Axcelis Technologies, Inc. (NASDAQ:ACLS) Q1 2024 Earnings Call Transcript

Axcelis Technologies, Inc. (NASDAQ:ACLS) Q1 2024 Earnings Call Transcript May 2, 2024

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Operator: Good day, ladies and gentlemen and welcome to the Axcelis Technologies Call to discuss the Company’s Results for the First Quarter 2024. My name is Crystal Love, 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. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Doug Lawson, Executive Vice President of Corporate Marketing and Strategy. Please proceed.

Douglas Lawson: Thank you, operator. This is Doug Lawson, Executive Vice President of Corporate Marketing and Strategy and with me today is Russell Low, President and CEO; and Jamie Coogan, Executive Vice President and CFO. If you have not seen a copy of our press release issued yesterday, it is available on our website. Playback service will be also 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 Safe Harbor provision. These forward-looking statements are based on management’s current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form 10-K annual report and other SEC filings, which we urge you to review.

Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements. Now I’ll turn the call over to President and CEO, Russell Low.

Russell Low: Good morning and thank you for joining us for our first quarter 2024 earnings call. We are off to a strong start to the year with first quarter financial results exceeding our forecast. Our revenue came in at $252.4 million. On the bottom line, our earnings per diluted share were $1.57, which increased 10% from $1.43 in the year ago period. Higher earnings were primarily driven by more than a 500 basis point improvement in gross margin as a result of the product mix shipped during the period, partially offset by higher selling costs, R&D and taxes. Continued execution by the Axcelis team combined with strength in the implant intensive silicon carbide power devices segment and strong customer shipments to China enabled Axcelis to achieve this performance.

Based on current booking levels and quoting activity, we expect these two trends to continue for the foreseeable future. Looking forward, our goal is to extend our lead in the power market and establish a position in advanced logic. We have focused R&D sales and marketing efforts in key areas critical to the next phase of growth. These include joint development engagements and the use of evaluation systems to help grow our market share. Currently, we have evaluations at customers across nearly all market segments and multiple technical customer engagements designed to improve capabilities and increase our footprint. We have the Purion Dragon, our most advanced high current implanter, and a leading European research institute focused on our advanced logic process development.

We also have a second Purion Dragon under evaluation with a leading advanced logic customer. These tools and the associated technical collaboration will be critical to the customers’ development of the next generation logic technology. In Japan, we continue to experience success in the power market due to the strength of the Purion Power Series, and we are engaged with multiple Japanese customers in additional market segments. Turning to our systems revenue breakdown in the quarter and beginning geographically, China represented 59% of sales, U.S. 17%, Japan 7%, Europe 4%, Korea 4%, and the rest of the world at 9%. By market segment, mature nodes, which include power devices, comprised 99% of shipped systems revenue in the first quarter with only 1% of shipments to DRAM.

Comparing this to the first quarter of 2023 where we saw 89% of systems shipped revenue to mature nodes and 11% to DRAM. Breaking down the mature nodes in more detail, power continued to lead systems shipments with 55% of total systems revenue. The other general mature segment was 41% and image sensors contributed 3%. Breaking down total revenue in power a little further, of the 55% recognized in the quarter, silicon carbide and silicon IGBTs were split 76% and 24%, respectively. We continue to monitor the recovery in our end markets, specifically memory and other general mature process technologies. The exact timing of this recovery is difficult to predict. We expect revenue levels to increase in the second half of 2024 over our expected performance in the first half with power continuing to be an area of strength.

We anticipate silicon carbide and silicon IGBTs will combine to represent approximately 60% of our system shipments for the second consecutive year. Our other markets are expected to strengthen the second half depending upon economic conditions. This will be underscored by a long-term trend for increasing demand as mature technologies are utilized in Internet of Things, connected devices, consumer electronics, and our growing advanced electronics market. The timing of a DRAM recovery is now expected later in the year than our previous expectations, and NAND is not expected to recover until 2025, when DRAM and NAND are forecast to have a strong year. We expect China to represent 40% to 60% of our quarterly systems revenue, with the remaining revenue spread relatively evenly across the other geographies.

In the power segment, in particular silicon carbide, we have developed a large and diverse customer base and we continue to win business globally from our customers as well as expanding our product footprint with existing customers. The full portfolio of Purion Power Series products is valued by these customers, allowing them flexibility at both 150 millimeter and 200 millimeter to ramp their fabs in the most productive and cost effective manner. Fabs will often start up by establishing a core of Purion M silicon carbide tool and then adopt the use of the Purion H200 silicon carbide and Purion XE silicon carbide systems to improve productivity, cost of ownership, and device performance. As a result, we have seen a significant increase in the adoptions of Purion H200 and Purion XE silicon carbide systems.

Axcelis is the only ion implantation company that can deliver complete recipe coverage for all power device applications. We are considered the technology leader and the supplier of choice, providing the best product family and manufacturing capabilities. This means that using Axcelis tools provides the lowest risk path to high volume manufacturing required to support aggressive fab ramp plans. Looking ahead, we’re even more excited about the upcoming several years. We will discuss this in more detail at our July 11th Investor Day, but here is a quick summary of how our future growth will be driven by several fundamental industry trends. First, rapidly growing electrical power requirements for transportation, industrial and overall energy needs would demand a significant increase in semiconductor power device capacity.

Silicon carbide, silicon and gallium nitride chips will be used in high volume applications such as EVs, various forms of hybrid automobiles and their charging support, energy generation, transmission and storage applications, including the global adoption of solar and wind and AI data center power requirements, including generation, storage, distribution, cooling and servers. Remember that power chips are one of the most implant intensive semiconductor devices to manufacture, making this a strong growth driver for Axcelis. The second significant industry trend is AI. This trend will impact every device segment in the industry. First, the GPU requirements will drive advanced logic processes and require significant manufacturing capacity additions.

