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spk07: Good day, ladies and gentlemen, and welcome to the Excellus Technologies call to discuss the company's results for the second quarter of 2022. My name is Chandra Lynn, 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. I would 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.
spk04: Thank you, Chandra Lynn. 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 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 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 for our second quarter earnings call. Business continues to be robust for Excellus, especially in the highly implant-intensive mature process technology segment. In the second quarter, 84% of system shipments and 95% of system bookings came from this segment. Automotive and industrial applications are extremely strong as evidenced by the growing strength in our strength and power devices. We recently posted a new presentation on our website on this exciting market opportunity. We remain focused on customer satisfaction with on-time shipment and installation a key metric. To date, 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 shipment and installation dates, 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 second quarter financial performance was well above our guidance. Revenue for the second quarter was $221.2 million, with earnings per share of $1.32, gross margin of 44.8%, and a quarter end cash balance of $287.9 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 Q2 was $55.8 million. As mentioned before, the mature process technology market continues to be an area of strength for Excellus, with 84% of second quarter shipments going to mature Foundry Logic customers. 16% of shipments went to memory customers, with NAND accounting for 14% and DRAM 2%. The geographic mix of our system shipments in the second quarter was China 55%, the US 16%, Korea 14%, Europe 4%, Taiwan 3%, and the rest of the world 8%. Visibility for 2022 and 2023 continues to be good from a demand perspective. System bookings and shipments continue to hit record levels with significant orders for 2023 already booked. As a result, Excellus now expects to achieve revenue of greater than $875 million in 2022 with gross margin of approximately 42.5%. For the third quarter, we expect revenue of between $220 and $228 million gross margin of approximately 42%, operating profit between $44.5 to $47.5 million, and earnings per share between $1.10 and $1.15. Our guidance reflects increased supply chain and logistics costs that are impacting our gross margin. In a few minutes, Kevin will provide more color on the actions we are taking to mitigate these challenges. There is currently concern in the industry around CapEx spending in memory and consumer-related IC manufacturing for 2023. Excellus has a strong presence in the memory segment, but we currently have limited relative exposure to memory due to the size of the implant opportunity in the mature markets. For 2022, we expect only about 20% of system revenue from the memory segments. We have made progress in penetrating the advanced logic market, which has significant exposure to consumer IC spending. We continue to work closely with customers, but we have no material exposure to the advanced logic segment in 2022 and limited exposure in 2023. Our continued growth is being driven by the mature process technology segment, which is expected to account for approximately 80% of our system revenue in 2022. Growth in this highly implant-intensive segment, especially automotive and industrial applications, has more than doubled the ion implant TAM to greater than $2.25 billion in the last three years. Power devices are a key part of this growth and require our more advanced Purion product extensions. We expect the power segment to account for between 35 and 40 percent 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. As a result, we expect our business to remain strong, but we will use any slowdown in specific market segments as an opportunity to penetrate new applications with additional evaluation systems and to work with customers on adoption of the more advanced Purion product extensions. Now I'd like to turn it over to Kevin to discuss our financials and provide an operational update.
