Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the Second Quarter 2021. My name is Mary, and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. As a reminder, 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, Mary. With me today is Kevin Brewer, Executive 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. Good morning and thank you for joining us. Axcelis posted another strong quarter. This resulted from overall strength in the semiconductor industry, as well as growing momentum in the Purion product line, notably from the Purion Power series. Revenue for the second quarter was $147.3 million, with earnings per share of $0.55 driven by strong gross margin of 43.5%. Quarterly system sales surpassed $100 million for the first time since 2004. CS&I, our aftermarket business, continued to provide a significant contribution to our top line and gross margin with Q2 revenue of $47.1 million. In the second quarter, 70% of shipments went to mature foundry/logic customers, and 30% to memory customers, with an even split between DRAM and NAND. We believe the mature process technology segment will account for greater than 70% of system revenue for the full year 2021. The geographic mix of our system shipments in the second quarter was: China 58%; Korea 18%; Europe 12%; Taiwan 3%; and the rest of the world 9%. Turning to third quarter guidance, we expect revenue of approximately $170 million, gross margins of approximately 42.5%, operating profit of approximately $32 million, and earnings per share of approximately $0.70. We now expect Q4 revenue to be above Q3 guidance, allowing us to exceed $625 million in revenue for the full year 2021. This is driven by the rapid growth of the mature process technology segment, and the early stages of the memory capacity build. We expect both markets to remain strong well into 2022, and we are currently booking systems into Q2 of next year. Overall demand for capital equipment in the semiconductor industry is being driven by several factors, including supply chain shortages, high fab utilization across all segments, causing significant new fab investment, government incentive programs creating geographic expansion opportunities for our customers, and the fundamental underlying drivers that started this growth cycle of 5G, data analytics, and AI. As a result, we believe that the implant TAM has increased significantly. In addition, the rapid acceleration of the electrification of the automotive industry is driving substantial demand for power devices and image sensors. This is not related to the shortage of general-purpose mature devices like MPUs for automotive. It is driven by the 10 to 15 year strategic roadmaps of all automotive manufacturers and their suppliers. These markets are generating sustainable growth with Purion product extensions in high current, medium current, and high energy designed to serve the power device and image sensor market. We've invested significantly in both of these markets over the last several years. As a result, we expect Power to make up approximately 30% of our systems revenue in 2021 with continued growth driven by the Purion product extensions, specifically developed for this market. Our growth in this area is clear and sustainable. And most importantly, it is tied to a long-term trend beyond any increases driven by supply chain shortages. Looking at the memory market, we maintain a strong and growing position. We expect 2022 to be a good year for capacity additions in this segment and are already seeing bookings for shipments later this year and into next year. We continue to see a high degree of activity in both advanced logic, where we have a Purion H evaluation underway, and in the Japanese market especially related to power device manufacturing. The market in China continues to be one of our strongest. This market includes a large number of both domestic and international customers in both the mature and memory market. We currently have licenses for all planned SMI shipments in Q3 and continue to receive licenses for future shipments. Evaluations are key to developing new customers, increasing footprint at existing customers, and penetrating new segments. We currently have six Purion evaluation tools in the field focused on supporting future growth. These include one Purion Dragon, one Purion H200, two Purion Hs, and two Purion XEmaxes which are positioned across key target segments, including advanced logic, NAND, DRAM, image sensor, and power devices. We expect four of these systems to close this year. We are also planning to ship one to two additional evaluations in 2021. Given that our current guidance is at the quarterly run rate for the $650 million revenue model, much sooner than previously anticipated, we are developing implant-driven revenue model beyond $650 million that we will publish by the end of this year. As we mentioned last quarter, we are also putting in place offshore manufacturing capacity to support this growth. Kevin will provide additional details on this project as part of his financial review of the quarter.

