Axcelis Technologies, Inc.

Good day, ladies and gentlemen, and welcome to the Excellus Technologies call to discuss the company's results for the fourth quarter and full year 2024. My name is Didi, and I will be your coordinator for today. I would now like to turn the presentation over to your host for today's call, David Rizek, Senior Vice President of Investor Relations and Corporate Strategy.

Thank you, operator. This is David Rizek, Senior Vice President of Investor Relations and Corporate Strategy. And with me today is Russell Lowe, President and CEO, and Jamie Coogan, Executive Vice President and CFO. If you have not seen a 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. Russell?

Good morning, and thank you for joining us for our fourth quarter and full year 2024 results earnings call. Beginning on slide number three, we exit the year on a solid note with revenue for the fourth quarter at $252 million and earnings per diluted share of $1.54. Revenue was slightly better than our expectations as strong demand for our aftermarket CS&I sales partially offset the anticipated sequential decline in system sales. This strength in our CS&I business was the primary driver behind our better than expected margin and EPS in the quarter. Within our system sales, a sequential decline in power and image sensors was offset by an improvement in general mature and memory sales. Our backlog declined during the quarter, but remained at healthy levels. We also saw bookings stabilize, which came in flat on a sequential basis. Turning to slide four, in the quarter, as well as for the full year, sales and mature node applications remained the lion's share of our business, in particular, Power and General Mature. Now let me review shipped system revenue by end market, and I will begin with mature nodes on slide five. Revenue from our power market was 51% of our mix, down sequentially from 57% in Q3 2024. Shipments of silicon carbide applications moderated slightly in the fourth quarter, However, on a full year, 2024 basis, our system sales of silicon carbide grew approximately 6% year over year. Over the past several years, Xcelics has established itself as a market and technology leader in ion implantation for silicon carbide, one of the defining process steps in device manufacturing. We were first to identify this emerging opportunity several years ago and quickly leveraged our Puriam platform to drive necessary innovation. This included the development of a differentiated medium-current implanter, followed by an extension of capabilities to our Hyundai tools, close collaboration with customers to understand their production needs, and finally, we launched our high-current implanter optimized for silicon carbide. This all translated into our system shipments to silicon carbide growing from approximately $8 million in 2020 to over $300 million in 2024. And while we expect revenue from silicon carbide to decline sequentially in the first quarter of 2025, as customers undergo a digestion period, the fundamental long-term drivers remain intact as we expect adoption of silicon carbide to continue to increase, particularly as costs come down and new applications become economically viable. A case in point, we expect the EV industry's transition from 400 volts to 800 volt architecture to greatly improve charging times, and this will require silicon carbide. We're also closely monitoring power applications in the data center, where the demand for energy is rising rapidly, and silicon carbide can be used to deliver more power more efficiently. But our engagement with customers is not just confined to addressing their capacity needs. We are deeply embedded with customers on their technology roadmaps, which include the transition from 150 millimeters to 200 millimeters wafer size, the transition from planar to trench MOSFET, the transition from trench to super junction, and some customers are even exploring wafer splitting applications to improve yield and lower cost. In all of these cases, Excellus is a key enabler. We believe the need for high performance devices with higher yield and lower cost will only unlock new opportunities for silicon carbide in power applications. We believe we're in the early stages of the silicon carbide market growth. Turning to Silicon IGBT, system sales declined in the fourth quarter, and we anticipate this market to continue to soften in 2025 as our customers continue to work on managing capacity amid the slow and expected industrial auto recovery. In general mature, revenue increased sequentially in the fourth quarter, led by investments in China, while other regions remained muted. As a reminder, General Mature represents a broad array of semiconductor applications requiring a 28 nanometer process node or above. This includes RF, analog, microcontrollers, and other semiconductor applications. We continue to monitor key end markets, mainly auto, industrial, and consumer, which generally are drivers of our General Mature segments. Given recent industry commentary of a slower than expected recovery in the auto and industrial markets, along with an anticipated digestion of mature node capacity in China, we expect our general mature revenues to decline sequentially in the first quarter. Over the long term, as inventory levels normalize and demand recovers in key