Good day, ladies and gentlemen, and welcome to the Axcelis Technologies Call to discuss the company's results for the Third Quarter of 2022. My name is Ali Blotter, 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, Ali. 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 third quarter earnings call. As a result of robust demand for the Purion product family and continued strong execution by the Axcelis team, we are pleased that our third quarter financial performance was above our guidance. Revenue for the quarter was $229.2 million, with earnings per share of $1.21 and gross margin of 45.1%. Cash, cash equivalents and short-term investments were $342.1 million. Revenue from our aftermarket business, CS&I, was $58.1 million and contributed significantly to our high gross margin. The mature process technology market continues to be an area of strength for Axcelis, with 88% of third quarter system shipments going to mature foundry logic customers and 12% to memory customers comprised of 5% NAND and 7% DRAM. The geographic mix of our system shipments in the third quarter was: China, 44%; Korea, 18%; the U.S., 15%; Europe, 10%; Taiwan, 5%; and the rest of the world, 8%. For the fourth quarter, we expect revenue of $232 million to $240 million, gross margin of 40% to 41%, operating profit of $41 million to $45 million and earnings per share of $1 to $1.10. For the full-year 2022, Axcelis revenues are expected to exceed $885 million with a gross margin of greater than 43%. Our guidance reflects the impact of three geopolitical and global economic issues. First, continued supply chain costs that are negatively affecting our gross margins; second, our assessment of recently imposed U.S. government restrictions on certain customers in China, which we believe will have minimal effect on our financials; and third, the adverse consequences of foreign exchange rates resulting from a strong U.S. dollar. The industry expects total wafer fab equipment to decline significantly in 2023, as a result of a reduction in memory spending, slowing consumer electronics demand, deteriorating economic conditions and newly imposed restrictions on certain customers in China. The ion implantation total addressable market (TAM), which has doubled over the last few years to approximately $2.25 billion, is not expected to suffer the same decline, primarily driven by growth in the implant-intensive power device market. As a result, Axcelis expects to continue to experience strong sales of Purion products into these market segments and achieve a fourth consecutive year of revenue growth in 2023. Strong system bookings, a record backlog of over $1 billion and a healthy book-to-bill of 1.89 in the third quarter support this projected growth. 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 strong third quarter financial results meeting company guidance and consensus estimates across the board, solid execution and continuing demand for our products drove these positive results. In fact, we are guiding continuing strength in Q4 and now expect 2022 to be greater than $885 million in revenue. We are forecasting additional growth in 2023 based on strong customer demand in our current backlog. In addition to focusing on the growth opportunities ahead of us, we are continuing to manage through headwinds impacting the entire industry. Supply chain disruption continued to provide significant challenges in Q3. Throughout the quarter, our sourcing and engineering teams worked closely with suppliers to implement both strategic and tactical measures to address these issues. Our manufacturing team addressed challenges created by material availability and performed at a very high level. Our sales and service teams worked closely with customers as fabs ramped and high utilization rates were achieved. As noted by others in the industry, these supply chain disruptions are resulting in higher costs. We remain focused on reducing these costs, but also impacting customer satisfaction. As I have mentioned on past calls, we should begin to see more sustainable improvements in the supply chain beginning in 2023. Moving to our third quarter financial results. Q3 revenue finished at $229.2 million and above our guidance, compared to $221.2 million in Q2. Q3 systems revenue was $171.1 million, compared to $165.4 million in Q2. Q3 CS&I revenue finished at $58.1 million, compared to $55.8 million in Q2. CS&I posted very strong margins in the quarter, due to mix and lower costs. We expect Q4 CS&I revenue to be around $56 million. Q3 sales to our top ten customers accounted for 62.8% of our total sales, compared to 66.3% in Q2. One customer was at 10% or above in Q3, compared to two customers in Q2. Q3 system bookings were $337.1 million, compared to $432.8 million in Q2, with a Q3 book-to-bill ratio of 1.89 versus 2.56 in Q2. Backlog in Q3, including deferred revenue, finished at a record $1.1 billion, compared to $869.5 million in Q2. Multiple customers are planning new fabs and expansions for 2023 and 2024, which is driving bookings out beyond one year. Q3 combined SG&A and R&D spending was $50.1 million or 21.9% of revenue, compared to $45 million or 20.4% of revenue in Q2. SG&A in the quarter was $29.6 million with R&D at $20.6 million. In Q4, we expect SG&A and R&D spending to be approximately 22% of revenue. Q3 gross margin was 45.1% and well above our guidance. Strong gross margin performance in the quarter was driven by a more favorable mix of systems, very accretive CS&I margins, the impact of foreign exchange and continuing cost reduction activities. As expected, we are guiding Q4 gross margin lower at 40% to 41%, due to a less favorable mix of systems and the timing of unfavorable supply chain costs. Full-year gross margin is now expected to exceed 43%, which is up from our prior guidance of 42.5%, resulting from very strong gross margin performance through the first three quarters of the year. Operating profit in Q3 finished at $53.2 million, compared to $54.1 million in Q2, regarding Q4 operating profit of $40 million to $45 million. Q3 net income was $40.3 million or $1.21 per share, compared to $44.2 million or $1.32 per share in Q2. We are guiding Q4 earnings per share of $1 to $1.10. Q4 guidance reflects the impact of higher supply chain costs, our current assessment of new restrictions on certain customers in China and the impact of foreign exchange rates. Q3 receivables were $173.9 million, compared to $146.1 million in Q2, driven by the timing of shipments. Q3 inventory ended at $226.5 million, compared to $213.1 million in Q2. Q3 inventory turns excluding evaluation tools finished at 2.5, compared to 2.6 in Q2. Q3 accounts payable were $54 million, compared to $49.4 million in Q2. Q3 cash, cash equivalents and short-term investments finished at $342.1 million, compared to $287.2 million in Q2. In the quarter, we generated $64 million of cash from operations and settled share repurchases of $12.5 million. We have returned over $120 million of cash to our shareholders since beginning our stock repurchase program. Axcelis continues to execute at a very high level, despite a challenging environment. And once again, I want to thank the entire team for their continuing outstanding performance. I also want to thank our supply chain partners for their hard work, supporting Axcelis and our customers. Thank you, and I now turn the call back to Mary for her closing comments.