Thank you, Mary and good morning. Axcelis delivered solid Q2 financial results driven by strong gross margin performance and continued revenue growth. Based on our third quarter guidance and current review of the fourth quarter, we now expect to exceed $625 million in revenue for 2021. At the current run rate, we are seeing significant leverage in our business model and expect full year operating expenses to be around 24% of revenue. The gross margin is expected to finish slightly above 42%. Ongoing gross margin improvement will continue to be driven by the timing of cost-out initiatives and mix assumptions that include a higher number of Purion product line extensions. Full year gross margin assumptions include higher pandemic and supply chain-related costs and the impact of our investment in additional manufacturing capacity. Based on the strength of the market and demand for our Purion products, we're developing new financial models that we plan to share later in the year that should take us well beyond our current $650 million model. On our last call, I mentioned plans to add manufacturing capabilities closer to customers with a goal of increasing customer satisfaction and capacity. We are well underway with those plans and expect to have a new Axcelis manufacturing facility in South Korea by the end of this year. We currently have sufficient capacity in place to support our near-term demand and expect the Korea factory to play an important role in supporting future manufacturing requirements. Now, turning to our second quarter financial results. Q2 revenue finished at $147.3 million compared to $132.8 million in Q1. Q2 system sales were $100.1 million compared to $81 million in Q1. This is the first time since 2004 that we exceeded $100 million in quarterly system sales. Q2 CS&I revenue finished at $47.1 million compared to $51.8 million in Q1. CS&I revenue remains strong driven by high fab utilization, the growing Purion installed base, system upgrades, and customers purchasing safety stock. We expect Q3 CS&I revenue of approximately $47 million. Q2 sales to our top 10 customers account for 75.1% of our total sales compared to 79.8% in Q1. Two customers were at or above 10% in Q2 compared to one in Q1. Q2 system bookings were $172.1 million compared to $148.4 million in Q1 with a Q2 book-to-bill ratio of 1.71 versus 1.92 in Q1. We are currently booking into the second quarter of next year. Backlog in Q2 including deferred revenue finished at $271.2 million, a new record for Axcelis compared to our prior record of $186.5 million in Q1. Q2 combined SG&A and R&D spending was $40 million or 27.2% of revenue compared to $36.1 million or 27.2% in Q1. SG&A in the quarter was $23.4 million with R&D of $16.6 million. We expect Q3 combined SG&A and R&D spending to be approximately $40 million or 23% of revenue highlighting the significant leverage in our business model. Q2 gross margin was 43.5% and well above guidance, driven by strength in CS&I, increased Purion Power series shipments, and continued cost-out activity. We're guiding Q3 gross margin to be approximately 42.5%, driven by product mix and the expected closure of one evaluation system. We expect full year gross margin will be slightly above 42% including the closure of four additional evaluation tools. Operating profit in Q2 finished at $24 million compared to $20.3 million in Q1. We're guiding Q3 operating profit of approximately $32 million. Q2 net income was $18.9 million or $0.55 per compared to $16.5 million or $0.48 per share in Q1. We're guiding Q3 earnings per share of approximately $0.70. Q2 cash finished at $220.5 million compared to $207.5 million in Q1. In the quarter, we generated $30.8 million in cash from operations and settled share repurchases of $13.4 million. Q2 receivables were $79.5 million compared to $75.9 million in Q1. Q2 inventory ended at $192.3 million compared to $174.4 million in Q1. Q2 inventory turns excluding ship evaluation tools finished at 20% the same as in Q1. Q2 accounts payable were $40.7 million compared to $40.5 million in Q1. I would like to thank all of our employees and suppliers for their continued efforts and outstanding execution supporting our steep business ramp during the ongoing pandemic. It is an exciting time for Axcelis with unprecedented growth in the industry and solid customer demand for our products. Our balance sheet is strong and we have the financial strength of investment products infrastructure and our employees. We've also returned over $50 million of capital to shareholders since the start of our share repurchase programs and have $75 million remaining authorization under the current program at the end of Q2. Thank you. And I'll now turn the call back to Mary for the closing comments.

Thank you, Kevin. Axcelis is currently positioned for strong sustainable growth. The strength of the industry is a positive for all semiconductor capital equipment suppliers but Axcelis is uniquely positioned to benefit significantly from the long-term electrification of the automotive market through the strength and established base of our Purion products, in particular the Purion Power series implanter family and high energy products for image sensors like the Purion VXE and Purion XEmax. These implementers provide significant and enabling capability to our customers and result in better margin profiles for Axcelis. We will continue to partner closely with our customers across all geographies in this growth segment. Axcelis has the financial means to invest in R&D, global support infrastructure, and capacity to capitalize on all of the opportunities discussed in today's call. We are in the middle of one of the most exciting times in the history of the industry and are confident that we have in place the ingredients to maintain our leadership position in ion implantation. With that, I'd like to open it up for questions.

