Good day, everyone, and welcome to the Axcelis Technologies call to discuss the company's results for the Second Quarter of 2022. My name is Chamberlin, and I will be your coordinator for today. I would 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, Chamberlin. 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'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 for our second quarter earnings call. Business continues to be robust for Axcelis, especially in our highly implant intensive mature process technology segment. In the second quarter, 84% of system shipments and 95% of system bookings came from this segment. Automotive and industrial applications are extremely strong, as evidenced by the increased demand in power devices. We recently posted a new presentation on our website regarding this exciting market opportunity. We remain focused on customer satisfaction with on-time shipment and installation, which is a key metric. To date, despite the challenging supply chain and logistics environment, the solid execution by the full Axcelis team has allowed us to meet this high level of customer demand, adhere to shipment and installation dates, and maintain high levels of customer satisfaction. I would like to thank our dedicated employees once again for delivering these results under these challenging conditions. As a result of this demand and our strong execution, our second quarter financial performance exceeded our expectations. Revenue for the second quarter was $221.2 million, with earnings per share of $1.32 and gross margin of 44.8%. Our quarter-end cash balance was $287.9 million. Our aftermarket business, or what we refer to as CS&I, continues to contribute significantly to our revenue and gross margin. CS&I revenue in Q2 was $55.8 million. As mentioned before, the mature process technology market remains a strong area for Axcelis, with 84% of second quarter shipments going to mature foundry/logic customers. 16% of shipments went to memory customers, with NAND accounting for 14% and DRAM 2%. The geographic mix of our system shipments in the second quarter was China 55%, the U.S. 16%, Korea 14%, Europe 4%, Taiwan 3%, and the rest of the world 8%. Visibility for 2022 and 2023 continues to be good from a demand perspective. System bookings and shipments continue to hit record levels, with significant orders for 2023 already booked. As a result, Axcelis now expects to achieve revenue of greater than $875 million in 2022, with a gross margin of approximately 42.5%. For the third quarter, we expect revenue to be between $220 million and $228 million, with a gross margin of approximately 42%, operating profit between $44.5 million to $47.5 million, and earnings per share between $1.10 and $1.15. Our guidance reflects increased supply chain and logistics costs that are impacting our gross margin. Currently, there are concerns in the industry around CapEx spending in memory and consumer-related IC manufacturing for 2023. Axcelis has a strong presence in the Memory segment, but we currently have limited exposure to Memory relative to the size of the implant opportunity in the mature markets. For 2022, we expect only about 20% of system revenues from the memory segment. We have made progress in penetrating the advanced logic market, which has significant exposure to consumer IT spending. We continue to work closely with customers, but we have no material exposure to the Advanced Logic segment in 2022 and limited exposure in 2023. Our continued growth is driven by the Mature Process Technology segment, which is expected to account for approximately 80% of our system revenue in 2022. Growth in the highly implant intensive segment, especially Automotive and Industrial Applications, has more than doubled the ion implant TAM to greater than $2.25 billion in the last three years. Power devices are a key part of this growth and require more advanced Purion product extensions. We expect the power segment to account for between 35% and 40% of our system shipments in 2022. This growth is a long-term trend driven by the transition to electric vehicles and should benefit Axcelis for many years to come. As a result, we expect our business to remain strong, but we will use any slowdown in specific market segments as an opportunity to penetrate new applications with additional evaluation systems and work with customers on adoption of the more advanced Purion product extensions. Now, I'd like to turn it over to Kevin to discuss our financials and provide an operational update.

