 percent. Visibility into 2022 is very good, with a significant number of orders already in place throughout the year. Additionally, because multiple customers are planning fabs and expansions into 2023, we are already seeing initial orders to support these projects. For the first quarter, we expect revenue of approximately $193 million, gross margin of approximately 43%, operating profit of approximately $41 million, and earnings per share of approximately 92 cents. The industry is in the strongest cycle ever seen. It is being driven by several factors. First, the megatrends including 5G, artificial intelligence and data analytics, augmented and virtual reality, the electrification of the automotive industry, and early investment supporting the metaverse. The second driver includes near-term accelerants like chip shortages, work-from-home and hybrid work environments, and early order placements and increased inventory levels to compensate for supply chain challenges. And lastly, we can't forget geopolitical factors like tariffs and export controls and nationalistic investments in the industry driven by the desire for more national control over valuable semiconductor devices, design tools, manufacturing equipment, and know-how. In addition to a strong market, the implant TAM has increased significantly to approximately $2 billion. This is driven by an overall increase in wafer starts, by significant investment in the power and image sensor markets, which are more implant intensive and require our more advanced Purion product extensions, and by the growth of foundries serving the mature markets where ion implant is a fab bottleneck due to the large mix of products. Let's take a closer look at the individual market segment. We expect that the mature markets will account for approximately 70 to 80 percent of our total system shipments in 2022 due to the growth rate of this segment and the strength of Purion products supporting this market. China will continue to be a significant contributor to our success in this market, although it will comprise a smaller percentage of total revenue as we see growth in other regions. In Q4, we successfully closed an evaluation of a Purion XE silicon carbide high-energy system for a power customer, highlighting our continued strength in the silicon carbide segment. For 2021, the overall power segment accounted for 29 percent of systems revenue, and we believe this segment will again comprise 25 to 30 percent of our systems revenue in 2022. Two of our three outstanding evaluations are Purion Xe Max high-energy systems focused on manufacturing the most advanced image sensors. In 2021, the image sensor segment accounted for 22 percent of systems revenue, and we expected to represent a similar mix of 20 to 25 percent in 2022. 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. We expect the memory market will continue to improve in 2022 and will approach revenue levels seen at the last memory peak. Q4 saw a quarterly increase in both memory shipments and bookings. Memory accounted for 17% of systems revenue in 2021, and we expect it to increase to between 20 and 30% in 2022. We maintain a strong and growing position in memory. Last quarter, we shipped a Purion M medium current evaluation to a memory customer for a DRAM application and closed a Purion Dragon high current evaluation at a different DRAM supplier, paving the way for production buys in 2022 and beyond. We also continue to see a high degree of activity in advanced logic where we recently successfully finished a period on age high current evaluation. This qualification has opened the door for production buys as this customer ramps capacity in 2022 and 2023. From a geographic standpoint, we are experiencing an increase in activity in the Japanese market especially related to image sensors and power and general mature devices. Interest there is strong for both our Purion and legacy GSD systems. Now, I'd like to turn it over to Kevin to discuss our financials and provide an operational update. Kevin?