Thank you, Kevin. Axcelis is well positioned to grow during the anticipated industry slowdown. Two long-term trends continue to drive our business. First, Purion Power series products continue to gain strength, driven by the electrification of the automotive industry. Axcelis maintains a technology advantage and leading share in this market. We expect to maintain this leadership position and do not see this market slowing. Second, the growth of IoT benefits the implant-intensive mature process technology segment; greater than 80% of our system revenue comes from the mature segment, which includes image sensors and power devices as well as other mature devices. Everyone in the industry is facing challenges, and many are planning for a slowdown in 2023. At Axcelis, we are focused on continued growth and believe we are extremely well positioned for the future. With that, I'd like to open it up for questions.

Our first question comes from Craig Ellis at B. Riley. Your line is now open.

Hi. It's Craig Ellis. I wasn't sure if that was to me; the operator kind of broke up. I'll just plow ahead. So, team, congratulations on the very strong execution in the quarter and the outlook. I was hoping to follow up on the points that you had mentioned in your prepared remarks, Mary, and see if you or Kevin could quantify the three items identified: one, the degree to which supply chain costs are impacting gross margins, I think in the past it's been around 175 basis points? two, can you quantify what the BIS China shipment allowances in the quarter; and then just any color quantitatively on the four times issue to start? Thank you.

Yes, Craig, let me grab the first two. So on the headwinds from supply chain, what we've been saying this year is that there's about 250 basis points of headwinds from both our suppliers and from logistics. So if you combine it, it gives us about 250 basis points. One of the things I have mentioned is that I would expect in 2023 that we could get back at least half of that through better pricing on material; there are a lot of things we're doing with value engineering still. We are starting to see some improvement in freight, so that is a bright spot. So again, it's about 250 basis points in total and anticipating getting about half of that back starting next year. On the other piece of things that's impacting earnings, we did mention FX a couple of times. In the quarter, if I look at all the puts and takes across the P&L, there's about $0.15 of negative EPS on the FX side. And then the final question, I missed that because either you were breaking up or I was breaking up, but I think you had three or four points you made, correct?

