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spk05: 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.
spk00: 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?
spk06: 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.
spk00: Thank you, Kevin. We are pleased with our fourth quarter results as well as our exceptional overall performance in 2021, and we are looking forward to another year of strong growth in 2022. Excellus has a competitive Purion product line, a broad and diverse customer base, a strong balance sheet, and a dedicated team of employees. We are well positioned for significant sustainable growth. The implant market is increasing thanks to strength in the overall semiconductor industry, but also due to a rapidly expanding mature process technology segment. The capabilities of Purion product extensions, like the Purion Power Series, combined with the implant-intensive nature of the image sensor and power device segments, uniquely position Excellus to benefit from the electrification of the automotive industry. We are living during one of the most exciting times in the history of the semiconductor industry, and we are confident that we are making all the right investments to achieve leadership in ion implantation. We are working through current supply chain and pandemic-related headwinds, and we are doing our best to satisfy our customers by keeping projects on track and providing the support they need during these challenging times. With that, I'd like to open it up for questions. Lateef?
spk05: Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your touchtone telephone. If your question has been answered or you wish to withdraw your question, press the pound key. Please press star one to begin. Your first question comes from Patrick Ho of Stiefel. Your line is open.
spk01: Thank you very much, and congrats on the nice quarter and the year. Maybe, Kevin, first off, in terms of the supply chain issues that's been prevalent in the industry, particularly this quarter, two-part question. One, is it primarily a parts and component issue, or are there other variables involved? And maybe secondly, how do you allocate, I guess, priority in terms of potential parts shortages between system builds versus, say, the CS&I business and spare parts? Because I'm sure your customers are trying to keep their fabs running as full as possible. How do you balance that, I guess, dynamic?
spk06: Thank you, Patrick. Good question. I would say the current supply chain issues right now are more component-driven. What we're seeing is suppliers of electronic things like power supplies, for example, are experiencing chip shortages in our end. So in some cases where we have proprietary designs, our engineering team has been working to come up with alternative parts. We also use our supply chain team to search brokers and look for parts for our suppliers. So those are some of the things we've been doing. But as I would say, it is more at this point, I think, a component-related thing and more specifically chip shortages. In terms of how we allocate, I mean, first and foremost, we always do things that will keep the customer up and running. So machine downrushes, for example, if they're down in the field and need a part, if the only part I got is on a tool sitting in manufacturing, it's coming off the tool. So we prioritize basically how we're sending out parts based on customer need. So machine down rushes, inventory they may need to keep their tools up, and then the third priority basically is the systems that we're building that we want to ship for the quarter. So as you picked up, I think most people have been saying it's very tight right now. It is tight. Omicron, I think... certainly had a little impact, too, on some of our suppliers. You know, some of them experienced some pretty big labor shortages in the first month of the year when everybody got back to work. But, you know, what I'll say is we're just continuing to work through those things. You know, it's been a long haul. It's been two years now dealing with, you know, day-to-day issues. We're just going to continue to do the things we've been doing. And, you know, to the extent we can, we're trying to make sure we can keep, you apart from inventory, but that is tightened up a little bit for sure.
spk01: Great. That's helpful. And maybe as my follow-up question, maybe for you, Mary, in terms of the visibility, you mentioned some qualitative comments about 2023. We see the demand out there for the mature nodes today and obviously some of the new FAB expansion plans that are being talked about by many of these types of players. As you look towards 2023, is it just simply a lot of your existing customers on the mature nodes expanding capacity, or are you seeing a further broadening of that customer base into 2023?
spk00: So, you know, Patrick, as we've said, the mature process technology markets remain very strong. The FAB utilization is high. And some of the supplier chain constraints have created a high demand both for tools and for parts and spares and consumables. We see it across all the segments in image sensors in mature process, so image sensors, general mature foundry, power devices. In terms of the customers, we're seeing the demand come from both existing customers, who are expanding capacity either in existing facilities or putting up new fabs. But there is a customer-based expansion as well. There are a significant number of additional new customers that we are seeing out there. I would say the predominance of these customers are actually in Asia. Many of them are in China. And so we continue to watch all of those things very closely, but 2022 is really filling up very nicely, and 2023, early 2023, we actually have very, very good visibility already.