Thank you, Mary, and good afternoon. Accel has delivered exceptional fourth quarter and full year 2021 financial performance. Strong execution across the board and significant leverage in our business model drove an increase of almost 120 percent in full-year operating profit and revenue growth of 40 percent. In the fourth quarter, we began production at the New Excels Asia Operations Center in South Korea. We are happy to say that our first system, a Purion XE, shipped in January. This factory adds manufacturing capacity to support our $850 million and $1 billion revenue models. As Mary said, we expect 2022 to be another great year for Excellus. End markets are strong and visibility into 2022 and early 2023 is very good. But like others in the industry, the headwinds that we experience in 2021 are continuing to provide challenges. We have built the anticipated costs and supply chain constraints into our Q1 guidance, but things are changing almost daily. Our operations and engineering teams remain engaged in activities that meet our customer requirements for systems and support. Now turning to our fourth quarter and full year 2021 financial results. Q4 revenue finished at $205.7 million and above our guidance, compared to $176.7 million in Q3. Q4 system sales were $147.3 million, compared to $126.2 million in Q3. Q4 CS&I enters well above our forecast at $58.4 million, compared to $50.5 million in Q3. Strength in CS&I continues to be driven by high FAB utilization rate, a growing pure end installed base, tool upgrades, and customers maintaining a higher level of spare parts inventory. We expect Q1 CS&R revenue to be approximately $50 million and recommend modeling your remainder of 2022 at $55 million per quarter. Full year 2021 revenue was a record, $662.4 million, compared to $474.6 million in 2020, an increase of 40 percent. The system's revenue was $454.6 million compared to $293.6 million in 2020. CS&I revenue was $207.8 million compared to $181 million in 2020, an increase of 15 percent. Q4 sales, our top 10 customers accounted for 71.9% of our total sales compared to 77.3% in Q3. Three customers were at 10% or above in Q4, the same as Q3. For the full year, 49.2% of revenue came from our top 10 customers with one customer at 10% or above. Both are strong indicators of the breadth of our customer base. Q4 system bookings were $194 million compared to $244.2 million in Q3, with a Q4 book-to-bill ratio of 1.29 versus 1.86 in Q3. Backlog in Q4, including deferred revenue, finished at $460.6 million, a new record compared to $406.6 million in Q3. Multiple customers are planning new fabs and expansions for 2023 that are already beginning to drive bookings. Q4 combined SG&A and R&D spending was $42.9 million for 20.9% of revenue compared to $40.1 million or 22.7% in Q3. SG&A in a quarter was $26.5 million with R&D at $16.4 million. In Q1, we expect SG&A and R&D spending to be approximately 22 percent of revenue. Q4 gross margin was 43.5 percent and above our guidance. Q4 gross margin was driven by higher than forecast CS&I revenue, product mix, and some cost productivity. We also closed four-year evaluation systems in the quarter. Four-year gross margin was a record 43.2 percent up 140 basis points compared to 2020. We are guiding Q1 gross margin of approximately 43 percent. Gross margins will fluctuate quarter to quarter based on product and customer mix, the number of evaluation tools closed, and a percent of revenue from our previous CS&I business. We have made solid progress on gross margin improvement fueled by growth in our CS&I business, period product extensions, and across-the-board cost out. Our new business models reflect continued gross margin expansion, which is being driven by the following assumptions. Higher revenue from CS&I and period product extensions, incremental supply chain value engineering, planned labor and quality improvements, and a return to a more typical supply chain logistics environment as pandemic-related disruptions ease. Operating profit in Q4 finished at $46.6 million, compared to $36.4 million in Q3. Full-year operating profit was a record $127.3 million, an increase of almost 120 percent, compared to $58 million in 2020. We are guiding Q1 operating profit of approximately $41 million. Q4 net income was $35.7 million, or $1.5 per share, compared to $27.5 million, or $0.81 per share, in Q3. Full year net income was $98.7 million, or $2.88 per share, almost double 2020 at $50 million, or $1.46 per share. We were guiding Q1 earnings per share of approximately $0.92. As noted earlier, our Q1 guidance reflects a known impact on our business from supply chain and pandemic-related issues. but remains an evolving situation. Q4 receivables were $104.4 million compared to $78.3 million in Q3. Q4 inventory ended at $195 million compared to $196.8 million in Q3. Q4 inventory turns excluding valuation tools finished at 2.7 compared to 2.4 in Q3. Q4 accounts payable were $38 million compared to $35.5 million in Q3. Q4 cash finished at $295.7 million, a company record, compared to $271.8 million in Q3. In the quarter, we generated $38.1 million of cash from operations and settled share repurchases of $12.5 million. And through the end of 2021, we returned over $75 million of cash to our shareholders through stock repurchases. We finished 2021 with strong momentum and are excited about the prospects of 2022. It is an exciting time for Excellus with unprecedented growth in the industry and solid customer demand for our products. We will continue to work hard to minimize disruption to our customers who have high expectations for our ability to execute on our commitments. Lastly, before closing, I want to thank our employees for their outstanding support and execution throughout 2021. We have a great Excellus team. I also want to thank our suppliers and customers for their continuing support. Without them, we would not have been able to deliver such strong results in 2021. Thank you, and I'll now turn the call back to Mary for closing comments.