Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the First Quarter of 2020. My name is Julie 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. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mary Puma, President and CEO of Axcelis Technologies. Please proceed, ma'am.

Thank you, Julie. 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 last night, 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'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. I hope you and your families are healthy during this difficult period. At Axcelis, we are carefully managing through this unprecedented global situation. But I would like to emphasize that we remain laser-focused on the strategic objectives we outlined at our Investor Day in September. During the first quarter, we achieved two key milestones along the path to market leadership in ion implantation and to our long-term business model. First, we received our first Purion order from Japan. Second, we closed the first Purion Dragon evaluation and received a follow-on order. The dedication of our employees has made these significant accomplishments possible, and our top priority is ensuring their health and safety while continuing to serve our customers. I would personally like to give a heartfelt thank you to our extraordinary employees in the factory, global field locations, and those at home in the U.S. and around the world who are working diligently to meet our customer commitments. I also want to thank our suppliers and end customers for their support as we strive to meet the continuing high level of customer interest in our Purion products. Our first quarter financial performance was very strong. Revenue for the first quarter was $119 million. Earnings per share of $0.33 was well above guidance and consensus. During the first quarter, memory accounted for 52% of our shipments, 31% DRAM and 21% NAND. Mature foundry logic customers accounted for the remaining 48%. The geographic mix of our system shipments in the first quarter was China 38%, Korea 34%, Taiwan 20%, and the U.S. and Europe, 8%. While the COVID-19 pandemic has generated uncertainty and new challenges for 2020, it is important to understand that the semiconductor industry is critical in today's world and remains fundamentally strong. Near-term, we will be required to manage our business on a day-to-day basis relative to uncontrollable pandemic-driven hurdles associated with global government policies, the impact on world economies, and the reactions of our customers and suppliers. The industry is just exiting a down cycle, a period of lower capacity investment. As a result, we can still expect to see investment in both technology and capacity for critical market segments. Axcelis has done significant work to understand our customers' market segments and to develop products that provide a competitive advantage. We expect to see the individual market segments react differently to COVID-19 challenges. Currently, semiconductor products required for working from home and sheltering in place are in high demand. This includes products for PCs, video streaming, and communications. At the same time, demand for products related to automotive and aviation, for example, has slowed. Our knowledge and expertise allow us to work closely with our customers across these market segments even during this difficult time, to provide them with the best ion implant solutions for their specific manufacturing challenges. We are well-positioned as a result of investment in new Purion products during the down cycle and by the broad and highly diverse Purion customer base we have developed over the last several years. In the first quarter, we closed three evaluations, all for new memory applications. One of these evaluations was for the first Purion Dragon at a NAND customer. This is our newest and most technologically advanced high current implanter. We also received the first Purion Dragon follow-on order and shipped that tool in the first quarter as well. The interest level is also very high for two of our other new Purion systems, the Purion XEmax, a high energy tool designed for the most advanced image sensor applications and for the Purion H200, which is focused on the power device market. We also announced our first Purion order in Japan, a Purion XE for a power device customer. It is easy during this difficult time to forget that the industry is beginning what will likely be an extended growth cycle, driven by the new communications capability of 5G technology. We still believe the 5G infrastructure build has begun and will accelerate in 2020 and into 2021. As the infrastructure expands, new 5G-capable phones and other devices will drive a strong memory cycle beginning in 2021. Following this and beginning in 2022, there will be another cycle of industrial IoT applications even bigger than the last, which will drive strong growth in the mature process technology segment. One thing that emerges very clearly from this pandemic is that communication requirements and the technology to support them are more critical than ever and that Axcelis is extremely well positioned for strong growth during the upcoming 5G driven cycle. Now I'd like to turn it over to Kevin to discuss our financials and some operational details.

