Axcelis Technologies Inc. Q1 2023 Earnings Call

We are in a listen only mode, we will be facilitating question and answer session towards the end of this conference.

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 Mary Puma, President and CEO of access technologies. Please proceed ma'am.

Thank you Lee with with me today is Kevin Brewer Executive Vice President and CFO Russell Lowe Executive Vice President of global customer and engineering operations, and Doug Lawson Executive Vice President of corporate marketing and strategy.

If you've not seen a copy of our press release issued yesterday. It is available on our website play.

Thank you for your patience your accident technologies first quarter 2023 conference call will begin shortly again, thank you for standing by.

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.

Good day, ladies and gentlemen, and welcome to the accident technology called to discuss the company's results for the first quarter.

These risks are described in detail in our Form 10-K annual report and other SEC filings, which we urge you to review.

My name is Phoebe and that'll be a coordinator for today.

At this time all participants are in a listen only mouthed you'll be facility any question and answer session towards the end of this conference.

Our actual results may differ materially from our current expectations, we do not assume any obligation to update these forward looking statements.

As a reminder, this conference is being recorded for repay purposes I would now like to turn the presentation over to your host for today's call Mary Puma, President and CEO of access technologies. Please proceed ma'am.

Good morning, and thank you for joining us for our first quarter 2023 earnings call in March we celebrated the 45th anniversary of the founding of VIX Telus.

With me today is Kevin Brewer Executive Vice President and C F.

As we pass this milestone and as I pass the leadership Baton to Russell I'm Happy to report that <unk> is in a great place.

Russell low executive Vice President of global customer and engineering operations and dug lost an executive Vice president of corporate marketing and strategy.

We have a solid balance sheet, the strongest product portfolio in our 45 year history, and then excellent team of employees suppliers and customers, we are well positioned for future growth and profitability.

You have not seen a copy of our press release issued yesterday. It is available on our website.

Play back service will also be available on our website as described in our press release.

Exiting the first quarter of 2023 demand for the Purion product family remains extremely strong, especially in the high growth Silicon carbide power segment revenue for the first quarter was $254 million with earnings per share of $1 43.

Please note that comments made today about our expectations for future revenues profits and other results are forward looking statements under the S. E C. Safe Harbor provision. These forward looking statements are based on management's current expectations and are subject to the risks inherent in our business.

Backlog set a record at one point to $7 billion with quarterly bookings of $298 million driven by Purion demand and strength in the power market.

These risks are described in detail in our Form 10-K annual report and other S. D C filings, which we urge you to review.

For the second quarter of 2023, we expect revenue between 255 and $260 million gross margin of roughly 42% operating profit of around $55 million and earnings per share of $1 44 to $1 48.

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 first quarter 20 twenty-three earnings call.

In March we celebrated the 45th anniversary of the founding of Excel us as.

Yeah.

At the beginning of this year, we expected 2023 revenue to exceed $1 billion.

As we passed this milestone and as I passed the leadership Baton to Russell I'm happy to report that <unk> is it a great place.

We are now forecasting to beat that estimate by $30 million exceeding one point of $3 billion. This.

Have a solid balance sheets destroy this product portfolio in our 45 year history, and an excellent team of employees suppliers and customers, we are well positioned for future growth and profitability.

<unk> revenue growth of approximately 12% in a year in which overall wafer fab equipment is expected to decrease by over 20%.

Exiting the first quarter of 2023 demand for the Purion product family remains extremely strong, especially in the high growth Silicon carbide powers segment.

In the second half in addition to stronger revenues, we expect significant margin expansion driven by mix and improved cost.

Revenue for the first quarter was $254 million with earnings per share of one dollar and 43 cents.

The mature process technology market continues to be an area of strength for sellers with 89% of first quarter system shipments going to mature foundry logic customers and 11% to memory customers composed entirely of deep DRAM.

Backlog set a record at $1.27 billion with quarterly bookings of $298 million, driven by Purion demand and strength in the power market.