Thank you, Mary, and good morning. Axcelis delivered exceptional second quarter financial results, beating company guidance and consensus estimates across the board. A favorable mix with higher gross margin and solid execution drove these positive results. Supply chain disruption was significant in Q2, caused by pandemic-related shutdowns, ongoing chip shortages, and capacity constraints. Throughout the quarter, our purchasing and engineering teams worked closely with suppliers to implement both strategic and tactical measures to address these issues. Our manufacturing teams tackled challenges created by material availability, while sales and service teams collaborated with customers to support fab ramp plans and high utilization rates. As Mary mentioned, 2022 is on track to be another great year for Axcelis. We now expect full-year revenue to be greater than $875 million. Visibility remains good, and customer demand is strong. Like others in the industry, we are dealing with similar supply chain disruptions and higher costs. We try to include these anticipated challenges into our Q3 and full-year guidance, but the situation changes almost daily. The only content right now is that the industry is supply chain constrained. We have continued to make improvements in our manufacturing capabilities in both Beverly and South Korea. In the second quarter, we significantly ramped production at the new Axcelis Asia operation center in South Korea and began additional projects to increase manufacturing capacity in Beverly. These efforts will enable us to support revenue exceeding $1 billion. Moving to our second quarter financial results. Q2 revenue finished at $221.2 million, exceeding our guidance compared to $203.6 million in Q1. Q2 systems revenue was $165.4 million, compared to $151.8 million in Q1. Q2 CS&I revenue finished at $55.8 million, compared to $51.8 million in Q1. CS&I posted very strong margins in the quarter due to mix and some lower costs. We expect Q3 CS&I revenue to be around $55 million, and I recommend modeling the remainder of 2022 at $55 million per quarter. Q2 sales from our top 10 customers accounted for 66.3% of our total sales compared to 69.8% in Q1. Two customers were at 10% or above in Q2, the same as in Q1. Q2 system bookings were $432.8 million compared to $315.5 million in Q1, with a Q2 book-to-bill ratio of 2.56 versus 2.0 in Q1. Backlog in Q2, including deferred revenue, finished at $869.5 million, a new record, compared to $625 million in Q1. Multiple customers are planning new fabs and expansions for 2023 and 2024, which is driving bookings out beyond one year. Q2 combined SG&A and R&D spending was $45 million or 20.4% of revenue, compared to $40.8 million or 20.1% in Q1. SG&A in the quarter was $26.3 million, with R&D at $18.7 million. In Q3, we expect SG&A and R&D spending to be approximately 21% of revenue. For the full year, I recommend modeling SG&A and R&D spending at approximately 21% of revenue. Gross margin was 44.8%, well above our guidance. The gross margin in the quarter was higher than guidance thanks to a more favorable mix of systems and higher-than-normal CS&I margins. We are guiding Q3 gross margin of approximately 42%, driven by the expected shipment of a less favorable systems mix compared to Q2 and the increased impact of supply chain-related costs. Full-year 2022 gross margin is expected to be approximately 42.5%, which includes the impact of supply chain and logistics headwinds. We believe we are at the trough and should begin recovering during 2023. We are continuously evaluating ways to help offset increased costs, but customer satisfaction remains our top priority. Outside of the higher costs I mentioned, we continue to make progress on core gross margin initiatives. Our $1 billion model reflects continued gross margin expansion driven by higher revenue from CS&I and Purion product extensions, incremental supply chain volume and value engineering, planned labor and quality improvements, and a return to a more typical supply chain and logistics environment. Operating profit in Q2 finished at $54.1 million compared to $48.9 million in Q1. We are guiding Q3 operating profit between $44.5 million and $47.5 million. Q2 net income was $44.2 million or $1.32 per share compared to $41.6 million or $1.22 per share in Q1. We are guiding Q3 earnings per share between $1.10 and $1.15. As noted earlier, our Q3 guidance reflects the anticipated impact on our business from supplier and pandemic-related issues but remains an evolving situation. Q2 receivables were $146.1 million compared to $119 million in Q1, driven by the timing of shipments. Q2 inventory ended at $213.1 million compared to $203.8 million in Q1. Q2 inventory turns, excluding evaluation tools, finished at 2.6% compared to 2.5% in Q1. Future accounts payable were $49.4 million compared to $50.8 million in Q1. Q2 cash finished at $288 million compared to $298 million in Q1, driven by an increase in working capital. In the quarter, we generated $3.5 million of cash from operations and settled share repurchases of approximately $12.5 million. We have returned over $107 million of cash to our shareholders since beginning our stock repurchase programs. This is an exciting time for Axcelis, with significant growth in the ion implant TAM, solid customer demand for our products, and long-term growth prospects in the power device market. We are executing at a high level, despite a challenging environment. Once again, I want to thank the entire team for continuing to perform at this level. I also want to thank our supply chain partners for their hard work supporting Axcelis and our customers during these unusual times. We have both projects underway, focused on stabilizing our supply chain and adding manufacturing capacity. As a result, we believe that Axcelis will emerge from this period with a stronger and much more resilient business. Thank you. I'll now turn the call back to Mary for closing comments.

