Axcelis Technologies, Inc.

Good day, ladies and gentlemen, and welcome to the Xelis Technologies call to discuss the company's results for the first quarter of 2022. My name is Selviana, I'll 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. 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, Sylvia. 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 yesterday, 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's 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 FCC 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 for our first quarter earnings call. 2022 has begun exactly as 2021 ended for both Excellus and the industry. with significant demand for chips and the capital equipment required to produce them. Turning to Excellus specifically, the adoption of the full Perion product family has been strong and continues to gain momentum across a large and growing customer base. Customer satisfaction remains our top priority. Today, despite the challenging supply chain and logistics environment, solid execution by the full Excellus team has allowed us to keep up with this high level of customer demand, meet shipments, and maintain high levels of customer satisfaction. I would like to thank our dedicated employees once again for delivering these results under these challenging conditions. As a result of this demand and our strong execution, our first quarter financial performance was well above our guidance. Revenue for the first quarter was $203.6 million, with earnings per share of $1.22, gross margin of 44.1%, and a quarter-end cash balance of $297.9 million. 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 Q1 was $51.8 million. The growing mature process technology market continues to be an area of strength for Excellus, with 81% of first quarter shipments going to mature Foundry Logic customers and 19% to memory customers, with NAND accounting for 9% and DRAM 10%. Our geographic mix was spread more evenly around the world due to significant global investment in the mature process technology market. The resulting mix of our system shipments in the first quarter was China 32%, Korea 18%, Europe 13%, Taiwan 11%, the U.S. 10%, Japan 6%, and the rest of the world 10%. Visibility for 2022 continues to be good from a demand perspective, with significant orders for 2023 already booked. As a result, Excellus now expects to achieve revenue of greater than $850 million in 2022. For the second quarter, we expect revenue of $205 to $215 million, gross margin of approximately 41%, operating profit of approximately $41 million, and earnings per share of approximately $1. Our guidance reflects increases in supply chain and logistic costs that are impacting our gross margin and operating expenses. In a few minutes, Kevin will provide more color on the actions we are taking to mitigate these challenges. The industry is in the strongest cycle ever seen and continues to be driven by the same factors we discussed last quarter. In addition to a strong market, the implant TAM has increased significantly to approximately $2 billion and investment in the power market, both silicon and silicon carbide, continues to grow rapidly. Power devices are more implant-intensive and require our more advanced Perion product extensions. We expect the power segment to account for between 30 and 40% of our system shipments in 2022. This growth is a long-term trend driven by the transition to electric vehicles and should benefit Excellus for many years to come. Overall, we expect that the mature markets will account for approximately 80% of our total system shipments in 2022. We expect memory in 2022 will approach revenue levels seen at the last peak. In 2021, memory accounted for 17% of systems revenue, and we expect it to be approximately 20% in 2022. We maintain a strong and growing position in memory. In April, we shipped a Purion H high-current evaluation to a new memory customer for a DRAM application. Also in April, we shipped a Purion H evaluation system to a new FAB at an existing mature process technology customer. These two Purion H evaluation shipments will position Excellus for further growth in the high-current market, the largest implant product segment. 