It was BIS.

Yes, the final one was the BIS impact, Kevin.

Okay. Yes, so right now we think there's minimal impact and in Q3, I can tell you there wasn't any impact to us. So we've gone through our due diligence, looking at the new restrictions, looking at who our customers are and at this point, we believe there to be minimal impact.

Great. And then the follow-up question before I get back in the queue. Mary, very helpful to get the indications on calendar ‘23 being a year of growth for the company and stellar outperformance, by the way, on that. The question is, can you provide any color on how the linearity of the year might play out? Not looking for specific guidance in any particular quarter; that wouldn't be appropriate at this early juncture, but any broader color on the arc of things would be helpful, if you could.

Yes, we don't really have any details on that at this point in time. Craig, the one thing I will put out there is that we are very focused on achieving our $1 billion model. And right now, we're saying that's a couple of years out. So again, that's something that's hanging out there. And it really will be a function of market conditions. But at this point, there isn't anything. We'll give you more as we get into 2023.

Got it. Then with calendar ’22 being within 11.5% of that, it seems like you're well on your way. I'll hop back in the queue. Thanks for the help on those two items, Kevin.

Yes. Thank you, Craig.

Thank you.

One moment while I prepare for the next question. Our next question comes from Christian Schwab at Craig-Hallum. Your line is now open.

Hey, thanks for taking my questions. Can you remind us or as you guys look at silicon carbide, how many customers that you're shipping to now in production? And what that may look like in a year or two, as far as a potential number of customers?

Christian, we haven't given the specifics in terms of the number of silicon carbide customers. It continues to grow as more companies enter silicon carbide. But Axcelis is definitely the leader in terms of silicon carbide ion implant, driven primarily by technical advantages of the Purion line and the ability to have the full product families of medium current, high current and high energy family. That, combined with us having started work on this over six years ago, has given us a good advantage. We expect the number of customers to continue to grow through 2023 as companies enter this field and then we'll see where it goes from there.

And, Doug, any more confidence or increased confidence? I know you guys laid out some wafer start expectations and I think a doubling of them every few years. Do you have greater confidence in that? Or could it even be a growth rate faster than that now?

Well, we have confidence in that when we put that up there. We're going to probably provide some additional insight at the beginning of the year. We're going through our strategic plan right now and we'll give more insight in terms of what we see 2023 looking like for silicon carbide. We do see 2023 as a growth year for silicon carbide, as I think is generally accepted by the industry at this point as well.

And then just on the exposure to China, I know there's sometimes a lot of investor confusion about that, given that there's fabs not by Chinese nationalistic people who have restrictions on buying equipment and other people who have licenses. Can you just walk through exactly who you're selling to? If you can give us some additional color on your Chinese exposure?

I can't provide many specific names, Christian, but currently, we are selling to companies like SMIC, for which we continue to obtain export licenses as needed. Regarding the other customers recently added to the list, it's well known that the four multinational companies now have U.S. government approval, allowing equipment suppliers to ship to them at least for the next year. This mainly leaves us with some domestic customers focused on logic that is less than 14 nanometers, along with advanced parameters for both DRAM and NAND, which primarily concern domestic clients. These are the customers affected, prompting us to halt shipments of parts and systems and offer technical support and service, which we've done. As Kevin mentioned, we've seen minimal impact regarding our customer mix in China. Most of the domestic customers we work with concentrate on the general mature process technology area, and many of our power customers have not felt the effects of the ruling from October 7th. Overall, the impact on our customer mix in China has been minimal. We've taken necessary actions, and we feel positive about the current situation, without anticipating future issues.

Great. Thanks for that clarity. No other questions. Thank you.

Thank you.

One moment please. Our next question comes from Hans Chung at D.A. Davidson. Your line is now open.