Thank you, Kevin. It is a very interesting time in the semiconductor industry. Concerns over a reduction in consumer and memory spending signal an industry slowdown in 2023. However, any impact on Axcelis will be moderated by several factors. Supply chain and logistics challenges continue to create a supply-limited environment for our customers, which likely helps smooth over any slowdown in end-user demand. Government spending programs, like the U.S. Chips Act, are globally incentivizing semiconductor companies to build fabs. Lastly, and very importantly to Axcelis, is the electrification of the automotive industry. The investments required for this long-term trend are rapidly expanding the ion implant TAM and driving significant growth in our business. The capabilities of the Purion power series uniquely position Axcelis to benefit from this. With that, I'd like to open it up for questions. Shandralyn?

Our first question will come from Mr. Patrick Ho with Stifel. Patrick? Mr. Ho?

Shandralyn, we just got a message that people are getting repeated confirmations that their hands are raised, and they have spoken when they've been called on. But apparently, we can't hear them. So I'm not sure how you might work on troubleshooting that.

I'm working on it. Just a moment. Mr. Patrick Ho with Stifel, could you please dial star 11 and ask your question?

Hello?

Yes, Mr. Ho?

Yes. Yes. Congrats on the nice quarter, and actually your results and outlook speak for themselves. Kevin, maybe first off for you. I know it's always a challenge in the supply-constrained environment, managing systems deliveries as well as the CS&I business. Given your strong results and outlook, how are you managing that to ensure customer satisfaction on both of those fronts because, obviously, they want to keep their fabs running at the highest utilization, yet at the same time, they're trying to expand fab capacity. How are you prioritizing your shipments on both sides of the business?

Yes. So it's a good question, Patrick. There's no doubt there's a bit of a juggling act. But first and foremost, we have to pay attention to customer satisfaction. So priority to keeping the field up and running always comes first and then system deliveries after that. I think probably the most difficult situation in this quarter was the continuing chip shortages that were hitting some of our OEMs. However, I do think some of the good news that came out of a couple of other companies is that they have announced our OEMs that they've been talking about improving the supply chain. So I think if we can get the OEMs back on track and get beyond some of these chip shortages, that's going to go a long way to improving things. We have plenty of manufacturing capacity in place right now. So it is all about supply chain management. The costs have been escalating, and we're paying the price right now because we need to make deliveries. However, there's work to be done to start rolling back some of these costs as the situation begins to recover and commodity prices start to decline. So to your original question, it is a juggling act, but at the top level, customer satisfaction is paramount. If there's a tool down in the field, we've got to get it up and running and if that means prioritizing a part as they come out of something on our shipping dock, then that's what's going to happen.

Great. That's helpful. And maybe as my follow-up question for Mary. Obviously, the demand trends and booking trends continue to be very robust and solid, but obviously, there are a lot of market concerns out there. What gives you confidence when you talk to your customers that these are real demand orders we're looking at for 2023 at this point? What reassures you that some of these concerns won't translate into cancellations? What’s your take on the situation?