The geographic mix of our system shipments continues to be distributed globally and representative of spending patterns in each geography in the first quarter, China accounted for 45% the U S, 17% Korea, 14%, Taiwan, 4% Europe , 2% in there.

For the second quarter of 2023, we expect revenue between 255 and $260 million gross margin is roughly 42% operating profit of around $55 million in earnings per share of one dollar and 44 cents to one dollar and 48.

The rest of the world 18%.

It says.

The power device market continues to drive our growth during this industry downturn. We are actively engaged with all customers in this high growth market segments, winning business from new customers and expanding our footprint at existing customers, we expect over 55%.

At the beginning of this year, we expect it 2023 revenue to exceed $1 billion.

Now forecasting to beat that estimate by $30 million exceeding $1.03 billion. This represents revenue growth of approximately 12% in a year in which overall wafer fab equipment is expected to decrease by over 20%.

Our system revenue in 2023 to come from this segment with greater than 50% of total power device system revenue coming from Silicon carbide application.

In the second half in addition to stronger revenues, we expect significant margin expansion driven by mix and improve cost.

In addition to significant pull for our Purion M. Silicon carbide tool. We also see increasing adoption of Purion H 200, silicon carbide and Purion XE Silicon carbide systems. As a result, we expect revenue from silicon carbide customers to be spread relatively evenly across the <unk>.

Mature process technology market continues to be an area of strange for sellers with 89% of first quarter system shipments going to which works out to be large customers and 11% to memory customers composed entirely of deep DRAM.

On power series product family.

The geographic mix of our system shipments continues to be distributed globally and representative of spending patterns in H geography.

Purion power series products for Silicon carbide have been designed to support the technical challenges facing our customers as they ramp to high volume in support of their automotive customers.

In the first quarter, China accounted for 45% the U S, 17% Korea, 14%, Taiwan, 4% Europe , two per cent and the rest of the world 18%.

<unk> is the only ion implant company that can deliver complete recipe coverage for all power device applications.

The full Purion power series family of products allows customers to optimize their fabs for high volume manufacturing and to continuously improve their power device performance.

The power device market continues to drive our growth during this industry downturn. We are actively engaged with all customers in this high growth market segment, winning business for new customers and expanding our footprint at existing customers, we accept over 55%.

<unk> is considered by power device customers to be the technology leader and supplier of choice, providing the best product family and manufacturing capabilities.

Our system revenue in 2023 to come from this segment with greater than 50% of total power device system revenue coming through silicon carbide applications.

This means that using <unk> tools provides the lowest risk path to high volume manufacturing required to support aggressive Saf ramp plans.

In addition to significant pull for our Purion M. Silicon carbide tool. We also see increasing adoption of Purion H 200, silicon car by Imperial and Etsy Silicon carbide systems. As a result, we expect revenue from silicon carbide customers to be spread relatively evenly across.

<unk> places significant value on enabling our customers to succeed in this exciting market by providing differentiated product performance and a high level of customer satisfaction.

Although our memory and advanced logic customers are experiencing a downturn <unk> continues to stay close to them to support their installed bases and understand their technology and manufacturing needs.

The Purion powers series product family.

Purion powers series products for Silicon carbide had been designed to support the technical challenges facing our customers as they ran up to high volume in support of their automotive customers.

It is during downturns that there is an increased ability to collaborate with our customers to expand the opportunities for astellas during the next upturn.

<unk> is the only ion implant company that can deliver complete recipe coverage for all powered device applications.

We have multiple evaluation systems in the field and many customer engagements design to increase our footprint in these market segments.

The full Purion powers series family of products allows customers to optimize their fads for high volume manufacturing and to continuously improve their powered device performance.

As the industry exits this downturn <unk> will experience significant growth as these traditional semiconductor segments recover.

Excel is considered by powered device customers to be the technology leader and supplier of choice, providing the best product family and manufacturing capabilities.