spk01: Great. Thank you very much, and congrats again.
spk05: Thanks, Patrick. Thank you. Our next question comes from Craig Ellis of B. Reilly Securities. Your line is open.
spk04: Yeah, thanks for taking the question, and congratulations on the very strong execution in the quarter and in the outlook. Mary, I just wanted to start by going back to the mature foundry comment. So the company's been very much on message that mature foundry's been an area of strength, and one of the things that we saw very recently is one of the leading U.S. analog companies that traffics in mature foundry put out a capital statement spending plan where they project very high levels of capital investment over the next three years. Can you just talk about the degree to which your customers are not looking for any names here, but to what extent are customers really talking about multi-year visibility? I heard the comments on visibility into early 23, but can you just flesh out that dynamic a little bit more for us?
spk00: Yeah, well, we stay very close to our customers, and I'm not going to comment on any specific customers that you brought up, Craig. But customers are right now, and I think it's because of a lot of the comments that Kevin made about supply chain. Customers are very eager to get in line for equipment, and he also mentioned, as I did, that they are also buying potentially additional aftermarket parts just to make sure that they've got inventory available. on hand. So that really has improved visibility tremendously. They are sharing their plans with us, again, both in terms of just FAB expansions and new FABs. And when I talk about visibility into 2023, it's not just, gee, we know there's this new FAB coming up. We are actually getting orders. for equipment for those fabs. So they're sharing plans, and they are actually starting to place orders for that equipment that will go into those new fabs.
spk10: Got it. Greg, let me just add one thing to that. I think the other thing that's going on in the mature markets is some of the long-term trends that Mary talked about. The power industry, especially the automotive industry, driving it is a, you know, 5, 10, 15-year, you know, drive to get to the full electrification. And so a lot of these customers, you know, are ramping for those initial builds, and, you know, those are over the course of the next few years. So there's a lot of activity there that's planned beyond just, you know, the ordinary stuff.
spk04: Yep. That's helpful, Doug. Thanks for that. And the follow-up is... On the comments around attaining the $850 million revenue target on a run rate basis this year, can you just provide some color on some of the puts and takes? Would that be possible in the first half of the year, or is the supply chain component issue one that might preclude ramping revenues that quickly? Or conversely, are there things that are happening just from a either a mature founder or memory standpoint that would argue for linearity that's more back-end loaded and so attainment in the second half?
spk00: Well, I don't think at this point we're going to give really any additional color on how our year is shaping up in terms of front-end or back-end. Kevin has laid out what he thinks some of the challenges are that we're facing. And again, I think our operations team has done an excellent job managing around those. We're just going to have to continue to wait and see how that goes. But right now, again, from our perspective, there's really nothing differentiating the first half of the year from the second half of the year, and we'll just have to wait and see if there are any additional challenges that are thrown into the mix here that could have an impact on that. But so far, so good.
spk04: Yep, that's helpful, Mary. And then lastly, Kevin, can you just help us with any color on operating expenses? We think beyond the first quarter, clearly there's a strong demand environment and the market seems hungry for the custom products that you're able to develop. So How do we think about what would potentially happen with OpEx as we go through the year?
spk06: Well, in our 850 model, we have 21% and 22%. So, as Mary said, we expect to get to that run rate at some point this year. I did say that Q1 would be 22%, so, you know, we're likely to be at that level, but it would continue to come down as the revenue you know run rate picks up and we'd be somewhere in that 21 to 22 percent range correct so I think that's you know for modeling maybe stay a little bit you know closer to 22 for a couple quarters and then start cranking it down a little bit got it thanks everybody thank you our next question comes from Tom Diffley of DA Davidson please go ahead
spk09: Yes, good afternoon. Thanks for the questions. So first, Mary, the percentages you gave us of the different segments for this year, was that just of systems or is that total revenue?
spk00: No, that was for systems revenue, Tom.
spk09: Okay. And then are you expecting any advanced logic business this year?
spk00: Yes, we are. We closed a Purion H system. It was an evaluation. We closed that in the fourth quarter for advanced logic. And we're working very closely with the customer and expect to have follow on orders both this year and next year based on their current capacity planning.