end markets, we anticipate our general mature business to benefit accordingly as iron implant intensity is particularly high and above. Turning to image sensors, as we anticipated, revenue moderates in the fourth quarter, following a large customer order in China in the third quarter. Image sensor production will continue to rely in a large part on smartphone volumes, but also to a lesser extent on auto, as we're seeing increased camera content in autos. As we think about the first quarter, we expect image sensor revenue to be flattish on a sequential basis. Turning to slide six, in Advanced Logic, we shipped a system to a new Advanced Logic customer in the fourth quarter, following a previous announced order received in the second quarter, and we had discussions for a follow-on order. We continue to work actively with customers, as well as with a leading European Advanced Logic research center in understanding next-generation Advanced Logic applications for ion implantation. Growing footprint within the advanced logic market is a strategic goal there, which is a multi-year initiative, and we are still in the relatively early stages. Moving to memory, as we anticipated, we saw a sequential improvement in sales to memory market, specifically for DRAM, Looking ahead to the first quarter, we expect sales and memory to be relatively consistent on a sequential basis, entirely in DRAM. In NAND, we believe customers have ample capacity given current demand trends and expect this to remain the case in 2025. As we think about our memory business over the long term, we are quite excited about the opportunity, both in DRAM and NAND, given the following drivers. One, growth in AI and its structural impact on high bandwidth memory, which is absorbing DRAM capacity. In fact, not only are AI server unit volumes expected to grow significantly, but HBM content per service also expects to grow, enabling a multiplier effect on HBM capacity. Two, AI's impact on new data creation, particularly with inference, whereby new datasets need to be manipulated and stored, which we believe will be a tailwind for DRAM and NAND. Three, rising memory and storage content in smartphones, servers, and PCs as devices need to process and store more data. And four, device volume growth resulting from improved macro and potential refresh cycles. We believe that the confluence of these catalysts translates into an attractive long-term market for Excelis. And while our market recovery is instrumental to any growth in our memory business, we are not standing still. We are focused on penetrating new customer opportunities within memory where we have historically had a low share. And I'm pleased to say we've had some initial progress in this regard. Turning to slide seven, as we look back on 2024, I'm proud of how our team executed amidst this dynamic demand environment. For four years, we saw continued growth in sales to silicon carbide, while silicon IGBT softened considerably. In memory, demand remained soft as customers navigated through lower utilizations. Despite this, we focused on what we can control, and this included working closely with our customers to enable their technology production roadmaps, placing evaluation units into the field, seeding new opportunities, continuing to invest in our R&D to maintain a robust pace of innovation, and maintaining strong margins due to favourable mix and cost control. In fact, despite a year-over-year decline in revenue, we grew our gross margins by more than 100 basis points. On slide eight, let me now discuss some of our initial perspectives on 2025. We anticipate overall revenue in 2025 to decline on a year-over-year basis. As we think about the trends by segment, we expect a digestion of capacity in the power and general mature markets, primarily in China. In memory, we expect year-over-year growth in 2025, specific types of DRAM investments, while NAND remains muted. And we expect modest revenue from our initiatives in advanced logic, consistent with our expectations of being in the early stages of a multi-year growth effort. In summary, while the near-term demand backdrop is muted, the fundamental long-term drivers of our business remain intact, namely long-term secular growth in power, particularly silicon carbide, which we believe will continue to proliferate with an existing and new application, given the world's insatiable demand for more power and greater efficiency, market recovery and memory in general mature, share gain in advanced logic, and geographic expansion into Japan, which is a sizable market for iron implantation where we have relatively low penetration. As a result, We are taking actions today to increase our technology engagement with customers to help accelerate their roadmaps. On that note, before I hand over to Jamie, as you can see in slide nine, I'm particularly proud of the Accelus team and the recognition we've received from customers in 2024. We received 22 customer awards covering overall supplier excellence to support safety, health, and others, and this represents a significant increase compared to 2023. The core of our culture at Xallis is customer first, then company, and then self, and this is a shining endorsement of how we operate. With that, let me turn the call over to Jamie for a closer look at our results and outlook. Jamie?