This combined with continued strength in the power and mature markets will drive <unk> to our one $3 billion model and beyond.

This means that using excel as tools provides the lowest risk path to high volume manufacturing required to support aggressive SAB <unk> plans.

Now I'd like to turn it over to Kevin.

Thank you Mary and good morning.

We are pleased with our first quarter 2023 financial results.

Excel is places significant value on enabling our customers to succeed in this exciting market probably.

Excited about our full year revenue, which is now expected to exceed one point below $3 billion.

Providing differentiated product performance and a high level of customer satisfaction.

Representing year over year growth of approximately 12%.

Looking at our first quarter revenue finished well above guidance.

Although our memory and advanced logic customers are experiencing a downturn excel. It continues to stay close to them to support their installed bases and understand their technology and manufacturing needs.

Solid execution and continuing strong demand for Purion.

Q1 revenue was $254 million with systems revenue at $195 2 million.

As during downturns that there is an increased ability to collaborate with our customers to expand opportunities for Dallas during the next upturn.

<unk> 58 eight.

Strong bookings in quoting activity for systems in the power segment.

We have multiple evaluation systems in the field and many customer engagements design to increase our footprint in these markets segments.

During the quarter, which supports our expectation that greater than 55% of revenue will come from this market in 2023.

<unk> revenue will fluctuate quarter to quarter should be modeled at approximately $245 million for 2023.

The industry exits this downturn excel us we'll experienced significant growth is these traditional semiconductor segments recover.

And $300 million and a $1 $3 billion revenue model.

This combined with continued strength in the power in mature markets will drive excel is to our 1.3 billion dollar model and beyond.

Q1 gross margin finished at 49%.

Slightly lower than guidance due to <unk> being lower percent of total revenue.

Now I'd like to turn it over to Kevin.

Thank you Mary and good morning.

We expect margins to improve to approximately 42% in Q2.

We are pleased with our first quarter 2023 financial results.

I still remain under pressure caused by higher material costs and mix.

Excited about our full year revenue, which is now expected to exceed $1.03 billion representing.

We are forecasting a significant gross margin improvement in the second half of the year. This cost improve we'll move to a more favorable product mix.

Representing year over year growth of approximately 12%.

Looking at our first quarter.

When I finished well above guidance.

This should allow us for three of our full year gross margin target of approximately 44%.

Solid execution, continuing strong demand for period.

You want a revenue was $254 million.

Yes.

We remain laser focused on margin improvement and have numerous initiatives underway to lower the cost of goods and drive higher sales of Purion product extensions.

<unk> $195.2 million.

<unk> 58.8.

Workings and quoting activity for systems and the power of segment.

This allows us to target a gross margin greater than 45% and the $1 $3 billion model.

<unk>, which supports or expectation that greater than 55 per cent of Roanoke will come from this market in 2023.

Turning to operating expenses.

First quarter ended at 27% of revenue and better than our guidance.

Yes, and I wrote maneuver fluctuate.

Water.

It should be modelled at approximately $245 million for 2023.

We expect opex to be relatively flat in the second quarter at approximately 21%.

The 300 million or $1.3 billion revenue models.

As always we will continue to tightly control spending while investing in areas of the business. So support business growth solidify our technology advantage in the specialty market.

Gross margin finished at 40.9%.

Slightly lower and guidance due to <unk> being out lower per cent October rubbish.

Increase our footprint in memory and advanced logic market.

We expect Martinez to improve approximately 42 per cent for you too.

Okay.

We will continue to invest in our employees and the infrastructure required to achieve our financial models.

Ah still remain under pressure caused by higher material costs and.

One example of infrastructure investment is our new state of the Art Logistics Center in Beverly mass.

We are forecasting a significant gross margin improvement in the second half of the year this cost improves.

Just a short walk from our headquarters.

Move to a more favorable product next.

The facility is scheduled to open this summer and provides centralized logistics and flex manufacturing capacity.

This should allow us to your for your gross margin target of approximately 44 per cent.