Thank you, Mary, and good morning. Before I provide an update on our very strong first quarter performance, I'd like to take a minute to discuss some of the actions we are taking to respond to the current pandemic situation. I'll start by saying that all areas of our business remain operational due to the extraordinary effort of our employees, suppliers, and continuing customer demand for our products. During this time, the health and well-being of our employees remains a top priority, and we are doing our best to create a safe work environment for all Axcelis employees. For those who must work in our factory, we have implemented safeguards like physical distancing and have required the use of masks. Everyone who can work from home is working from home. Field-based teams are continuing to support our customers while following both government and customer-required safety protocols. Mary did not provide guidance for the quarter, as she normally would. The pandemic and potential economic impact has limited our visibility. It could potentially introduce uncontrollable challenges in our path. As a result, we will not be providing formal guidance. However, I will highlight that Q1 bookings and backlog finished at record levels, indicating the current strength and demand for Axcelis products and services. Flotation activity continues to be strong and customer discussions remain very active. Based on our current orders, Q2 revenue could be similar to Q1. But the many unknowns, including potential supply chain disruption, create greater than normal uncertainty around our Q2 results. Now turning to the first quarter results. Q1 revenue finished at $119 million, well above our guidance compared to $107.7 million in Q4. Q1 system sales were $82.3 million compared to $71.4 million in Q4. Q1 CS&I revenue finished at $36.7 million compared to $36.3 million in Q4. Q1 sales of our top 10 customers accounted for 85.9% of our total sales compared to 85.5% in Q4. Four customers were at 10% or above, the same as in Q4. Q1 system bookings were $115.1 million compared to $77.2 million in Q4, with a Q1 book-to-bill ratio of 1.37 versus 1.06 in Q4. Backlog in Q1, including deferred revenue, finished at $127 million compared to $99.3 million in Q4. Q1 combined SG&A and R&D spending was $31.8 million and below our guidance of approximately $33 million due to timing of expenses. For the quarter, operating expenses were 26.8% of revenue compared to $31.1 million or 28.9% in Q4. SG&A in the quarter was $17.2 million with R&D at $14.6 million. Q1 gross margin was 38.38% and above guidance compared to 41.1% in Q4. Q1 gross margin is lower than normal due to the closure of three evaluation tools, including the first Purion Dragon. Although we are not providing formal Q2 guidance, we still expect full year gross margin to be greater than 40%, and we remain on track to achieve our gross margin targets in our $550 million and $650 million target models. Operating profit in Q1 finished at $13.7 million compared to Q4 operating profit of $13.2 million. Q1 net income was $11.2 million or $0.33 per share and above guidance compared to $9.7 million or $0.29 per share in Q4. Inventory ended at $136.1 million compared to $140.4 million in Q4. Q1 inventory turns, excluding evaluation tools, finished at 2.2 compared to 2.0 in Q4. Q1 accounts payable were $26.1 million compared to $25.3 million in Q4. Q1 receivables were $64.2 million compared to $83.8 million in Q4. Q1 cash finished at $181.4 million compared to $146.5 million in Q4. Cash from operations in the quarter was $39.7 million. In the quarter, we repurchased $7.5 million of our common stock, but have suspended the repurchase program. We will maintain a conservative cash investment strategy while continuing to invest in the business during these uncertain times. Axcelis entered 2020 with great momentum. While the pandemic has shown us some near-term challenges, we have not lost focus on achieving our $550 million and $650 million target models. Our customers continue to have high expectations for our Purion products, which we intend to achieve. I hope that all of you and your families are well during these challenging times. I will now turn the call back to Mary for closing comments.

Thank you, Kevin. We are pleased with our excellent first quarter performance and remain focused on executing well for the rest of the year. Axcelis has a competitive Purion product line, a broad and diverse customer base, a strong balance sheet, and a dedicated team of employees. We are counting on these strengths to pull us through this difficult period and result in market leadership in ion implantation. And with that, I'd like to open it up for questions. Julie?

[Operator Instructions] Your first question comes from Patrick Ho with Stifel.

Thank you very much. Congrats on a nice quarter and glad to hear everyone is well. Maybe Kevin, to start off, can you discuss any impact from COVID-19 on the gross margin profile? Whether there were any costs, whether it was on the supply chain, logistics, or even manufacturing utilization? And how much of an impact it had in Q1? And did you see anything for Q2?