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 morning. Excel has delivered exceptional first quarter financial results, beating company guidance and consensus estimates across the board. Favorable mix, higher tool sales, and strong execution drove solid top and bottom line results in Q1. Throughout the quarter, our purchasing and engineering teams worked closely with suppliers to mitigate supply chain disruption, while our manufacturing team filled the gap and performed at a very high level. Pandemic-related shutdowns, nagging chip shortages, and logistics issues are continuing, and we're working hard strategically and tactically to tackle these issues. As Mary mentioned, 2022 is on track to be another great year for Excellus, and we now expect full-year revenue to be greater than $850 million. End markets are strong and visibility remains good. Like others in the industry, we are dealing with similar supply chain disruption and higher costs, and have included these anticipated challenges into our Q2 guidance and full-year forecast. But the situation is changing almost daily. As noted in our last call, we began production at the new Excellus Asia Operations Center in South Korea, and we have now shipped multiple systems from the AOC as we continue to ramp production levels. This factory adds flexibility and manufacturing capacity to support our $1 billion revenue model. Moving now to our first quarter financial results. Q1 revenue finished at $203.6 million, well above our guidance compared to $205.7 million in Q4. Q1 system sales were $151.8 million compared to $147.3 million in Q4. Q1 CS&R revenue finished at $51.8 million compared to $58.4 million in Q4. We expect Q2 CS&R revenue to be around $51 million and recommend modeling the remainder of 2022 at $55 million per quarter. Q1 sales to our top 10 customers accounted for 69.8% of our total sales compared to 71.9% in Q4. Two customers at 10% or above in Q1 compared to three in Q4. Q1 system bookings were $315.5 million compared to $193.9 million in Q4. with a Q1 book-to-bill ratio of 2.0 versus 1.29 in Q4. Backlog in Q1, including deferred revenue, finished at $625 million, a new record compared to $461 million in Q4. Multiple customers are planning new fabs and expansions for 2023, which is driving bookings out beyond one year. Q1 combined SG&A and R&D spending was $40.8 million, or 20.1% of revenue, compared to $42.9 million, or 20.9% in Q4. SG&A in a quarter was $23.9 million, with R&D at $17 million. In Q2, we expect SG&A and R&D spending to be approximately 22% of revenue. For the full year, I recommend modeling SG&A and R&D spending at approximately 21% of revenue. Q1 gross margin was 44.1% and well above our guidance. Gross margin in the quarter was higher than guidance due to a more favorable mix of systems and upgrades. We are guiding Q2 gross margin of approximately 41%. driven by the expected shipment of a less favorable mix compared to Q1. Full-year gross margin is expected to be approximately 42% due to significantly higher supply chain costs. We are continuously evaluating ways to offset increased costs, but customer satisfaction remains our top priority. Outside of the higher cost mentioned, we continue to make solid progress on core gross margin improvement initiatives that are fueled by growth in our CS&I business, Puriam product extensions, and across the board cost out. Our $1 billion model reflects continued gross margin expansion driven by higher revenue from CS&I and Puriam product extensions, incremental supply chain volume and value engineering, planned labor and quality improvements, and a return to a more typical supply chain and logistics environment. Operating profit in Q1 finished at $48.9 million compared to $46.6 million in Q4. We are guiding Q2 operating profit of approximately $41 million. Q1 net income was $41.6 million or $1.22 per share compared to $35.7 million or $1.05 per share in Q4. Q1 includes a favorable tax benefit resulting from a foreign-derived intangible income tax deduction known as FDII. We are forecasting a 15% effective tax rate for future quarters based on the FDII reduction. We are guiding Q2 earnings per share of approximately $1. As noted earlier, our Q2 guidance reflects the anticipated impacts on our business from supply chain and pandemic-related issues, but remains an evolving situation. Q1 receivables were $119 million compared to $104.4 million in Q4. Q1 inventory ended at $203.8 million compared to $195 million in Q4. Q1 inventory turns, excluding evaluation tools, finished at 2.5 compared to 2.7 in Q4. Q1 accounts payable were $50.8 million compared to $38 million in Q4. Q1 cash finished at $298 million and slightly higher than Q4, which was $296 million. In the quarter, we generated $25.8 million of cash from operations and settled share repurchases of $20 million. Through Q1, we returned over $95 million of cash to our shareholders through stock repurchases. It's an exciting time for Excellus, with significant growth in the industry and solid customer demand for our products. We have executed at a very high level throughout the pandemic. And once again, I want to thank the entire team for continuing to perform exceptionally well in a very difficult environment. I also want to thank our supply chain partners that are working very hard to support us and our customers for the strong support during these unusual times. We are working hard to minimize disruption to our customers who count on us to execute on our commitments. And we remain laser focused on customer satisfaction. Thank you, and I'll now turn the call back to Mary for closing comments.