Axcelis Technologies, Inc.

Good day, ladies and gentlemen, and welcome to the Excellus Technologies call to discuss the company's results for the third quarter of 2022. My name is Allie Blatter 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 toward the end of the conference. As a reminder, this conference is being recorded for replay purposes. 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, Ali. 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 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 third quarter earnings call. As a result of robust demand for the Purion product family and continued strong execution by the Excellus team, we are pleased that our third quarter financial performance was above our guidance. Revenue for the quarter was $229.2 million with earnings per share of $1.21 and gross margin of 45.1%. Cash, cash equivalents, and short-term investments were $342.1 million. Revenue from our aftermarket business, CS&I, was $58.1 million and contributed significantly to our high gross margin. The mature process technology market continues to be an area of strength for Excellus, with 88% of third quarter system shipments going to mature FoundryLogic customers and 12% to memory customers, comprised of 5% NAND and 7% DRAM. The geographic mix of our system shipments in the third quarter was China 44%, Korea 18%, the US 15%, Europe 10%, Taiwan 5%, and the rest of the world 8%. For the fourth quarter, we expect revenue of $232 to $240 million gross margin of 40 to 41%, operating profit of $41 to $45 million, and earnings per share of $1 to $1.10. For the full year 2020, Excellus revenues are expected to exceed $885 million with a gross margin of greater than 43%. Our guidance reflects the impact of three geopolitical and global economic issues. First, continued supply chain costs that are negatively affecting our gross margins. Second, our assessment of recently imposed U.S. government restrictions on certain customers in China, which we believe will have minimal effect on our financials. And third, the adverse consequences of foreign exchange rates resulting from a strong U.S. dollar. The industry expects total wafer fab equipment to decline significantly in 2023. This is a result of a reduction in memory spending, slowing consumer electronics demand, deteriorating economic conditions, and newly imposed restrictions on certain customers in China. The ion implant TAM, which has doubled over the last few years to approximately $2.25 billion, is not expected to suffer the same decline, primarily driven by growth in the implant-intensive power device market. As a result, Excellus expects to continue to experience strong sales of Purion products into these market segments and achieve a fourth consecutive year of revenue growth in 2023. Strong system bookings, a record backlog of over $1 billion, and a healthy book-to-bill of 1.89 in the third quarter support this projected growth. 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 strong third quarter financial results, beating company guidance and consensus estimates across the board. Solid execution and continuing demand for our products drove these positive results. In fact, we are guiding continuing strength in Q4 and now expect 2022 to be greater than $885 million in revenue. And we are forecasting additional growth in 2023 based on strong customer demand in our current backlog. In addition to focusing on the growth opportunities ahead of us, we are continuing to manage through headwinds impact in the entire industry. Supply chain disruption continued to provide significant challenges in Q3. Throughout the quarter, our sourcing 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 and performed at a very high level, while our sales and service teams worked closely with customers to support fab ramp plans and high utilization rate. As noted by others in the industry, these supply chain disruptions are resulting in higher costs. We remain focused on reducing these costs without impacting customer satisfaction. As I have mentioned on past calls, we should begin to see more sustainable improvements in the supply chain beginning in 2023. Moving to our third quarter financial results. Q3 revenue finished at $229.2 million and above our guidance compared to $221.2 million in Q2. Q3 systems revenue was $171.1 million compared to $165.4 million in Q2. Q3 CS&I revenue finished at $58.1 million compared to $55.8 million in Q2. CS&I posted very strong margins in the quarter due to mixed and lower costs. We expect Q4 CS&I revenue to be around $56 million. Q3 sales to our top 10 customers accounted for 62.8% of our total sales compared to 66.3% in Q2. One customer was at 10% or above in Q3 compared to two customers in Q2. Q3 system bookings were $337.1 million compared to $432.8 million in Q2, with a Q3 book-to-bill ratio of 1.89 versus 2.56 in Q2. Backlog in Q3, including deferred revenue, finished at a record $1.1 billion compared to $869.5 million in Q2. Multiple customers are planning new FABs and expansions for 2023 and 2024, which is driving bookings out beyond one year. Q3 combined SG&A and R&D spending was $50.1 million, or 21.9% of revenue, compared to 45 million, or 20.4% of revenue in Q2. SG&A in the quarter was $29.6 million, with R&D at 20.6. In Q4, we expect SG&A and R&D spending to be approximately 22% of revenue. Q3 gross margin was 45.1% and well above our guidance. Brown gross margin performance in a quarter was driven by a more favorable mix of systems, very accretive CS&I margins, the impact of foreign exchange and continuing cost-out activities. As expected, we are guiding Q4 gross margin lower at 40% to 41% due to a less favorable mix of systems and the timing of unfavorable supply chain costs. Full-year gross margin is now expected to exceed 43%, which is up from our prior guidance of 42.5%. resulting from very strong gross margin performance through the first three quarters of the year. Operating profit in Q3 finished at $53.2 million compared to $54.1 million in Q2. We're guiding Q4 operating profit of $41 to $45 million. Q3 net income was $40.3 million, or $1.21 per share, compared to $44.2 million or $1.32 per share in Q2. We are guiding Q4 earnings per share of $1 to $1.10. Q4 guidance reflects the impact of higher supply chain costs, our current assessment of new restrictions on certain China customers, and the impact of foreign exchange rates. Q3 receivables were $173.9 million compared to 146.1 million in Q2, driven by the timing of shipments. Q3 inventory ended at $226.5 million, compared to 213.1 million in Q2. Q3 inventory turns, excluding evaluation tools, finished at 2.5, compared to 2.6 in Q2. Q3 accounts pay of over $54 million, compared to $49.4 million in Q2. Q3 cash, cash equivalents, and short-term investments finished at $342.1 million compared to $287.2 million in Q2. In the quarter, we generated $64 million of cash from operations and settled share repurchases of $12.5 million. We have returned over $120 million of cash to our shareholders since beginning our stock repurchase program. Excellus continues to execute at a very high level despite a challenging environment. And once again, I want to thank the entire team for their continuing outstanding performance. I also want to thank our supply chain partners for their hard work supporting Excellus and our customers. Thank you, and I now turn the call back to Mary for her closing comments.