spk01: Thank you, Mary, and good morning. Excel has delivered exceptional second quarter financial results, beating company guidance and consensus estimates across the board. Favorable mix with higher gross margin and solid execution drove these positive results. Supply chain disruption was significant in Q2, caused by pandemic related shutdowns, nagging chip shortages, and capacity. Throughout the quarter, our purchasing and engineering teams worked closely with suppliers to implement both strategic and tactical measures to address these issues. Our manufacturing team addressed challenges created by material availability, while sales and service teams worked closely with customers to support fab ramp plans and high utilization rates. As Mary mentioned, 2022 is on track to be another great year for Excellus. We now expect full year revenue to be greater than $875 million. Visibility remains good and customer demand remains strong. Like others in the industry, we are dealing with similar supply chain disruption and higher costs. We tried to include these anticipated challenges into our Q3 and full year guidance, but the situation changes almost daily. The only constant right now is that the industry is supply chain constrained. We have continued to make improvements in our manufacturing capability in both Beverly and South Korea. In the second quarter, we significantly ramped production at the new Excellus Asia Operations Center in South Korea. and began additional projects to increase manufacturing capacity in Beverly. These efforts will enable us to support greater than $1 billion in revenue. Moving to our second quarter financial results, Q2 revenue finished at $221.2 million and above our guidance, compared to $203.6 million in Q1. Q2 assistance revenue was $165.4 million compared to $151.8 million in Q1. Q2 CS&I revenue finished at $55.8 million compared to $51.8 million in Q1. CS&I posted very strong margins in the quarter due to mix and some lower costs. We expect Q3 CS&I revenue to be around $55 million and recommend modeling the remainder 2022 at 55 million per quarter. Q2 sales to our top 10 customers accounted for 66.3% of our total sales compared to 69.8% in Q1. Two customers were at 10% or above in Q2, the same as in Q1. Q2 system bookings were $432.8 million compared to 315.5 million in Q1. with a Q2 book-to-bill ratio of 2.56 versus 2.0 in Q1. Backlog in Q2, including deferred revenue, finished at $869.5 million, a new record compared to 625 million in Q1. Multiple customers are planning new fabs and expansions for 2023 and 2024, which is driving bookings out beyond one year. Q2 combined SG&A and R&D spending was $45 million, or 20.4% of revenue, compared to 40.8 million, or 20.1% in Q1. SG&A in a quarter was $26.3 million, with R&D at 18.7 million. In Q3, we expect SG&A and R&D spending to be approximately 21% of revenue. For the full year, I recommend modeling SG&A and R&D spending at approximately 21% of revenue. Gross margin was 44.8% and well above our guidance. Gross margin in the quarter was higher than guidance due to a more favorable mix of systems and higher than normal CS&I margins. We're guiding Q3 gross margin of approximately 42%. driven by the expected shipment of a less favorable systems mix compared to Q2, and the increased impact of supply chain related costs. Full year 2022 gross margin is expected to be approximately 42.5%, which includes the impact of supply chain and logistics headwinds. We believe we are at the trough and should begin recovering during 2023. We are continuously evaluating ways to help offset increased costs, but customer satisfaction remains our top priority. Outside of the higher costs mentioned, we continue to make progress on core gross margin initiatives. 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 Q2 finished at $54.1 million compared to $48.9 million in Q1. We're guiding Q3 operating profit between 44.5 and $47.5 million. Q2 net income was $44.2 million, or $1.32 per share, compared to $41.6 million, or $1.22 per share in Q1. We're guiding Q3 earnings per share between $1.10 and $1.15. As noted earlier, our Q3 guidance reflects the anticipated impact on our business from supplier and pandemic related issues, but remained an evolving situation. Q2 receivables were $146.1 million compared to 119 in Q1, driven by the timing of shipments. Q2 inventory ended at $213.1 million compared to 203.8 million in Q1. Q2 inventory turns, excluding evaluation tools, finished at 2.6 compared to 2.5 in Q1. Q2 accounts payable were $49.4 million compared to $50.8 million in Q1. Q2 cash finished at $288 million compared to $298 million in Q1, driven by an increase in working capital. In the quarter, we generated $3.5 million of cash from operations and sell the share repurchases of approximately $12.5 million. We have returned over $107 million of cash to our shareholders since beginning our stock repurchase programs. This is an exciting time for Exilis, with significant growth in the ion implant TAM, solid customer demand for our products, and long-term growth prospects in the power device market. We are executing at a very high level despite a challenging environment. And once again, I want to thank the entire team for continuing to perform at this level. I also want to thank our supply chain partners for their hard work supporting Excellus and our customers during these unusual times. We have a number of projects underway focused on stabilizing our supply chain and adding manufacturing capacity. As a result, we believe that Excellus will emerge from this period for a stronger and much more resilient business. Thank you. I'll now turn the call back to Mary for closing comments.