Second, in addition to high bandwidth memory associated with each GPU, AI will drive DRAM demand beyond the AI data center, including increased PC and phone requirements. Third, AI will generate data that will drive storage demand, including NAND requirements. And finally, AI will also drive a third wave of IoT using the sensors and connected devices as a primary source of data. This will drive capacity in image sensors, analog chips, and mature logic process nodes. AI will drive fab capacity growth in all segments, including implant intensive memory and IoT types of chips. At Axcelis, we are excited to play a significant role in the next wave of technical change and expected to drive our growth for several years. Now, I’d like to turn it over to Jamie.

Jamie Coogan: Thank you, Russell, and good morning everyone. We are pleased with our financial results for the first quarter and look forward to a solid 2024. We are guiding second quarter revenue of approximately $245 million with gross margins of around 43.5%, operating income of approximately $47 million, and earnings per diluted share of $1.30. Looking to the remainder of the year, power is expected to remain solid throughout the year, and as Russell noted, we are monitoring the expected recovery in the other mature markets and memory. Although the timing of the recovery is difficult to predict, we continue to expect revenue levels to increase in the second half of the year over our expected performance in the first half.

Looking at our first quarter, revenue and earnings per diluted share finished above our guidance due to solid execution and continued demand for Purion, especially in the silicon carbide power market. Q1 revenue was $252.4 million with system revenue at $195.4 million and CS&I at $56.9 million. These revenue levels reflect flat system volume and a modest decline of CS&I compared to the prior year. Q1 earnings per diluted share of $1.57 was driven by higher than expected revenues and gross margin, as well as lower overall operating expenses. This compares to earnings per diluted share of $1.43 in the prior year, which marks an increase of 10% driven primarily by mix. For the first quarter, systems bookings totaled $107 million and we ended the period with systems backlog of $1.1 billion.

The general mature market and memory markets remained soft, but bookings and quoting activity for systems in the power segment remains solid and continue to support our revenue expectations. As a reminder, neither our bookings figures or our backlog reflect orders associated with the CS&I portion of our business. CS&I revenue was down quarter-over-quarter due to lower tool utilization. Given this lower fab utilization, we are revising our expectations for CS&I revenue for the year to approximately $250 million. Q1 gross margin finished at 46% driven by product mix, exhibiting proof that achievement of these margin levels is well within Axcelis’ abilities. In 2024, we expect to see a year-over-year improvement in gross margin. However, quarterly gross margins will fluctuate based on product mix.

We expect Q2 gross margins to moderate from the levels we saw in Q1, given the product mix for the period and the anticipated closure of several evaluation systems in the period, which typically have lower gross margins due to costs incurred during the evaluation period. We remain laser-focused on margin improvement and we are using 2024 to implement a number of actions designed to improve operational efficiency specifically focused on gross margins. One such action is a retirement incentive program with the realization of cost savings beginning in the second half of the year. It is the continued execution on these types of initiatives, the use of flexible labor by operations teams, and most importantly, our drive to reduce the cost of supplied components that provide us the confidence to model gross margin at greater than 45% over the long-term.

Turning to our operating expenses, the first quarter ended at 23.6% of sales. We expect OpEx as a percentage of sales in the second quarter of 2024 to be flat with the first quarter and will improve as revenue increases during the second half of the year. Investments in R&D for the first quarter were 10.2% and are expected to be between 9% and 10% of revenue for the year. The incremental funding of R&D will be focused on the continued development of our Purion product extensions and upgrades to strengthen our position in power and to grow our position in Japan in advanced logic. As you would expect, we will continue to tightly manage spending while continuing to support the future growth of the business by solidifying our technology advantage in the specialty markets, increasing our footprint in the memory and advanced logic markets, and most importantly, continuing to invest in our employees and infrastructure to ensure we have the necessary skills, equipment and facilities required to achieve our financial models.

Moving to our balance sheet and cash flow, we ended Q1 with $530.2 million of available cash and generated $42.2 million of cash from operations in the period. We continue to execute against our share repurchase program, buying back $15 million of stock in the quarter and have $175 million remaining on our $200 million authorization. In total, we returned over $200 million of cash to shareholders since 2019 through our various share repurchase programs. We have a very active calendar of investor events in the coming months, including attendance at 11 conferences through the end of the year, the details of which are on our website. As a reminder, we intend to host an Investor Day on the morning of July 11 in San Francisco. At this event, we will provide our next long range financial model and we look forward to seeing many of you there.

With that, I will now turn the call back to Russell for his closing comments.

Russell Low: Thank you, Jamie. Axcelis is off to a good start in 2024 and our long-term growth is achievable due to the same factors discussed last quarter. First, the implant TAM has more than doubled in the last few years and is expected to continue to grow with mature market segments representing greater than 60% of the total TAM. Second, power devices, especially silicon carbide devices, are highly implant intensive and the general mature nodes have increasing implant intensity peaking at 28 nanometers. Third, high value Purion product extensions were designed to optimize power and image sensor device manufacturing, making Axcelis the only company with a product line capable of covering all implant recipes in these key markets.

This uniquely positions Axcelis to benefit from high growth in the mature process technology markets. And finally, Axcelis has strong long-term customer relationships and a fundamental culture desire to win by making our customers successful. In closing, I want to thank our employees, suppliers, customers and investors for your continued support and look forward to seeing you in our up conference in our Investor Day. With that, I’d like to open it up for questions.

Operator: Thank you. At this time, we will now conduct our question-and-answer session. [Operator Instructions] Our first question comes from the line of Craig Ellis of B. Riley Securities. Your line is now open. Good morning.

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