[noise].

We also plan to further ramp our Beverly and Korean operations as comparison needs grow where.

We remain laser focused on margin improvement.

Numerous initiatives underway to lower the cost of goods and drive ourselves appeared on process extension.

So we are comfortable at this point that we have the initiatives underway.

$401 $3 billion model.

This allows us to target gross margin greater than 45% and 1.3 billion dollar model.

We ended Q1 with $445 million of cash cash equivalents and short term investments and.

Burning the operating expenses, but first quarter ended up 20.7 per cent of road.

And generate a $34 $6 million of cash from operations.

Better than our guidance.

In the quarter, we repurchased $12 $5 million of stock and have returned over $145 million of cash to our shareholders, while curtailing share count growth.

We expect <unk> to be relatively flat in the second quarter at approximately 21%.

Cause I always will continue to totally control spending.

Investing in areas of the business is it for business growth.

<unk> has a rare opportunity to grow revenue and profitability during a significant industry downturn.

Our technology advantage in a specialty markets.

And increase our footprint memory, an advanced logic Margaret.

This is a result of a strong product positioning and the power device market and continued strong execution in a challenging environment.

Additionally, we will continue to invest in our employees.

Construction required to achieve our financial models.

We also look forward to continued growth in memory and advanced logic as the overall semiconductor market recovers.

One example of infrastructure investment as a new Saturday art logistics Beverly mass.

Okay, just a short walk from our headquarters.

Once again I want to thank the entire <unk> team for their continued outstanding performance.

The facility is scheduled to open this summer to provide centralized logistics influx manufacturing capacity.

I also want to thank our supply chain partners.

Hard work supporting <unk> and our.

We also plan or further ramp up Beverly in Korean operations as comparison needs grow.

<unk> for their confidence.

To deliver.

I will now turn the call back to Mary for closing comments.

We are comfortable at this point that we got the initiatives underway.

Thank you Kevin.

As I did last time I will end this call by outlining the <unk> business thesis, which supports over $1.03 billion in revenues in 2023 and $1 $3 billion over the next few years. It is based on the following five key points.

401.3 billion dollar model.

We ended 214 hundred $45 million of cash cash equivalents.

Short term investments.

Generated $34.6 million in cash from operations.

And a quarter, we repurchased $12.5 million a spot.

The implant Tam has more than doubled in the last few years with mature market segments, representing greater than 60% of the total Tam.

We have returned over $145 million in cash to our shareholders.

Curtailing share account growth.

Power devices and image sensors are highly implant intensive and the general mature nodes have increasing implant intensity, peaking at 28 nanometer.

$6 has the rare opportunity to grow revenue and profitability during a significant industry downturn.

This is a result of a strong product physician I'm in a power device market <unk>.

<unk> high value Purion product extensions were designed to optimize power and image sensor device manufacturing uniquely positioning <unk> to benefit from high growth in the mature process technology markets.

We continued strong execution in a challenging environment.

We also look forward to continued growth in memory <unk>.

Overall semiconductor market recovers.

Our purion product differentiation has propelled <unk> to implant leadership in these high growth specialty device market segments.

Once again I want to thank the entire excel is paying for the continuum outstanding performance.

I also want to thank our supply chain partners.

And fifth we have strong long term customer relationships and a fundamental cultural desire to win by making our customers successful.

<unk> and our customers for their confidence.

Hello to deliver.

Oh, no I'll turn the call back there Mary for closing comments.

Thank you Kevin.

I've worked closely with Russell and the rest of the executive team to develop and execute the strategy I just outlined <unk> will continue to execute this strategy as Russell and I transition into our new roles.

I did last time I will end this call by outlining the <unk> business thesis, which supports over $1.03 billion in revenues in 2023 and $1.3 billion over the next few years.

I have great confidence that <unk> will continue to be a leading capital equipment supplier to the semiconductor industry.

It is based on the following five key points first the implant T. M has more than doubled in the last few years with mature market segments, representing greater than 60% of the total Tam <unk>.