spk04: Thank you, Kevin. It is a very interesting time in the semiconductor industry. Concerns over a reduction in consumer and memory spending signal an industry slowdown in 2023. However, any impact on Excellus will be moderated by several factors. Supply chain and logistics challenges continue to create a supply-limited environment for our customers, likely helping smooth over any slowdown in end-user demand. Government spending programs like the U.S. CHIPS Act are globally incentivizing semiconductor companies to build fabs. And lastly, but very important to Excellus, is the electrification of the automotive industry. The investments required for this long-term trend are rapidly expanding the ion implant TAM and driving significant growth in our business. The capabilities of the Purion Power Series uniquely position Excellus to benefit from this. With that, I'd like to open it up for questions. Chandra Lynn?
spk07: Ladies and gentlemen, if you wish to ask a question, please press the star one one on your touch tone telephone If your question has been answered or you wish to withdraw your question, press the pound key. Our first question will come from Mr. Patrick Hull of SIFO.
spk05: Patrick? Mr. Hull?
spk07: May I please ask, in order to ask your question, please press the star 11 on your handset. Mr. Ho, Mr. Patrick Ho would stifle.
spk05: Mr. Patrick Ho would stifle. Please press the star key, the number one, and then the number one again.
spk07: Mr. Craig Ellis with B. Riley, to pose your question, please press the star key followed by the one and then the one key again.
spk05: Is Mr. Ho available with SIFO? Just a moment while I troubleshoot to ensure that the telephone system is responding.
spk07: Is Mr. Differly able to press star 1-1 with D.A. Daverson to pose his questions?
spk05: Just a moment while I troubleshoot. I'm going to ask while I'm troubleshooting anyone, let's see, we have Mr.
spk07: Is Mr. Ho able to dial star 11 to ask the question?
spk05: Sandra Lynn, we just got a message.
spk04: We just got a message that said that people are getting repeated confirms that their hand is raised and they have spoken when they've been called on, but apparently we can't hear them. So I'm not sure how you might work on troubleshooting that.
spk07: I'm working on that.
spk04: Okay, thank you.
spk07: I'm escalating my request.
spk04: Okay, thank you.
spk05: Just a moment, please. I'm escalating my tech support. Mr. Holt, Mr. Patrick Holt with Stifel, are you able to dial star 11 and pose your question, please? Hello? Yes, Mr. Holt? Yes.
spk07: Are you able to pose your question, please?
spk02: Yes. Congrats on the nice quarter. Thankfully, your results and outlook can speak for themselves. Kevin, maybe first off for you, I know it's always a challenge in this supply-constrained environment, managing systems, deliveries, as well as the CS&I business. Given your strong results and outlook, how are you managing that to ensure customer satisfaction on both of those fronts? Because obviously they want to keep their fab running. uh, at the highest utilization, yet at the same time, they're, they're trying to expand fab capacity. How are you prioritizing, uh, you know, your, your shipments, uh, on both sides of the businesses?
spk01: Yep. So it's, it's a good question, Patrick. There's, there's no doubt there's a bit of a juggling act, but, you know, first and foremost, we have to pay attention to customer satisfaction. So, um, priority to keeping the field up and running always, um, It goes first, and then system deliveries after that kind of second. You know, it's I think probably the most difficult situation in this quarter was the continuing chip shortages that were hitting some of our OEMs. But I do think some of the good news that came out of a couple of other companies have announced that our OEMs, they've been talking about improving supply chain. I think if we can get the OEMs back on track, get beyond some of these chip shortages, that's going to go a long ways to improving things. We have plenty of capacity in place right now in terms of manufacturing. So it is all about supply chain. And then the costs have been escalating. We're paying the cost right now because we have to make deliveries. You know, there's going to be some work to do to start rolling back some of this as the situation starts to recover and commodity prices start dropping. But so, yeah. So back to your original question, it's a bit of a juggling act, but, you know, the top level thing, customer satisfaction. So if there's a tool down in the field, we've got to get it up and running. And if that means a part has to come out of something on our shipping dock, then that's what's going to have to happen.