Thank you very much and congratulations on a strong quarter and positive outlook. Kevin, regarding the supply chain management, it seems you are handling things very well given your results. Can you share more about the additional steps you've taken alongside inventory management to address the challenges in the current ecosystem over the next few quarters?

Yes. Thank you, Patrick. It's a good question, because certainly there is a lot of pressure out there and we're seeing it certainly in a lot of peer earnings. But we've been dealing with supply chain disruption really since the start of the pandemic. What was pandemic-related moved more to just a steep ramp. Many of those problems are still out there and we're seeing it as well as others. But I think probably what helped us certainly early on we tried to stay ahead of it. We took a hard look at our supply chain. We started moving some of the commodity level things. So we put additional material from some new suppliers. We really wanted the MRP aggressively and opened up the lead time offsets to drive more material ahead of schedule. The other area that we focused on with engineering was making sure we kept ahead of any potential obsolescence that may be coming and took a look at long lead items. So I'm not going to tell you it's easy but we've been managing it. We took people out of manufacturing from the manufacturing engineering ranks and put them looking at suppliers and working with suppliers. So it’s a continuing challenge logistics freight. All this stuff is adding cost. But our gross margins we're still on track to our margin improvement plans that we have and we're capturing some of that through the volume. So I think that Patrick, it's probably what we do with the MRP and moving some of that material early on that's helped us. And so far we've been able to keep ahead of it with meeting demand.

Great, that's helpful. As a follow-up question, Kevin, regarding the gross margin, you've done a commendable job despite the many variables involved. Some of the evaluation units clearly have lower margins, but you're still on track for your long-term gross margin goals of over 42% and potentially close to 43% as you approach $650 million in revenue. What steps are you taking to manage those evaluation units and improve your gross margins while staying within that long-term target?

Yes, we are actively concentrating on cost-reduction initiatives. We have several value engineering programs in progress. Additionally, Patrick will greatly assist with evaluations regarding our product extensions, which offer higher gross margins. As we transition some of these evaluation tools and begin securing follow-on business, it will also contribute positively. Our main focus remains on managing costs and deploying these extensions into the market. We are capitalizing on the current volume, despite facing some additional pressures. Overall, we are still making progress in a favorable direction, and we will continue to prioritize the areas I mentioned.

Yes. Thanks for taking the question. I'll echo the congratulations on the very robust execution especially on the fulfillment side in the current environment. Mary I wanted to go back and follow up on that comment that you made about booking business into the second quarter of 2022 and to see if you can help us with some color on what you're seeing as things work out that far relative to maybe the mix of business mature foundry versus memory. Does it look similar to where we are now, or is it tilting one way or the other? And maybe secondly, just in the composition of what you're seeing with respect to uptake on some of the new products and the product line extensions that have had very good momentum over the last 18 months?

Right now, the demand is very strong across all markets and regions. The mature process technology markets continue to perform well, primarily due to high fab utilization. Specifically, we see robust performance in image sensors, the general mature foundry business, and power devices, especially as we're experiencing significant growth in power devices driven by a recovery in the automotive sector. When you consider the long-term commitment to electrification in the automotive market alongside our success with the Axcelis Purion Power series, this has created a sustainable growth opportunity for Axcelis. This trend is not just for 2021 but is expected to continue into 2022 and beyond. As for the distribution, we anticipate that the mature process technology segment will account for over 70% of our systems revenue in 2021 due to its strength. Turning to memory, we have discussed its recovery and expect steady business in 2021, with initial capacity purchases coming into our slot plan at the end of this year and early next year. We are observing a pickup in memory, and we've always stated that our memory business adds to the strong performance of the mature process technology sector, which drives our confidence in exceeding $625 million in revenue this year. Customer interest remains high, and we have significant demo activity, with six evaluation units currently in the field. We are confident in our product positioning and execution, which is vital for future growth, even beyond our $650 million business model. Regarding product line extensions and their performance, they are doing exceptionally well. Currently, we have six evaluation units deployed: two in memory, three in mature process technology, and one in advanced logic, all expected to stimulate future growth. Four units are in high current, the largest category of implant products, where we're concentrating on boosting growth. Two units are in high energy, where our business remains strong, and we hold a leadership position. For instance, among these six evaluation units, we have Purion XEmaxes with leading image sensor manufacturers, a Purion H200 with our leading power device manufacturer, and a Purion H at an advanced logic customer. We believe this is the opportunity we've sought to penetrate this segment and achieve growth in this critical market. Doug, would you like to add any details about the products themselves?

