Axcelis Technologies, Inc.

Good day and thank you for standing by. Welcome to Excel's fourth quarter and full year 2022 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mary Pumer, President and CEO of Accelus Technologies. Please go ahead.

Thank you, Dulim. 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 fourth quarter and year-end 2022 earnings call. As a result of strong execution by the Excellus team and robust demand for the Purion product family, we are pleased to announce record quarterly and annual revenues. Revenue for the fourth quarter was $266.1 million with earnings per share of $1.71. Revenue for the full year 2022 was $920 million with record annual earnings per share of $5.46. As a result of a record backlog of over $1.1 billion, continued solid bookings, and strong customer demand in the power device market, we expect both revenue and earnings to grow in 2023. For the first quarter of 2023, we expect revenue of approximately $240 million, gross margin of roughly 41.5%, operating profit of around $48 million, and earnings per share of approximately $1.25. For the full year 2023, Excellus revenues are expected to exceed $1 billion. This represents revenue growth of over 8% in a year in which overall wafer fab equipment is expected to decrease by over 20%. Additionally, we are introducing a new long-term implant-only model with revenue of $1.3 billion that we believe is achievable within the next two to three years. The mature process technology market continues to be an area of strength for Excellus, with 76% of fourth quarter system shipments going to mature foundry logic customers, 4% to advanced logic customers, and the remaining 20 customers comprised of 15% DRAM and 5% NAND. For the full year 2022, 82% of system shipments went to mature Foundry Logic customers, 1% to advanced Logic customers, and 17% to memory customers, comprised of 8% DRAM and 9% NAND. The geographic mix of our system shipments is becoming more globally distributed. In the fourth quarter, China represented 35%, Korea 29%, the U.S. 19%, Europe 8%, Taiwan 6%, and the rest of the world 3%. For the full year 2022, China was 41%, Korea 20%, the U.S. 15%, Europe 9%, Taiwan 6%, Japan 2%, and the rest of the world 7%. The power device market is anticipated to be Excellus' demand driver through this industry downturn, due to the rapid growth rate of the market and the high implant intensity of power devices. We expect over 55% of our system revenue in 2023 to come from this segment, with greater than 50% of the overall power device system revenue coming from silicon carbide applications. Silicon carbide provides many performance advantages over silicon, for electric vehicle applications and is expected to grow significantly over the next several years. Currently, we estimate that silicon carbide wafer starts will double every three years, driven by a 30% annual growth rate in this device market which is dominated by automotive. Purion Power Series products for silicon carbide have been designed to support the technical challenges facing our customers as they ramp to high volume in support of their automotive customers. Excellus is the only ion implant company that can deliver complete recipe coverage for all power device applications. The full Perion Power Series family of products allows customers to optimize their fabs for high volume manufacturing and to continuously improve their power device performance. The Purion H200 and Purion XE family in particular provide high levels of productivity and lower cost of ownership to our customers as their recipe mixes shift to high dose and high energy implants. Since 2021, we have seen increasing adoption of Purion H200 silicon carbide and Purion XE silicon carbide systems in addition to our Purion M silicon carbide tool. In 2023, we expect revenue from silicon carbide customers to be spread relatively evenly across these three types of Purion power series implanters. This complete product offering provides a significant competitive advantage for Excellus in this market. The power device customer base is large and growing, and we are actively engaged with all customers in this high-growth market segment. Excellus is considered by power device customers to be the technology leader and the supplier of choice providing the best product family and manufacturing capabilities. This means that using Excellus tools provides the lowest risk path to high volume manufacturing required to support aggressive fab ramp plans. Excellus places significant value on enabling our customers to succeed in this exciting market by providing differentiated product performance and a high level of customer satisfaction. Now I'd like to turn it over to Kevin to discuss our financials and operational capabilities and to introduce our new $1.3 billion model.

Thank you, Mary, and good morning. We are extremely pleased with our fourth quarter and full year of 2022 financial results. and are very excited about our projected growth to greater than $1 billion of revenue in 2023. We are also happy to have the opportunity to share with you today our new implant-only $1.3 billion revenue model that we believe is achievable over the next two to three years. Financial details around our expectations for 2023 and the $1.3 billion model can be found on page eight of our investor presentation. Looking at our fourth quarter, revenue finished well above guidance due to strong execution in the pull-in of additional systems and CS&I business from Q1 2023. This drove Q4 systems revenue to $203.8 million and CS&I to $62.3 million, combining for record quarterly annual revenues of $266.1 million and $920 million, respectively. In 2023, we expect total revenue to be greater than $1 billion, driven by continuing strength in the power device market. CS&I revenue will vary quarter to quarter, but should be modeled at approximately 25% of total revenue for both 2023 and our $1.3 billion revenue model. Looking at gross margin, we finished 2022 at 43.7%, or 50 basis points higher than in 2021, despite a very challenging year with higher supply chain costs. U4 gross margin finished at 41.2%, as expected, pressured by higher material costs and a less favorable product mix. We expect margins will begin to recover in Q1 approximately 41.5%, but still remain under pressure by higher material costs related to prior inventory purchases and a continuing less favorable product mix. In the second half of the year, we expect meaningful improvements in supply chain costs and a return to a more favorable product mix. This should allow us to achieve full-year gross margins of 44% as shown in the $1 billion revenue model. We remain laser focused on gross margin improvement for supply chain initiatives that include a number of value engineering and strategic sourcing projects. This combined with sales of higher value here in product extensions allows us to target gross margin at greater than 45% in the $1.3 billion model. Turning to operating expenses, they are well-controlled in 2022 at 20.6% of revenue and 3.4% lower than in 2021, highlighting the leverage of our business model. Operating expenses should be slightly down as a percent of revenue in 2023 at approximately 20.5% and further reduced to around 19% of revenue in our $1.3 billion model. R&D is expected to account for approximately half of our spending to further solidify our technology advantage in the specialty markets and support penetration into markets like Advanced Logic. Additionally, we will continue to invest in infrastructure in our workforce to support growth and financial models. One example of infrastructure investment is our new state-of-the-art logistics center in Beverly, Mass. located just a short walk from Excel's headquarters. This facility is scheduled to open this summer and provides centralized logistics and flex manufacturing capacity. We also plan to further ramp our crane manufacturing operation as our needs grow. We ended 2022 with $433 million of cash, cash equivalents, and short-term investments. and generated $215.6 million of cash from operations during the year. During 2022, we repurchased $57.5 million of stock and have returned over $132 million of cash to shareholders since 2019 through our share repurchase programs. As a result of the success of Purian, higher gross margins and tight cost control, Excel's profitability has improved significantly. In 2022, we finished with operating profit of 23.1% of revenue and delivered $5.46 of earnings per share with 22.3% pre-cash flow. Before I close, I'd like to summarize our new $1.3 billion implant-only business model, targeted for achievement in the next two to three years. We are modeling revenue at approximately $1.3 billion, gross margin at greater than 45%, OpEx at approximately 19%, operating profit around 26%, and free cash flow at approximately 25%. We are excited about the significant growth opportunity in the eye and implant market over the next several years. Excellus also has a rare opportunity to grow revenue and profitability during significant industry downturns. This is a result of strong product positioning in a power device market and continued execution in a challenging environment. Once again, I want to thank the entire Excellus team for their continuing outstanding performance. I also want to thank our supply chain partners for their hard work supporting Excellus. and our customers for their confidence in our ability to deliver. I'll turn and call back to Mary for a closing comment.