Axcelis Technologies, Inc.

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.

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.

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.