spk02: Great. That's helpful. And maybe it's my follow up question for Barry. Obviously the demand trends and booking trends continue to be very robust and solid on a going forward basis, but obviously there's a lot of market concerns out there. You know, what gives you confidence when you talk to your customers that these are cool, you know, real demand orders that we're looking at for, you know, 2023 at this point. You know, what gives you the confidence that, you know, some of the bear concerns that it's a head fake and they'll just cancel orders if need be? I guess, what's your take on the situation?
spk04: Well, you know, we stay very close to our customers and we're talking to them constantly. Just over the last couple of weeks, we've had discussions with two of our customers who are in the mature process technology area. And basically, while they say, yeah, there are some certain segments of their businesses that perhaps are softening a little, their business in some of the areas that we talked about, so specifically automotive and industrial, are very, very strong. And so what they're able to do is to now cover everything that those customers need. specifically need. So I think everybody is just watching and waiting, but the demand remains very strong. You know, even in the memory segment where we understand that, you know, there's potentially some slowdown being driven by falling PC and phone sales, we believe that our business is going to be steady in 2022 and into 2023. you know, perhaps maybe there will be, you know, again, some softening. But the mature process technology segment is really overshadowing all of that. And we have not had any pushouts to date that have been related to any customer telling us that there has been a softening in demand. You know, we have some normal that go in and out, but You know, it's other factors that are impacting it, like perhaps a delay in their investment or a delay in their fab construction, things like that. So at this point, Patrick, again, you know, we feel very confident that all the trends are in place. The long-term trends have not changed, and we're very well positioned with our Perion product lines. Our execution is really excellent. Kevin and the team have done a fantastic job. And so, you know, we're very bullish about the future at this point.
spk02: Thank you very much again and congrats.
spk07: Thank you. Our next question would be from Mr. Christian Schwab with Craig Harlem.
spk10: Hey, congrats guys on a fabulous quarter and outlook. My question is, you know, you have continue to have obviously very strong visibility. Can you talk to us as far as the future bookings that are going out, kind of the mix between, you know, mature nodes and silicon carbide? And then a follow-up to that would be, you know, by the end of calendar 23, how many different silicon carbide, you know, manufacturers do you think you'll be selling I&M plant to? Thanks.
spk04: Well, we haven't given a forecast out for the full bookings that we have in place. We have talked about our bookings for the quarter. 95% of our bookings were from mature process technology. The other 5% obviously were from memory. But from what I know about the backlog, clearly the mature process technology continues to overshadow the memory segment at this point in time. And we've talked about how, from a TAM standpoint, 65% of the TAM is mature process technology. About 22.5% is memory. Advanced logic is about 15%. So I think that that will give you a feel for the fact that the major business for ion implant is going to come from mature process technology companies. And, you know, last year, 82% of our systems revenue was mature process technology. This year, we're talking about the fact that it'll be approximately 80%. So, you know, Christian, you'll have to read into that without having any specific numbers, but I think the trend will continue.
spk09: Yeah. Christian, this is Doug. The only other thing I'd add to it is that, you know, we do continue to see, you know, very strong bookings from the power market. We said we'd expect 35% to 40% of our system's revenue for the year to be coming from that segment. So that's reflective of what the business is like right now.
spk10: Great. No other questions. Thanks, guys. Thank you.
spk07: Our next question is from Mr. Craig Ellis with B. Riley. Craig?
spk03: Yep. Good morning, Tim. Can you hear me? Yes. Morning. Oh, wonderful. Thanks. Yeah. And congratulations on truly stellar execution. I had a couple clarifications before a bigger picture question. The first clarification on the calendar 22 guidance for 875 million plus in revenues. Can you just help us understand the variables at play with respect to what the plus could be? could be caused by, is it really just supply chain dynamics? And if so, to what extent would that be internal Excellus versus broader issues? And if you can provide any color on magnitude, that would be helpful too.
spk01: Yeah, Mary, let me take that. So there's no doubt, Greg, that we've got strong demand. And I think there's probably more customers that would take earlier deliveries versus, as Mary said, we're not really seeing the push outs. The supply chain is, you know, probably the number one challenge right now in terms of how much more quickly we could ramp things up. Although I think we've done a great job. We've had significant growth year over year. And, you know, we certainly have been getting our fair shake from our supply chain partners that are all working very hard with us. So, you know, I think any additional upside you know, to greater than 875 at this point. If I said it was anything other than supply chain, then I'd be disingenuous. So that is the challenge right now. Got it. That's helpful, Kevin.