Yes. Thanks, Patrick. So let me start off by just putting a little framework around operating expenses. So we are seeing some impact from the coronavirus hitting us in a couple of places. It's in freight, it's in supplies because we are supplying that to people, so addition of cleaning in the factories. There are some inefficiencies within the factory. We want physical distancing; we've had to move workspaces out. So we're working around that. If you ask me for a number right now, it's probably in the order of $1 million to as high as $1.5 million for Q2, Q3 at this point in time, and that's spread across the OpEx line and the gross margin. If I look at my Q2 expenses and based on the revenue we are currently achieving, which is similar to Q1, operating expenses are going to creep up to about $35 million when you put everything in there that we need to go do, both in terms of investing in new products, because we're not slowing down in our investments. We're not slowing down on the tools that we plan to put in the field. So, there is some impact at this point in time. I'm thinking that it's -- if this -- as I look at it right now, it's a Q2, Q3 type of event. I'm assuming in Q4 that we're – it's more of a back to normal type situation. But just talking about freight a little bit. I know you're well aware of it and everybody probably is. I mean, it's very difficult right now to get freight forwarders and carriers to bring material in and out; consolidated shipments pretty much have ended. So I think that is one area where, along with probably a lot of our peers, are seeing some impact from freight cost. And that predominantly flushes into gross margin, but there is a piece of that that does go into the OpEx. So that's probably across all the buckets.

Great. That's helpful. And maybe, Kevin, as a follow-up to that question, sticking on the balance sheet and your working capital management. Obviously, inventory turns improved, and you mentioned the evaluation system going to customers. From your internal standpoint, how do you feel about your inventory levels, given that the entire features appear to be building a little bit of buffer inventory going from your customers to their end users? And even within the supply chain, how do you feel about building up some of the inventory for yourself given any potential further disruption?

Yes. So that's a good question, Patrick. So, everybody wants to get in line to make sure they're getting it parked. So, we're probably doing the same thing that, again, our peer group are doing. We've looked at our MRP lead time offsets right now. We've adjusted a little bit the material earlier. We're also looking at the long lead items, and we're driving some extra material for the long lead items. So, we're trying to stay ahead of this because the supply chain has been a day-by-day event. We've watched it move around the world from starting in Asia, in Europe, in California. The only thing we can do right now is to try to stay ahead of it. And again, we're driving material a little bit ahead. And you can see almost a similar thing too; even in our -- we had strong service CS&I revenue in Q1. You can see some regions even spare parts with customers are trying to pull ahead a little bit. So, it's a game that I think everybody is right now. So yes, we're trying to stay ahead of it.

Great. And final question for me, and maybe for Mary, in terms of the market environment, March saw pretty healthy levels of revenues from China. Can you give a little bit of color on that business? Was it primarily domestic? And maybe a little color between the mix between foundry and mix?

Okay. So, China is obviously a very important region for Axcelis. It runs approximately 30% of our revenues in any given quarter. Right now, China continues to be very active, and we're seeing that primarily in the mature process technology segment with the domestic Chinese manufacturers. Even though a significant portion of our business in China typically comes from the global semiconductor companies right now, there is quite a bit of activity from the domestic customers. I would say that activity is a mix really across all segments. We're seeing not only the mature process technology, but we are seeing demand coming from some of the memory customers. The image sensors continue to be a very active segment for us. So, we continue to watch for that. We are prepared. We have teams in place to accept the shipments and do the installations, and those are all things that we're watching. Right now, we're very happy that that's an active region, and we're prepared to serve it.

Yes, thanks for taking the question and congratulations on the good execution in the first quarter. Kevin, I wanted to start with -- I wanted to start with some clarifications. One, there was an unusually large number of evaluation tools in the quarter. But if we set that aside and we just looked at Purion system margin performance and cost reduction, would the business have stayed on that nice Purion upward trend that we see in the investor deck, where there are different things going on with COVID adjustments that would have precluded ongoing margin expansion?

Yes. So, the biggest impact on Q1 was that -- if I look at what that contributed, Craig, it was about 300 basis points of negative gross margin. So, if you add that back, you can see exactly where we would have been. There are some things flowing through the gross margin line, but they haven't really hit yet because a lot of basically how we do the buildup on the expenses and capitalized variances that bring it back through future points in time. Most of that starts to hit in the Q2, Q3 area. So, Q1 was really all about the evaluation tools, and like it was about 300 basis points of negative impact. In terms of the cost-out activity, we're still right on point on our road maps. I think you're well aware of it, and we've been talking about it for a while that we've got many things we're doing with both the supply chain and continue to do in a factory with lean events, and the coronavirus has not impacted that. Even though a lot of folks are working from home, we're keeping up with everything. Engineers are keeping up with things, purchasing is keeping up, and all the support groups. At this point in time, people in the factory are the direct labor people manufacturing, some supervision, and some support. The good news is everybody else working from home is keeping up. So, everything we wanted to do with our road maps, we're still on track. I’m still very comfortable with the margin targets we have in both the $550 million and $650 million target models.