I think you addressed most of it. The silicon carbide tools, including the Purion H200 and Purion XE, are performing very well in the market. The Purion H200 in particular seems to be a very popular choice for customers in the power sector. We are anticipating strong growth for that product line.

That's really helpful Mary and Doug. So the follow-up question relates to the remarks around the point on moving capacity closer to customers and with the facility getting ready to ramp up in South Korea. So the question is this: When that facility is opened and operational, what's the revenue capacity of the firm in the near-term next one to two years? And as we look at some of the longer-term trends, which Mary you identified the multi-decade dynamics in auto-related EV and ADAS and the very robust position that Axcelis has there will existing capacity plus South Korea give you the three to five-year headroom that you need, or will there be other capacity that you'll need to bring online as we look at getting from here to at least, kind of, the first step forward with some of the secular auto dynamics by 2025, 2026?

Yeah, this is Kevin. I'll take the first part of that. From a capacity standpoint, I can say that we are looking at models beyond $650 that we plan to publish at the end of the year. Our Beverly site along with our new facility in South Korea will provide plenty of capacity for those models. In the long term, if further expansion is necessary, we can assess our operations in South Korea to increase capacity. We've completed extensive work over the past couple of years through Kaizen events and invested in capital equipment, allowing us to create more space. Therefore, with all the improvements we've made in South Korea, we don't anticipate any issues with capacity from a production perspective going forward.

I just want to add that we have a very strong position with customers in Korea. I've had the pleasure of informing one of our largest customers in person about our capacity expansion in South Korea, and they are extremely pleased. The good news is we will have the capability to meet their needs. This is beneficial not only in terms of capacity but also for our positioning in South Korea and the broader Asian market.

Yes. Just one other quick follow-up. I should have mentioned too Craig. The plan for South Korea is that we'll be able to ship to any of our customers from that facility as well. So it's not going to be set up just for one or two particular customers. The plan is that whatever we're building there has the capability to ship to any of our customers.

Okay. So you could meet some of that very strong China market demand from South Korea after it opens?

Yes. Yes.

Good morning. Thank you for the question, Mary. I would like to hear more about the emerging memory recovery and your thoughts on how it will develop over the next year or two regarding both NAND and DRAM, including the timing.

We are beginning to see an increase towards the end of the year, and we anticipate this trend will continue into 2022. Currently, our business is balanced between NAND and DRAM, as we mentioned for Q2. As we've pointed out previously, our preference isn't tied to any specific device capacity from memory customers since NAND has a bit more energy and DRAM has a bit more current. Our process tool is capable of handling both types of devices, and we are waiting to see how things develop. Doug, do you have any further insights you’d like to share?

Yes. So Tom for implants we're very much capacity-dependent in terms of growth. So as they add wafer starts they need to add implant. And as you can see from the various memory company earnings calls this quarter demand continues to be very strong and supply is tightening. The last year they did a lot of technology increases to increase their output either additional layers or shrinks in terms of DRAM. And now they're at a point where they're beginning to fill the shelves that they've put in place. So we expect that as we go into the end of this year and throughout next year to be a pretty good cycle in terms of memory capacity wafer start adds.

Thank you. That's quite helpful. And then so you talked about your business your systems business being 70% mature this year. What is your long-term view of the mix between mature and memory? It seems like it's been skewing more towards mature over the last year or two but has your long-term view changed?

I don't think our long-term view has changed. Go ahead, Doug. Did you want to say something?

No, I was going to say the same thing. The days when it was 50-50 or even 70-30 in favor of memory are probably behind us, considering the strength of the diverse and large customer base that we've developed. As the power market continues to grow in the image sensor market and we establish a foothold in Japan and in advanced logic, memory will continue to be robust as it cycles in terms of capacity additions. However, I think we can expect to see a stronger mix from the other technologies over time.

All right. Great. I wanted to ask about the hit rate of follow-on orders for the eval tools, as it sounds like you expect business from all four of them closing later this year. What is the typical timing for closing an eval tool to transitioning to some volume production tools?