spk03: And then the second question is on the backlog. So very dramatic numbers at well above 850 million. My question is this, Mary. Is the backlog a 12-month backlog that the company provided, or does that include some of the multi-year orders that you had described? And to the extent you can characterize how much a backlog would be 12 months versus beyond 12 months, that would be great.
spk04: Kevin, do you want to take that?
spk01: Yeah, well, the backlog number does include everything. So there is some stuff that goes all the way out into 2024. I don't have the specifics of how much is 12 months versus what's beyond it. I mean, you know, the majority of what I'm going to say is over the next 12 months for sure. But I'm not going to tell you there's not some in that backlog that's out a little bit farther.
spk03: Got it. And then finally, Doug, in the last week, we've seen one semiconductor company increase its view for silicon carbide three-year shipments by $1.4 billion, up to $4 billion. And so the question is this, as we go back and look at that nice SAM summary that the company provided at Semicon West, moving up to $2.25 billion in light of some of the recent developments in silicon carbide, do you think that Sam, do you really capture the magnitude of strength coming from silicon carbide, or are we starting to see trends that will put upward pressure on that 2.25 billion? Thank you.
spk09: Yeah, so, Craig, I think that, you know, the numbers that we put up that are in the presentation, you know, are our current view. We're constantly evaluating it, and as we talk to customers and get their input in terms of what their demand is, We'll continue to update it, but the charts that are in the presentation show our current view.
spk03: All right. Got it. Thanks, team. Very good execution. Thank you. Thanks, Craig.
spk07: And our next question will come from Mr. Tom Deserly. Tom is with DA Davidson.
spk08: Yeah, good morning. I hope you can hear me this time.
spk01: Yep, again.
spk08: Oh, good. So, Doug, just following up on the last couple questions on the power side, you know, obviously we think about silicon carbide and EVs, but maybe just talk a little bit about what else is driving this really strong power segment for you right now in terms of either industrial or just traditional cars.
spk09: Well, you know, as you can look at the investor presentation that we posted and also the One from Semicon. Automotive is very much driving the bulk of silicon carbide in terms of its volume. There's many other applications, you know, in smart grid applications and, you know, in other industrial applications. But automotive is the biggest driver. And then, you know, there's a split between silicon IGBT type devices and silicon carbide. And That really depends on the automaker's decision on what they want for their first round of EVs.
spk08: Okay, great. And then, Mary, you did a good job of laying out your minimal exposure to the advanced logic market today in the consumer. But I'm curious, obviously, most of your mature business is driven by power and LED, or I'm image sensors. But what is your exposure on the mature side to the consumer?
spk04: There's some exposure in the general mature area. But again, from talking to customers, while they see some potential softness in some of the consumer-related devices, as I said, most of them are seeing strength in some of the other areas. So at this point in time, that's actually been able to offset any weakness that our customers are seeing there. So, as I said, we haven't seen any, you know, major impact on Excellus as a result of that. Our, you know, our order book is very strong. Projects are booking out right now into 2023 and into 2024, as Kevin said, and customers just remain, you know, that are tied to the general mature process technology area, specifically the power devices, as Doug said, are really pushing. We have customers still telling us that they'd like to pull order shipment dates in. So, again, things remain intact and they remain quite good.
spk08: Great. And then finally, Kevin, when you look at the margin guidance, Can you quantify or split the delta between the second and third quarter between the mix and the supply chain, the impact on the margin?