Very good and certainly a significant accomplishment in this environment. Just further clarifying that point. Is it reasonable to think that there’s one-ish evaluation tool per quarter, or would they be above or below that? Not looking for specific guidance, but just some color on what you see in the funnel.

So I'll tell you, there's many more evals going out this year than what we disclosed in Q1. So there's plenty of evals in there, and that's part of the investment because a big chunk of that hits the OpEx line. But when I talk about still seeing full year gross margins average greater than 40%, I've got that accounted for, Craig. So even though we've got a fair number of evals coming out, this was an unusually stacked quarter against us. We had three evals closed. We also had a very fine mix of high current. You can see from our investor presentation. Unfortunately, it's still at a lower margin, but it’s continuing to get better. Like I said, we had a few things stacked against us this quarter. But going forward, I still expect even with this start at 38.3, that our full year average is still going to be above 40 based on what I'm looking for in Q2, Q3, Q4.

Craig, just wanted to add one thing relative to expectations for future evals. The new products, the Purion XEmax, the Purion H200, Dragon and so forth, those are key targets for evals over the course of this year. So that's really part of the growth towards the 550, and especially towards the 650 model is getting those products seeded.

Okay. So I can tell you what the bookings look like for the first quarter. We have said that bookings typically come in one quarter, and those tools are typically shipped in the same quarter. But I can give you some color around it. So the bookings for Q1, it was actually a 50/50 split between mature process technology and memory. Also, that split was pretty even in memory between DRAM and NAND. So that will give you a sense. We mentioned on our last call that we believe that memory spending has picked up. It started for us in Q4. In Q1, we talked about how approximately 50% of our shipments were for memory. We are seeing strength in memory going into Q2 as well. Given the fact that we have all the COVID-19 activity going on, it's hard to assess the potential impact that that will have on any specific segment going forward, particularly memory. But we still expect memory spending to increase in 2021 and 2022. We mentioned that automotive has been impacted, which obviously has a negative impact on power devices. So we've seen a little bit of slowdown in some of the mature process technology areas where customers are specifically focused on automotive. But other than that, demand really continues to be strong. We attribute that not only to having a strong Purion product line but having that large diverse customer base is positive. While there may be some fluctuations, some downward fluctuations in some market segments, we think that there will be a positive impact in other market segments and we're hoping that will provide somewhat of a buffer for us moving forward. Demand, in general, continues to be strong.

That's really helpful. And Mary, I know you spend a lot of time just out meeting with customers. I'm wondering, if you could help us with any color just beyond the second quarter as it relates to the year's linearity. Any sense from those customer conversations if the environment is setting up for flattish linearity, potentially down given how strong things are in the first half? Thanks for any insights there.

Yeah. It's really hard to tell what's going to happen moving forward. I just mentioned some of the observations that we've had based on some of the market segments. But any further color, their customers are obviously taking a hard look at what's going on right now in terms of demand from their customers. And that's the part we just don't know is what is the economic impact going to be on their business and then how that will run down or impact our business. So we continue to watch that. But as I said, right now, things continue to be quite strong. Our sales teams are monitoring that on a daily basis and feeding that into us. I think we have a pretty good handle right now on the demand for Q2, as Kevin said, but there’s a lot of uncertainty around some of the other factors that are going into that, as he explained. So Craig, it’s really hard to look much further out than that at this point and make any predictions.

Hi. Good morning, guys. Great quarter.

Thanks.

Just a little bit clarity -- more clarity on the cautiousness to give exact guidance on the top line for Q2. When you're looking at the supply chain issues, is the concern more movement restrictions, or is it actually fears over getting certain components? Or in addition, is there any cautiousness that you could, as the quarter goes on, see customer push-outs of the extremely strong backlog that you currently have in place? If there's any color you could provide there, that would be great.