spk09: Great. Thank you for that. And then maybe a longer term question following up on Patrick's earlier. So obviously the mature market very strong today. It sounds like activity with new Asian customers is ramping as well. Have you seen a move at all to move some capacity outside of China, back to the US or Europe, especially on the power side?
spk00: I don't believe we've seen anything to date. Doug, do you have any additional information on that?
spk10: Well, I'd say, you know, Tom, if the question is around power, power is active globally. You know, there's a lot of activity in the US and Europe maybe even a little more than there has been in Asia at this point, and it's ramping up a little bit more in Asia. So power is very much a global push.
spk09: Okay. Thanks for that, Doug. And then finally, When you look at the memory market, I think you said it should meet the levels it hit back in 2018 at the last peak. When you look at the memory market in terms of new products versus old products, where do you see most of the growth coming from over the next few quarters as we get back to those peak levels? Is it the new products gaining momentum, or is it just the wafer starts picking up the old business again?
spk00: I think it's actually both. We have a number of products out at customers. As you know, we've got a good strong position in memory. So the existing customers that we have and the applications we have are definitely, we're making additional progress. I think we're also seeing wafer starts. obviously drive capacity expansions. We all know that, you know, implant is capacity driven and obviously there's capacity being added. So that's going on as well. We do have, you know, some additional things going on. We talked about how we had the Purion Dragon was qualified at a customer both for DRAM and for Flash. So there are, you know, that is a new tool and that's something that's going to drive market expansion for us at that customer. I just talked about how we placed a Purion M evaluation at a customer for a DRAM application. So it is a mix of both, you know, continuing to just grow what we have as well as continuing to add on to that with some of the new products.
spk09: Great. Well, thank you for your time today.
spk05: Thank you. Our next question comes from Christian Schwab. of Craig Holland Capital. Your question, please.
spk02: Hey, congratulations on a good start here to the year. So when we think about the mature node for mature technologies and the visibility and the new customers, can you help parse maybe the difference between adding capacity on mature nodes versus new materials like silicon carbide?
spk10: Well, it's a combination, Christian. I'm not sure I completely understand the question. But the activity for the mature markets is very strong. It's being driven by a lot of things, including the chip shortages, which are largely in those mature nodes. And then for the longer term, materials like silicon carbide, silicon power, image sensors, as well as a lot of microcontroller-type products and communication products are all driving mature as a whole. The implant intensity for image sensors and power devices is very high, you know, even higher than a standard mature process, which is higher than, you know, advanced logic and even memory. And so those areas, you know, do have, you know, power and image sensors, you know, have a bit of a multiplier, you know, on our business in the mature. And that's, you know, we see that when you look at nearly 30% of last year's revenue coming from power, for example.
spk02: Yeah, thanks for that. I guess let me make the question a little bit clearer. I guess the uptake in the ion implant TAM to $2 billion and the movement to electric vehicles where a lot of people are making advancements to look in carbide to push that customer adoption or product adoption of that. Do you have any idea how you can quantify the positive impact to your TAM from that, what it is today, and what it could potentially be, you know, five years from now when adoption is materially higher?
spk10: We haven't really publicly discussed, you know, that detail to that level of detail, Christian. It is, you know, it is material. If you look, there's probably three or four research firms that have estimates in terms of wafer starts for power as a whole and for silicon carbide. And, you know, so I guess, you know, the recommendation would be, you know, grab a couple of those and we've given information, you know, in terms of the intensity of implant. And, you know, that's probably a good metric, but we haven't published our specific numbers to the state.
spk02: Okay, great. No other questions. Thanks, guys.
spk05: Thank you. Thank you. Our next question comes from Quinn Bolton of Needham. Your line is open.
spk07: Hi, all. Congratulations on hitting the 650 model a couple years early and the successful eval completion for Dragon. First, I wanted to start just on the near-term supply constraints that Sounds like you continue to face some component challenges. I think others in the industry have faced that, you know, certainly for a couple of quarters now. But wondering the component shortages and potentially any absenteeism due to Omicron, is that actually causing you to push systems out of Q1 that you would then expect to capture in future quarters, or are the component and absenteeism issues not necessarily changing the revenue outlook for the March quarter?
