Axcelis Technologies, Inc.

Good day, ladies and gentlemen, and welcome to the Excelis Technologies call to discuss the company's results for the second quarter, 2024. My name is Antoine, and I will be your coordinator for today. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you need to press star-1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to turn the presentation over to your host for today's call, David Ridgick, Senior Vice President of Investor Relations in Corporate Strategy. Please proceed.

Thank you, Operator. This is David Ridgick, Senior Vice President of Investor Relations in Corporate Strategy. And with me today is Russell Lowe, President and CFO Executive Vice President and CFO. If you have not seen our copy of our press release issued yesterday, it is available on our website. In addition, we have prepared slides accompanying today's call, and you can find those on our website as well. 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 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. Now I'll turn the call over to President and CEO Russell Lowe.

Good morning and thank you for joining us for our second quarter 2024 earnings call. As you can see on slide three, we delivered strong second quarter results above our expectations with revenue coming in at $257 million and earnings per diluted share of $1.55. Our results were driven by better than expected conversion of evaluation units into revenue as well as continued robust demand for iron implantation systems into the silicon carbide market. I am also pleased with how we executed our margins, which Jamie will touch on a bit later. On slide four, we show the breakdown of systems revenue by segment, which totaled $199 million in the quarter. Now let me touch on some key trends by market segment, starting with the mature segment on slide five, which comprised 98% of total system revenue in the quarter. As a reminder, a mature segment represents power applications, including silicon carbide and silicon IGBTs, as well as general mature and image sensors. Within power applications, demand for EVs and hybrid EVs remain a key driver. Demand for silicon carbide applications remains strong as customers continue to expand capacity to meet the domestic production goals for the EV market. We believe we are still in the early innings of this trend. Meanwhile, demand for silicon IGBT applications remains soft in the quarter, consistent with our expectations. While EV and various forms of hybrid EVs are a key driver of our power business, we see other emerging applications requiring energy efficiency, such as power sources for data centers, which is a trend we're keeping a very close eye on, given the increased demand for power associated with artificial intelligence. In fact, just in the second quarter, we've seen customers announce new silicon carbide-based trench MOSFET products targeting AI data centers, which is an attractive opportunity for Xelis, given the high implant intensity associated with trench technology. Looking into the second half, we expect demand for silicon carbide customers to remain healthy. In General Mature, in the first half, demand remained relatively consistent, but we may see some moderation in the second half depends on the macroeconomic environment and its impact on our customer spending patterns. Image-sensitive demand has been robust in China, but it's been subdued in the rest of the world due to consumer spending. We are seeing some signs of growth in this market as customer quoting activity has picked up. Turning to slide six, In advanced logic, revenue is 2% of total system revenue, yet we made significant progress in our advanced logic strategy. We successfully closed a Purin Dragon evaluation unit that was an advanced R&D for a leading edge application, received a follow-on Purin H order for volume manufacturing at 3 nanometers, and we received an order for a Purin M production unit from a new customer. As discussed at our investor event in July, the advanced logic market is an under-penetrated opportunity for Xelis, where we're driving interest with our evaluation units and investing in R&D to solve some of the industry's growing challenges. We're in the early stages, and this is a multi-year effort, but we are encouraged with the progress of our engagements, and this will remain a focus for us moving forward. Moving to memory, in line with our expectations, we did not generate any systems revenue from the market in this quarter. Unimplantation is a critical process step in the production of DRAM and NAND chips, and it's worth noting that incremental demand is expected to be driven by new wafer starts rather than technology transitions. In DRAM, given the surge in demand for high bandwidth memory chips for AI applications, which is absorbing DRAM capacity, we expect DRAM customers to start adding capacity as we exit 2024 and into 2025. In NAND, overall wafer front end spending remains soft. However, we are encouraged to improving pricing and bit demand fundamentals, which needs to happen before customers invest in additional capacity. We currently expect our revenue for NAND applications to begin picking up in 2025. It's worth noting that memory customers typically place purchase orders shortly before shipment. As a result, we've started to pre-build some inventory for importers for the memory market and stand ready to respond once demand returns. Turning to slide seven, in summary, I'm pleased with the execution of the Excellus team in the second quarter. As we look to the second half of the year, we expect revenue to be slightly better than the first half, with momentum expected to build into 2025. I want to also thank many of you who joined us in July for our investor event. We hope you came away with a better appreciation of Excellus's long-term growth drivers, which are as follows. First, secular growth in power, particularly silicon carbide, which we believe will be ubiquitous in applications that require energy efficiency, including EVs, renewables, and the insatiable power demand for AI data centers. The silicon carbide device market is estimated by Yale to grow at a 25% CAGR from 2023 to 2029, and we are the leading ion implant provider for this market, which is one of the most critical steps in the manufacturing of these devices. Second, while memory spending is at exceptionally low levels today, we expect spending to recover as customers will ultimately need to add capacity to meet global compute and storage needs driven by AI, EVs, Internet of Things, and the continued growth in electronic devices. Third, once consumer industrial spending recovers, we expect general mature spending to follow suit as well. Fourth, as mentioned, we have an opportunity to gain share in advanced logic as new applications are opening up beyond just the front end, but also in the middle end of line as well. For example, as we move from 7 nanometer to 2 nanometer technology, we forecast a more than doubling of our implantation steps in the middle of line processes. And finally, a geographic expansion in Japan. We are focused on increasing penetration into this market by leveraging our customer relationships while also growing our physical presence in the country. With this backdrop, our long-term model calls for growth to approximately $1.6 billion by 2027. I'm very excited about the opportunities that lie ahead for Excellus and how that translates into attractive long-term earnings growth and value creation for shareholders. With that, let me turn the call over to Jamie.