Yes. So Christian, right now it's all around the supply chain. From a demand point of view, I'm not worried about the customer. As a matter of fact, there's probably more customers who would like to pull things in than push out at this point. It really is keeping track of the supply chain; it's very global. I mean, we've had factories that might have had a discrete outbreak with the virus where we had to have temporary shutdowns. We've got things coming out of Mexico, where factories still can't have more than 50 people per shift; things like cables, for example. We’ve dealt with shutdowns that were in California. So, the caution really is around the daily changing environment with the supply chain. We can certainly look at our suppliers right now and know where there are state regulations that may be slowing people down and shutting them down, but it gets back to operates, for example. All of a sudden, you've got a critical supplier who's not delivering. So that's probably the most color I can get right now. That's why we're being a little bit cautious, because we are on a daily basis dealing with things. We have a fairly large supply chain; there are a lot of components to go on these implanters, and it only takes a couple that can stop you.

Yes. I mean, we – Doug, go ahead.

Well, I guess what I was going to say, Christian, was that the new tools are very important indicators for the model growth. One of the things we talked about at the Investor Day was how the current products, some of the products like the VXE and some of the power devices are very critical towards the 550 model, and that the newer ones — Dragon, XEmax, Purion H200 will have some influence over the 550 model but are very important for the 650 model. So I think it should be looking at the evals for the new products as having much more impact on the longer-term model than nearer-term, where the current product set are the main drivers for the 550 model.

Yes. Good morning. So first, I guess, a clarification for Kevin. It sounds like if revenues are flat quarter-over-quarter, you think margin – gross margins will be up a little bit even though there are some extra costs coming from the coronavirus?

Yes. Yes. Based on the cost-out activity that we currently have in play in the Q2 mix, which does not have the three evals Q1 that we'll continue to see margin expand, throughout the year, we're going to have to continue to get better quarter by quarter to hit that greater than 40% for full year, which I fully expect at this point, we're going to do. And at this point, I have the impact, as I know it, baked into those gross margin assumptions. There is – in Q2 and Q3 is where, at this point, I see the majority of the impact on the business based on what I know today.

Yes. Okay. That's very helpful. And then when we look at the new products, specifically here, the Dragon, so obviously very nice to see a follow-on order and a shipment on that. But how do you see that rolling out? Does it stay with the NAND market for a while and then ultimately you get to look from the DRAM or the logic market, or are companies looking for all three end markets? A little color there would be great.

Okay. So, the initial customer has looked at it for both and started just based on their demand and their technology needs on the NAND side. There's still strong interest on the DRAM side. And we'll see that roll out. Strong interest exists in the logic–advanced logic side in the product as well. I think, Tom, we can't go into specifics for each of the customers. The sales team and marketing team and the customers, they have a strategy for the combination of Purion agents and Dragon for each of the applications and what's fitted for the different recipe needs for each of the technologies. Expect to see Dragon. It's starting with NAND; it wouldn't surprise me to see DRAM activity over the course of this year and certainly into next year as well.

We think Japan actually represents about 15% of the overall $1 billion ion implanter market. So about $150 million, we have not sold there for a number of years. We recently broke back in and sold some legacy systems, but we're very excited because we did just receive our first order for a Purion product. It was a Purion for a power device application from a Japanese customer. We believe now that we have many opportunities to expand into other customers in other market segments. We are working very closely with the large Japanese customers. We're continuing to collaborate with Screen, and we have equipment in their lab. But one of the things we've learned over the last two years from working with Screen is that customers actually want to buy directly from Axcelis because of the highly technical sales process associated with an ion implanter. We have, over the last few years, been building a Japanese organization, and we're continuing to staff our own Axcelis direct team. We recently hired a new Japanese country manager. It’s a large opportunity, and we're planning to aggressively go after it.

Great. Thank you very much.

Yes, thanks for taking the follow-up. Two, please. First on, Mary, from the depiction that we're hearing around China, it seems that China has the potential to stay more in the mid- to high 30s then drift back towards what's historically been about 30% of sales. Is that a fair view of what the team is seeing over the next quarter or so?

Craig, I'm not going to give you any guidance on China. I will say that we do expect it to continue to contribute a large portion of our revenues moving out through the rest of the year. Thank you, Julie. I'd like to thank everyone for listening to our call, and we hope you can join us virtually for several conferences this spring. We will be participating in the Craig-Hallum 17th Annual Institutional Investor Conference on May 27. The Cowen 2020 Technology Media and Telecom Conference on May 29, and the Stifel 2020 Cross Sector Insight Conference on June 8. We will also be participating in virtual non-deal roadshows with D.A. Davidson and B. Riley during the quarter. We thank you for your continued support, and please stay healthy.

This concludes the presentation. Thank you for your participation in today's conference. You may now disconnect.