spk06: Yeah, so we have factored in what we know, Quinn, into the Q1 guidance. I'm not going to tell you that it hasn't caused a little bit of stress on the first quarter, but I think overall we're still keeping up with things fairly well. You know, if you're trying to take a look at, you know, Q4 to Q1 being down a little bit, you know, we said CS9 would be about $50 million, so you've got about $8 million lower coming on the CS9 side of that. So that's a piece of what's bringing us down. But, you know, it's tight. And I would expect, you know, as the year progresses, that things should start to ease up a little bit. Certainly, I think Omicron put an extra layer of, you know, complication in everybody's business models. There was lots of challenges before, and, you know, I guess the good news is, you know, the illness is not as severe, but the real issue is because you have to quarantine employees that are positive, it was very disruptive to people's workforces. But the good news is people were able to get back to work a lot quicker than when they got other variants of Omicron. So all I can really say is that we've got that factored into Q1, and there's a little bit of pressure there, which would indicate that some of that revenue will fall into a different quarter. Got it. We're certainly not losing any orders, you know. So, you know, and we are keeping up with, at this point, with customer requests. So I think that's the good news. I don't think there's anything in our schedules yet where, you know, it's caused us not to be able to close an order. Got it. Okay.
spk07: Thank you, Kevin. And then a second question for you and then one for Mary. Okay. Just the deferred revenue balance on the balance sheet has gone up from about $20 million in Q1 to $60-plus million in the fourth quarter, and that's with several evaluation units closed. I think you said you only have three evaluations currently in the field. So just wondering, what's behind that tripling in deferred revenue on the balance sheet over the course of 2021?
spk06: Yeah, so the deferred revenue, actually the evals, that's more of an inventory, Quinn, where that sits because until they convert, it sits in our inventory. The deferred revenue is basically the tools that are being installed. There's a certain carve-out after a tool is shipped because there's revenue that is associated with installation. So until that's completed, you can't recognize that revenue. And there's a carve-out also for the WNI piece of it. I think the biggest thing you're seeing is probably the increase in volume in the business that's going on. The other thing that you will also see, and it's more in the long-term deferred revenue, is there are a number of customers where we're getting a prepayment with the POs. and that will be hung up in long-term deferred revenue. So those are probably the two pieces that are making that go up, especially if you're looking back year over year.
spk07: Got it. Perfect. And then just for Mary, you mentioned the successful completion of the Dragon eval, and that positions you both for NAND and DRAM now to gain share with that customer. Just wondering, can you share your plans? Do you expect to – get follow-on production orders for Dragon this year?
spk00: Yes, we do. We expect to get follow-on orders. We think at this point the DRAM business is going to, you know, begin that rollout, and then we look forward to some NAND orders later on, either this year or next year.
spk05: Great. Thank you. Thank you. Our next question comes from David Dooley of Steelhead. Your line is open.
spk11: Thank you for taking my questions. Doug, this one's probably for you. I think in the past you've mentioned how much more implant-intensive CMOS sensors are and power devices are. Could you just remind us about that, or give us a guess as to are they 20% more intensive than a regular part, or what's the range?
spk10: Well, it's... It depends on the comparison, Dave. You know, there's close to 30 implants, you know, on image sensors or power devices. There's a lot of high-energy implants in both. And so that drives the need for products like the VXE or Purion H200. And so, you know, so it's good for our business. It's good for our higher-energy clients. type of applications. There's also, in those particular devices, oftentimes multiple implants that are done in the same region to create the transistor parametrics that people are looking for. So it is definitely a much higher intensity and a better mix of product for Excellus.
spk11: So for let's say in the memory sector, how many implants are there, the 30 implants per device, or just trying to get some sort of comparison to how much more implant intensive these markets are. And that helps answer other questions, obviously.
spk10: Yeah, it's the, on the memory, it's very dependent on, on the type and the customer's process flows and so forth. So can't give you a specific number there in terms of an exact comparison. to a power device. They are less than the power devices.
spk11: Okay. And then, Kevin, you've done such a great job with managing the business here, or the whole company has. Your cash balance is up almost $92 million on a year over your basis. Can you just kind of help us understand what you're going to do with this cash going forward, and can we expect this calendar 2022 to be a higher cash generation year than last year, given the expected revenue growth?