It can vary. We've discussed how evaluations typically last about a year, although some may extend or be shorter. Generally, we become the process tool of record within a year, leading to repeat orders. In some cases, we can secure repeat orders even before the evaluation concludes. This happens when we closely collaborate with the customer, achieve positive results, and they need to increase capacity. As a result, we've received repeat orders in less than 12 months. It really depends on the customer, but a 12-month timeframe is a solid benchmark.

Hi. I offer my congratulations on the nice results and outlook. I wanted to start just with the eval tools to make sure I've got the numbers right. Mary, I think you said you will complete four evals or expect to close four evals before the end of the year with one in the third quarter so likely three then in the fourth quarter. Is that correct?

No. Quinn this is Kevin. So we have one in the third quarter that's in our guidance. And then, we expect to see four additional tools before the end of the year.

So that's in addition to the one in the third quarter, so it's four then in Q4?

Yes.

Got it, okay. And then Kevin, the guidance for the full year on gross margin of just over 42% sort of implies a step down in margin in the December quarter. I assume a lot of that reflects those four eval tools you recognize. But, I'm wondering whether the South Korea facility carries any start-up costs or absorption issues as it begins to ramp capacity in late this year?

Yes. Initially, there is some drag from the absorption issue you mentioned. We are currently hiring and training personnel. The expectation is that once we are fully operational, which will be sometime next year, this will positively impact our margins. There is some margin pressure this year, partly due to the additional evaluations wrapping up. However, it is important to note that we have well-defined roadmaps, and we are on track with our revenue growth, which exceeds our initial projections. Our gross margin is improving and is expected to continue to rise as we implement our cost-reduction initiatives, fully operationalize the factory, and convert some evaluation tools, which are product extensions, into follow-on orders that Mary discussed. These actions will drive our margin growth, and the timing will depend on how quickly we can complete this work.

Kevin, I wanted to ask a long-term question. Mary, you mentioned that you believe the ion implant total addressable market is now significantly larger than it has been. For quite some time, you've indicated that the total addressable market for ion implant was about $1 billion. I’m curious if you have an updated figure to share. I know you plan to provide new long-term models, but your previous models of $550 million and $650 million seemed to assume a market share of up to 45% of the old total addressable market. I would like to know if you might revise your market share perspectives given the increase in the total addressable market.

I'm going to take it, Doug, unless you’d like to respond.

Yes. Regarding the Total Addressable Market, it's challenging to quantify accurately due to the lack of detailed reporting. For several years, we've indicated that the TAM was around $1 billion with an annual growth rate of 10% to 15%. Recent figures from industry analysts suggest that it's likely increased to approximately $1.5 billion. We are currently working on refining our estimates. When it comes to market share, it's also difficult to determine exactly since the overall market size is constantly changing. However, we know that we have strong leadership in technology, management, and market presence, particularly in targeted areas like the power device and image sensor markets. We are performing very well with the specialized products we've developed for the Purion extensions. We will revise the model and subsequently decide how much additional detail to provide regarding the TAM or market share calculations.

Great. Lastly, regarding the China business, I understand you received licenses to ship to one of the Chinese foundries. Can you comment on whether the revenue from China was concentrated this quarter due to those licenses, or if it was fairly diversified?

It was a mix. There was a concentration with one particular customer due to the timing of some export licenses we received. However, China comprises a large and diverse group of both domestic and multinational customers, and the specific customer you mentioned is just one of many that we have in the region. There was some concentration, but overall, the revenue was much more mixed across a wide range of customers.

Great. Thank you for the additional color.

Hey, Quinn, it's Kevin again. I want to return to the evaluations. So, we have one in Q3 and a total of four more for the rest of the year. That means one in Q3 and three in Q4, which I believe Mary mentioned earlier. I apologize for any confusion I caused. We expect four more evaluations, one in Q3 and three in Q4.

This concludes the Q&A portion of the call. I will now turn the call back over to Mary Puma, who will make a few closing remarks.

Thank you, Mary. I'd like to thank everyone for joining us today, and we hope to talk with you virtually and see you in person at upcoming investor events. In August, we will be participating in the Needham Second Annual Virtual SemiCap and EDA conference, and also the Jefferies 2021 Semiconductor IT Hardware and Communications Infrastructure Summit. And we thank you for your continued support.

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