Thank you. This is Linda on behalf of Hans Chung. Thank you for letting us ask the questions. So I guess my first question was, what was your breakdown of the order book, specifically with mature segment? How much is in power versus image sensor in general mature?

So Linda, we really at this point in time only in terms of shipments are only splitting out the mature process technology segment and the memory segment. And for the quarter, it was 88% mature process technology and 12% memory. We did split out memory into 7% DRAM and 5% NAND, but we don't break out the mature process technology any finer. It's possible that when we get to the end of the year and we get to our call in February, we'll put out more color around that. But for right now, we're not providing that information.

Yes, Linda, this is Doug. One of the reasons we don’t do that on a quarterly basis is when you break it down too fine, it moves around quite a bit based on customer projects and so forth. So we tend to provide that breakdown once a year based on the full-year.

Okay. That's helpful. Thank you. And with the expectation of another growth year in ’23, what are the trends that you're seeing in different applications that is in memory, mature, power, and image sensor? Any color that would be helpful?

Okay. So in terms of what we're seeing right now, we're seeing that the demand is strong in the mature markets but we do see a slowdown in memory. However, as you know, memory currently accounts for only about 15% to 20% of our systems shipment. So this slowdown is not having a measurable impact on our business. The mature process technology markets, on the other hand, remain robust. Greater than 80% of our system shipments in 2022 comes from the mature segment, which includes image sensors and power devices. Demand for empowered devices, however, is extremely strong and growing due to the long-term commitment to the electrification of the automotive market. As you know, we have leadership in this market with our Purion Power series, which has really created sustainable growth opportunities for Axcelis. On top of that, as Kevin mentioned, customers are actually ordering initial tools now for projects going into 2023 and 2024. So all of these factors are really what's driving our expectation that we're going to see revenue growth into 2023. It's essentially just more of the same in terms of what we've been seeing in 2022; we will use that as a foundation and then build upon that.

Great. Thank you.

One moment. Our next question comes from David Duley at Steelhead Securities. Your line is open.

Congratulations on nice results and nice outlook. And thanks for taking my question. Kevin, just out of curiosity, I noticed that obviously the cash flow was a very strong number this quarter. Typically when you have increases in receivables and inventories, you don't generate a ton of cash, but I noticed there's a huge increase in deferred revenue. Could you just talk about why that was?

Yes. So David, that's really centered around the number of prepayments we've had this quarter. I think one of the things we've mentioned over the various quarters is that we're receiving prepayments from certain customers. In this quarter, we had a significant increase in prepayments for tools. That's basically what's driving it. As you pointed out, the offset is deferred revenue. There's not much more beyond that, except for the rest of it. As you know, we had a pretty good quarter in terms of net income, which is relevant for the cash.

Yes, basically net income equaled cash even though receivables and inventories went up big, and so to offset what's the increase in deferred revenue?

Yes, as you point out, our accounts receivable did go up this quarter. So, normally, when our accounts receivable go up, cash is down, but like I said, we had a significant increase of prepayments.

Regarding the prepayments, could you clarify if a deposit is required? Is it a full payment? Please discuss some of the terms associated with the prepayments.

Yes. I mean, typically, it's enough of a payment that covers our material costs. In some cases, it may be a little bit more or a little less. But in general, we're looking to cover our material costs on these prepayments. As we've discussed, we've got orders going way out into 2024, and we want to make sure that in some of these orders where we feel there's some risk, we want to make sure that we're not exposed for material.

Okay. You know, just another question on the gross margin. When I look back at almost the last 10 quarters, your product gross margins have been remarkably consistent between about 44% and 46%. I realize you're guiding gross margins down sequentially. Could you just talk about the magnitude of the two or three things that you listed and kind of the magnitude between Q3 and Q4? And then as a follow-up, I think a big chunk of this might have been currency or what could we expect in Q1 gross margins, if the currencies are essentially flat where they are now?