spk06: Yeah, well, so, I mean, the free cash flow is in the new model. So on the 850 model, it's greater than 20%, and on the billion, it's greater than 22%. So, you know, we said we expect to get to that run rate at some point in one of the quarters in 2022. So it's You know, it's going to be another strong year of cash generation. You know, I expect that we'll continue to return some amount of capital to shareholders. We've had a program in place now for the past few years, and, you know, we'll review what we're thinking about in terms of a follow-on program in our upcoming board meeting, and then we'll get, you know, any details of that out after we do that. The other thing is we have said that we're thinking about right now what's beyond the $1 billion model. I'm not going to say we can't go beyond that and just implant, but it's really time we start thinking about how do we continue to grow beyond that. We're going to take this year to start looking at what that means in terms of what may be M&A that could either boost the implant part of the business or if it could even be something outside of implants. So that would obviously be a use of cash if we decided to do something. So I guess the short answer is we're going to continue to return some level of capital to shareholders, and then we're going to invest the rest of it in the business, and, yeah, we're going to have a strong year. The other thing I would point out, too, we've been using up a lot of NOLs and deferred tax credits. So we've been fortunate not to have been a cash taxpayer, but that's about to end. But that's all contemplated in these models at greater than 20%. But I just want to remind people that we have not been a cash payer in taxes. Obviously, it's a P&L impact in our earnings, but we've generated a little bit more cash because we haven't had to and cash out, so it's helped the cash balance at year end.
spk11: Okay, and then one final question from me is, you talked about having visibility into early 2023. Is that just the timing of FAB projects, or is that suggesting that your manufacturing slots are full in 2022?
spk00: No, it's the timing of... Go ahead, Kevin.
spk06: Yeah, it's... I think Mary said, I mean, 2022 is, you know, we've got a lot of visibility that's getting full, but I'm not going to say that we can't put additional slots in there. A lot of that is timing of the projects. And we are, as we said, we are starting to book orders in 2023. Okay, thanks.
spk05: Thank you. Again, to ask a question, please press star 1 on your touch-tone telephone. Again, that's star 1 on your touch-tone telephone to ask a question. Our next question comes from Mark Miller of Benchmark. Your line is open.
spk08: Let me add my congratulations to a great quarter and a great year. The future looks very bright here. You mentioned you had closed for eval tool qualifications or evaluations in the in the last quarter, and there was at least one tool, I think it was a Purion M, that has been sent out to evaluation tool for DRAM. What other evals are currently in the field?
spk00: The other two evals that are out there, we currently have three in the field, are the two Purion Xe Maxes that we put out into the field last year. And actually, I think one of them went out in 2020. So those are the two that are out there, and they're both out for advanced image sensor development.
spk08: Okay. I'm surprised, because certainly there's a number of major fabs coming up next year. But when I asked this of other semi-companies, they were expecting orders later in the year, and it seems like you're getting your orders already. Is there any reason for that?
spk00: I don't know exactly which customers you're talking about, and I don't want to comment on any specific customers. So, Mark, I'm not exactly sure how to answer that. If you're talking about evaluation units, we will be putting more evaluation units out into the field throughout the year. Everything is not going to be front-end loaded. But, again, I don't know if you want to rephrase the question or if that answers it.
spk08: I'm just curious, like I said, in terms of these new FABs coming up in 2023, you said you were already getting orders, and that seemed earlier than other companies have indicated.
spk00: Well, Implant traditionally has been one of the first tools that goes into a FAB, so I don't know if that necessarily is what's impacting it. That could be one factor, but we work very closely with our customers and We feel very comfortable and confident that these FABs are going to happen. So I'm not quite sure what you're comparing it to, but that is what we're seeing.
spk08: More metrology tools. Okay, thank you.
spk05: Thanks. This concludes the Q&A portion of the call. I will now turn the call back over to Mary Puma, who will make a few closing remarks.
spk00: Okay, thank you, Lateef. And thanks to everyone for joining us today. We hope to talk with you virtually at upcoming investor events, and we will be participating in Susquehanna Financial Group's 11th Annual Technology Conference in March. We thank you for your continued support, and please stay healthy. Thank you.
spk05: This concludes the presentation. Thank you for your participation in today's conference. You may now disconnect. Good day.
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