spk01: Yeah. So what I'm going to do is I'm going to give you a kind of more of a full year look at this, Tom. Okay. You know, and it's back-end loaded, so it is more, it's a little bit heavier in Q3, Q4, which is... give you a kind of more of a full year uh look at this tom um okay you know and it's it's back and loaded so it is more it's a little bit heavier in q3 q4 which is which is one of the things hitting the margins but if i take a look at where i think we are in terms of uh negative purchasing price variances and uh much higher logistics costs much higher logistics costs you know there is there is approximately 250 basis points on the full year margins in terms of impact um it is uh in q3 and q4 it's a little more heavy in terms of how it's hitting based on when the material is bought versus the timing when we're shipping the tools um but um you know we're we're continuing and it's you know i want to make this point we're Although we've got some higher costs coming in, we've also, we're getting favorable costs too. It's just, you know, the favorability is being offset by the higher stuff, but we're still investing in all the things we've talked about before. You know, our lean manufacturing, we've invested in augmented reality and AI. We're still doing all the value engineering things. You know, we are taking advantage of volume. So, you know, I feel good that You know, we haven't slowed down with our core initiatives with, you know, the product extensions that we've talked about are adding to it. CSNI, we've got a lot of growth in that business. So, you know, we still, even though we've got some near-term pressure, I think we're set up very well for, you know, our gross margin growth that we've talked about on these higher models. So, you know, and I expect that, as I said, we're, We're at what I would say is a trough. We're at the low point right now. And we should start working through this. You know, you're not going to see this quarter, obviously, because you already got the guidance and you've got the full year. But I would expect by time we get through a couple more quarters, we should start seeing things improve. I think the other point I'd make, too, is that on the last call, I believe we had indicated that full year gross margins would be around 42%. We've brought those up about 50 basis points today at 42.5. So we're continuing to do everything we can on the gross margin side. But we've also got to get material in. And if it comes down to pay it or don't get it, we're paying it. So that's kind of where we're at.
spk08: Okay. That's very helpful, Kevin. Thank you very much, and thank you all for your time today. Yeah, thanks.
spk07: Thanks, Tom. Our next question will be from Quinn Bolton with Nino. Quinn?
spk11: Hi, guys. Can you hear me? Yes. Kevin, maybe just to follow up on the gross margin question that you just got, if I do the math, it looks like gross margin in the fourth quarter could be below 40% to get to that 42.5% for the year. So you just want to make sure that gross margin in a 39% to 40% range is kind of what you're you're thinking for the fourth quarter, given those higher material costs and the timing of when those hit the income statement?
spk01: Yeah. So I will tell you, you won't, I'm pretty sure you're not going to see a three in front of it. You could see something with a low four though. So I don't think you have to go as low as 39 point something, but I think your math is going to take you that, you know, we could have a quarter that was, slightly down from Q3. But the other thing I would say is because this is evolving and, you know, we're working hard on things, you know, we were able to bring back about 50 basis points since the last call. And we're going to continue to focus on, you know, everything that's still cross and dock for a future shipment. So, but yeah, if you're modeling, Quinn, I don't think you have to go as low with a three in front of it. But, you know, right now the math suggests what it does suggest.
spk11: Got it. Thanks for that clarification, Kevin. And then I guess, Mary, two questions for you. One on the booking strength and mature. Obviously, this is a fantastic bookings quarter. Was that mature strength very broad-based, or was it driven by most likely power if one area was going to dominate?
spk04: Yeah, I would say that power was clearly the strongest segment, but there was also strength there from CIS in general mature, so it wasn't totally out of the power segment.
spk11: Great. And then you mentioned in your comments about exposure to consumer not having a lot or really any advanced logic exposure in 2022, but you said you might have some in 2023. And so maybe I'm interpreting this wrong, but it sounds like advanced logic could be maybe not meaningful, but certainly a growth area for you as you look into 2023 that could offset some of the other pressures in the general industry. And so I guess I'm just trying to get a sense from you how meaningful or How much revenue do you think you might be able to generate next year from Advanced Logic?
spk04: Well, we talked about how we successfully closed an evaluation at an Advanced Logic customer, and we expected to get repeat orders in 2022. And so as we move into 2023, again, we expect further expansion in terms of orders from that customer. So, you know, the advanced logic market is really only about 15% of the overall implant TAM, and we are just breaking into it now. We're continuing to work with the other advanced logic, you know, manufacturers as well. And so at some point in time, that will become more meaningful for us. But at this point, as we said, we're really just starting out.