Well, we stay very close to our customers, and we're talking to them constantly. Just over the last couple of weeks, we've had discussions with two of our customers who are in the Mature Process Technology area. While they have mentioned that there are certain segments of their businesses that might be softening a bit, their activity in areas that we discussed, specifically Automotive and Industrial, remains very strong. They have been able to cover everything that those customers specifically need. So I think everyone is just watching and waiting, but the demand remains very strong even in the Memory segment, where we understand there may be some slowdown driven by declining PC and phone sales. However, we believe that our business is going to be steady in 2022 and into 2023. There might be some softening, but the Mature Process Technology segment is truly dominating the landscape, and we have not had any push-offs to date related to customers communicating a softening in demand. We have experienced normal fluctuations, but it's other factors, such as delays in investment or staff construction, that are influencing this. But at this point, Patrick, we feel very confident that the trends remain in our favor. The long-term trends haven’t changed, and we're well-positioned with our Purion product lines. Our execution has been excellent; Kevin and the team have done a fantastic job. Therefore, we remain very optimistic about the future.

Congrats, guys, on a fabulous quarter and outlook. My question is you’ve continued to see very strong visibility. Can you talk to us about the future bookings mix between mature nodes and silicon carbide? Additionally, by the end of calendar 2023, how many different silicon carbide manufacturers do you think you'll be selling ion implant to?

Well, we haven't provided a full forecast of our upcoming bookings. We have mentioned that, in Q2, 95% of our bookings came from Mature Process Technology, with the remaining 5% from Memory. But based on my knowledge of the backlog, it is clear that Mature Process Technology continues to overshadow the Memory segment at this time. From an overall TAM perspective, 65% is Mature Process Technology, while about 22.5% is Memory, and Advanced Logic accounts for about 15%. Therefore, this will give you a sense that the majority of our ion implant business will continue to come from Mature Process Technology. Last year, 82% of our systems revenue stemmed from this segment, and this year we expect it to be approximately 80%. So Christian, you will need to interpret this without any specific figures, but I believe the trend will persist.

Christian, this is Doug. The only other thing I'd add is that we continue to see very strong bookings from the power grid. We mentioned that we expect 35% to 40% of our systems revenue for the year to come from that segment. So that's reflective of the current state of our business.

Can you hear me?

Yes.

Congratulations on truly stellar execution. I had a couple of clarifications before a bigger-picture question. The first clarification on the calendar 2022 guidance for over $875 million in revenues, can you help us understand what factors could cause that 'plus'? Is it just supply chain dynamics? If so, to what extent would that be internal Axcelis versus broader issues? Any color on magnitude would be helpful.

Yes. Mary, let me take that. There is no doubt that we've seen strong demand. I think there are more customers requesting early deliveries, but, as Mary said, we are not witnessing any push-outs. The supply chain is currently the number one challenge affecting the speed of our ramp-up. Although we have made significant growth year-over-year, we have been receiving support from our supply chain partners who are working hard with us. Therefore, any additional upside to greater than $875 million at this point, if I could attribute it to something other than supply chain, I would be misleading. So that is the challenge we face right now.

Got it. That’s helpful, Kevin. And then the second question is about the backlog. The numbers are remarkably high, well above $850 million. Is the backlog a 12-month backlog, or does it include some of the multiyear orders you described? Furthermore, how much of the backlog can you characterize as being 12 months versus beyond 12 months?

Kevin, do you want to take that?

Yes. The backlog number encompasses everything, so it includes orders extending all the way out to 2024. However, I do not have the specifics regarding how much is designated as 12 months or beyond that. I can say most of it is expected to cover the next 12 months, but there may be portions in that backlog that extend further.

Got it. And then finally, recently, we observed a semiconductor company raise its forecast for silicon carbide, increasing 3-year shipments from $1.4 billion to $4 billion. Given this backdrop, in reference to the summary you provided at SEMICON West, do you believe the $2.25 billion figure adequately reflects the strength coming from silicon carbide, or are we starting to see trends that might exert upward pressure on that number?