Yes. It's a good point. We are guiding margins down quite a bit in Q4, and people are probably wondering why I'm saying this is expected; I say this because we've given our full-year number for the last couple of calls. On the last call, when I said we expect to see 42.5% for the full year, I got asked the question, well, do you expect it to go below 40% in the fourth quarter? I think my answer was that there wouldn't be anything less than 40% in the fourth quarter. We knew this was coming, and it really is mix. As you know, in the investor presentation, we have a chart showing the mix of our products in terms of margins and there's no mystery that the high current is much lower than high energy and even a little bit lower than the medium current. We have a big shift to high current in the fourth quarter, and we knew it was coming. The other piece of it was basically the way we have our supply chain costs coming back. This quarter was a little heavier than prior. So I don't expect that to repeat, but that's also putting additional pressure. I think the positive news is David, I think back in the beginning of the year, we said we expected full-year to be greater than 42% and then we raised that to 42.5%, and today we're saying it's going to be greater than 43%. Despite the headwinds, we're still doing a good job keeping these margins propped up. Next year, we expect to continue to improve on where we are this year. I'm hopeful that we'll get back at least half of those supply chain costs. It's going to take some time; in some cases, it will take new suppliers and things to get there. Many of the supply chain costs are due to the disruptions. Some of the increases will be difficult to remove, as everybody is facing higher labor costs and other pressures. So we're just going to do what we do, looking at value engineering, low-cost sourcing, and getting additional product extensions out to boost margins. This will be a rinse-and-repeat approach into next year. I would expect next year to be better than this year. I don't want to talk about Q1; the honest answer is, I don't know what Q1 looks like specifically. When we do our call in February, we can talk about it a bit more at that point.

Okay. Thanks. That was actually really good color. I appreciate it. Just one final one from me and I'll pass on to somebody else. Do you have an idea of the size of the TAM for the non-leading-edge foundry and logic business? The reason I ask is if I apply the percentages of revenue you've been giving us over the last few years to total revenue, I realize that's not the exact math, including CS&I in that. But if I look at 80% of total revenue essentially going into non-leading edge foundry and logic, it's a big number now, greater than like $700 million in 2022. And that's more than double in the last two years. So I'm just wondering what you think the size of the TAM is, and if you could give us a shot at what your market share is? It appears it's probably above 50%, but I don't want to put words in your mouth.

Hey, David. So the mature market accounts for greater than 60% of the implant TAM, so it's over 60% of that $2.25 billion. In terms of market share, we don't break it down, but you can take that $2.25 billion and look at our systems revenue and get a relative idea on average. I will say that we have much higher than average share in the mature markets, especially in the power market. In the high-growth areas, Axcelis has leading share, and overall, we continue to grow our total share.

I guess that would imply you probably do have greater than 50% share of this power market?

Yes, we haven't given a specific number, so I’ll let you draw your conclusion on that.

I’ll find out. Thank you very much.

Thank you. Our next question comes from Craig Ellis at B.Riley. Your line is now open.

Hi, it's Craig Ellis. I don't know if that question was directed to me again; the operator broke up. But I'm going to jump ahead; there was a significant increase in cash in the quarter. Congratulations on that execution. The question I had was really a strategic one. The company has talked about M&A in the past and with cash now at such robust levels, I was hoping to get an update on how you're looking at that and some of the steps being taken internally to develop diligence capability? Any color you can provide on either technology areas of interest or geographic area of interest as you potentially get ready to redeploy capital in that area? Thank you.

Yes, Craig. As you know, we hired a new VP of Corporate Development earlier this year, and his mission is to focus on our growth strategy and M&A to grow beyond implant. He is in the process right now of doing extensive research and analysis on potential opportunities. In fact, we'll be sharing some of his initial findings and thoughts with our Board next week. We're still in what I would call the very early stages of this, but it is moving forward. There's really nothing at this point to share, but as we get to the point where there is, we will certainly do that.

Got it. Thanks for that color, Mary.

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, Ali. I want to thank everybody for joining us today. We're going to be on the road for multiple investment meetings in November and we will also be participating in the New York City Summit on December 13th and the Needham 25th Growth Conference on January 11th, both in New York. We hope to see you at one of these events 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.