spk11: Got it. Okay, thank you.
spk07: Our next question will be from Mr. Mark Miller with Benchmark. Mark?
spk06: Congratulations again on another strong quarter. Your margin guidance for the year and incorporating the third quarter, looks like there's going to be a significant reduction in margins in the fourth quarter. I'm just wondering what's driving that.
spk01: Yeah, so it's the continuing cost increases we're seeing on the supply chain side, Mark. know we've we've actually done really well with labor we've done really well with factory absorption um obviously and even our our costs for in you know warranty uh you know from quality improvements we're making have been better so you know the headwind right now it's coming from the supply chain side and it's it's a it's a mix of higher freight costs and just higher piece part costs. And it's, you know, if I broke it down one more time from there, I would say it's probably two thirds skewed towards higher prices on parts with the remainder being the higher freight costs. So again, these are all areas we're working on. We're working with our existing suppliers to see what we can do. Some of these higher costs have just been because of some of the chip shortages. We've had to pay some extremely high prices to get some chips into product. So those are more discreet events. You know, those will go away. Some of the higher costs have come because of commodity pricing for higher labor costs. You know, I think we all know commodities are starting to come down, but it's going to take time for that to, you know, flush back through everybody's material, you know, inventory. But yeah, so it's, It's just a continuation of what we have now. It's supply chain related. And then we did talk about mix, too. We definitely have a less favorable mix in Q3. And in our IR presentation, I know you're aware of it, we've got the relative margins on the product lines. And high energy is obviously our highest margins, and high current and medium current are less so. when our mix swings a little bit more towards those other products away from the high energy, that can impact it. So that is a piece of the Q3. It is mixed in the rest of the supply chain. And it's a similar thing in Q4 markets, pretty much the same story.
spk06: Would it be fair to estimate that the supply chain was impacting margins by 150 to 200 basis points in the June quarter?
spk01: Oh, in the June quarter?
spk06: In the June quarter, yeah.
spk01: Yeah, unfortunately, it's not to that level. It's actually gotten worse in terms of our quarter to quarter. And some of that, again, is how material is brought in and being consumed. But the higher cost material, the costs from that are hitting more in Q3 than Q4. You know, in the current quarter, it was much less. But on a full year basis, as I mentioned earlier, You know, we've got a good 250 points in on a full-year basis, and it is more back-end loaded than front-end loaded, for sure, in terms of how that's hitting.
spk06: Tax rate was down again this quarter. What can we, should we estimate for the second half of the year? Is it 15%?
spk01: Yeah, I'd use 15, Mark. I mean, we did start getting the benefit of the foreign-derived intangible income tax, that FDII deduction we talked about. So, For tools that are material, actually, you know, the systems that we're shipping offshore, it's a 13% tax rate in those versus a standard corporate tax rate. And because we've used up all our NOLs, we qualify now to be able to use this other, you know, this FDII deduction. So that's really what's been giving us the favorable pickup. In the quarter, too, there's some other pickups from some stock comp expense and things like that. But I'd use 15 if I were you. If you're using 21, you're going to be way too high.
spk06: And finally, CapEx for June. What was CapEx?
spk01: CapEx in June was 1.9 million, which was up a little bit from Q1. Q1 was 1.5 and Q2 was 1.9, but still within our normal run rate of, you know, we run anywhere from, if you go back over the last couple of years, anywhere from a million to 3 million a quarter. So we're, you know, I guess you could argue we're still on the lower end this year compared to last year.
spk06: Thank you.
spk01: Yep.
spk07: 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. Mary?
spk04: Well, I'd like to thank you for joining us today. I'd also like to apologize for the technical difficulties that we experienced. But in terms of future investor events, we will be participating in the BA Davidson Big Sky Technology Summit in Montana. and the Needham Third Annual Virtual Conference, both in August. We hope to see you at one of these events, and thank you for your continued support.
spk07: This concludes the presentation. Thank you for your participation in today's conference call. You may now disconnect the call. And again, we would like to thank you for your patience during our technical difficulties. Please have a wonderful day.
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