Yes. So Craig, I think the numbers that we presented in the presentation reflect our current expectations. We are constantly assessing these figures as we speak to customers and gather their feedback regarding demand. We will keep you updated with any changes. The charts in the presentation showcase our current perspective on the situation.

Hope you can hear me this time?

Yes, we can.

Following up on the recent questions regarding the power segment, we typically associate silicon carbide with EVs, but could you elaborate on what else is driving the momentum in your power segment right now regarding either industrial or traditional vehicles?

In the investor presentation we posted, as well as during the SEMICON event, it’s clear that automotive is a primary driver of volume for silicon carbide. However, there are many other applications, including smart grid solutions and various industrial applications. Automotive is indeed the biggest driver of demand right now, with different splits between silicon IGBT-type devices and silicon carbide. That allocation depends on the choices made by automakers regarding their initial EV offerings.

Great. And Mary, you did an excellent job outlining your minimal exposure to the advanced logic market today and the consumer sector. However, it's clear that most of your mature business hinges on power devices and LED image sensors. I'm curious, what is your exposure in the mature domain regarding consumer electronics?

There's some exposure in the general mature area. However, based on discussions with our customers, while they observe potential softness in some consumer-related devices, most are experiencing strength in other areas. Therefore, at this moment, this strength has effectively balanced any weakness their customers may experience. As previously mentioned, we have not seen any major impact on Axcelis due to this. Our order book remains healthy, with projects booking well into 2023 and 2024. As Kevin mentioned, customers remain engaged with the general Mature Process Technology areas, particularly in power devices, as Doug noted. We still have customers indicating they would like to expedite order shipments, so all things considered, the situation remains favorable.

Great. And finally, Kevin, when you evaluate the margin guidance, could you quantify or differentiate the factors contributing to the delta between the second and third quarters, particularly regarding mix and supply chain issues impacting margins?

Yes. Instead of discussing the specific quarter, I will share a full-year perspective this time. The back end of the year is going to show more pressure. If I assess where we stand concerning negative purchasing price variances and increased logistics costs, I would estimate approximately 250 basis points of impact on full-year margins. In Q3 and Q4, this situation is somewhat more pronounced based on when materials are procured versus when we ship the tools. We continue to make progress in our manufacturing capabilities and are working hard to address the challenges related to supply chain issues while still keeping our core initiatives active. I want to emphasize that while we are currently dealing with higher costs, I still believe we are well-positioned for a significant gross margin improvement moving forward. We expect this quarter to be the low point, and I believe we should start to see improvements over the next couple of quarters. While the current environment is challenging, we remain diligent in executing our growth strategies.

Can you hear me?

Yes, excellent.

Perfect. Kevin, just a follow-up on the gross margin question you just addressed. If I'm doing the math, it looks like gross margin in the fourth quarter could be below 40% for you to reach 42.5% for the year. So I want to ensure that a scenario with a gross margin in the 39% to 40% range is what you're contemplating for the fourth quarter, given the elevated material costs and timing of their impact on your income statement.

Yes. So I will tell you, I'm pretty sure you won't see a 3 in front of it. You might see something with a low 4. Therefore, I don’t believe you need to go as low as 39-point-something. However, I anticipate there may be a quarter that is slightly down from Q3. Just to provide some clarity, our focus remains on ongoing improvements; we managed to increase gross margins by about 50 basis points since our last call, and we will continue to direct focus towards measures that aid future shipments.

Yes. I appreciate all your comments and questions. To conclude, I would like to thank you for joining us today. I also apologize for the technical difficulties we experienced. In terms of future investor events, we will be participating in the D.A. Davidson Big Sky Technology Summit in Montana and the Needham Third Annual Virtual Conference both in August. We hope to see you at one of these events, and thank you for your continued support.

This concludes the presentation. Thank you for your participation in today's conference call. You may now disconnect the call. We would like to thank you for your patience during our technical difficulties. Please have a wonderful day.