Want to thank our employees suppliers customers and investors for your past support and I Hope that you will continue that support into the future with that I would like to open it up for questions.

Second power devices in image sensors are highly implant intensive and the general mature notes have increasing implant intensity, peaking at 28 nanometer.

Thank you so much presenters and ladies and gentlemen, if you wish to ask a question. Please press star followed by one and one on your Touchtone telephone. If your question has been answered or you wish to withdraw your question Press Star one again beef.

Third high value Purion product extensions were designed to optimize power and image sensor device manufacturing uniquely positioning axtell us to benefit from high growth and the mature process technology markets.

Please press star one one to begin.

Yes.

Fourth Purion product differentiation has propelled excel is to implant leadership in these high growth specialty device market segments.

And our first question comes from the line of Duffy.

Your line is now open.

Fifth we have strong longterm customer relationships and a fundamental cultural desire to win by making our customers successful.

Materials could they are they back to kind of pre COVID-19 or are completely inflationary levels or we had a consistently higher rates than we were say two years.

I have worked closely with Russell and the rest of the executive team to develop and execute this strategy I just outlined excel. This will continue to execute this strategy is Russell and I transition into our new roles.

No.

Hum.

Half of that question I don't know, Doug Merritt, because the whole thing.

I have great confidence that <unk> will continue to be a leading capital equipment supplier to the semiconductor industry.

No Tom.

Is that better yes, yes.

I want to thank our employees suppliers customers and investors for your past support and I Hope that you will continue that support into the future with that I'd like to open it up for questions.

Okay, great. So I missed the first part so if you want.

Okay.

My first.

Just on the gross margin front.

When you're a good name and can your contracts and when looking at the materials on a go forward basis, our prices back to pre COVID-19 or levels. They were a couple of years ago, or we had a permanently higher level of that.

Thank you so much for centers and ladies and gentlemen, if you wish to ask a question <unk> followed by one and one on your Touchtone telephone.

Question has been answered or you wish to withdraw your question Press Star one one again <unk>.

Just the effect of business today.

<unk> one one to begin.

So that's a good question. So there is certainly getting better I think getting back to pre pandemic levels is going to be difficult in some areas.

And our first question comes from the line of Tom <unk>.

You, let us know okay.

While there is and others, where we have more opportunities to change suppliers for example, and some of the commodity level things.

There's a little more opportunity to get the cost out.

But we are I guess, the good news right now Tom as we are starting to see favorable costs coming in on material.

Materials today are they back to kind of pre COVID-19 or or clean inflationary levels are we have consistently higher rate than we were.

Which should start hitting us in the back end of the year in Q3, Q4, which is why we feel comfortable taking the margins back up on a full year basis to about 44%.

Two years ago.

I only got half of that question I Dunno start you're married did you get the whole thing so good no.

As you know that suggests we've got to get three to 400 basis points better margins in those last two quarters based on mix and based on what we're seeing with current.

Okay.

Could you repeat it.

Is that better yeah yeah.

Okay. So I missed the first part so.

Okay. Yeah, My my purse so I'm just on the gross margin furniture, when you're getting a new contract from looking at the materials on a go forward basis are prices back to pre COVID-19 or your levels. They were a coupla years ago, or we had a permanently higher level. That's just the effective.

Supply chain costs.

And using up some of the high cost inventory that we've had which has been the other problems.

We feel comfortable with getting back and hitting our full year gross margin. So.

I guess a quick summary is.

Some things are probably never going to go back to where they were but there's opportunities through supply chain and restaurant rationalization to get.

Business today.

So that's a good question. So there's certainly getting better I think getting back to pre pandemic levels is going to be difficult in some areas.

Get cost back down and maybe even better in some cases with us.

Okay.

Following up on that when you look at your logistics center that Youre opening this summer will be.

Well, there's and others, where we have more opportunities to change suppliers for example in some of the commodity level things.

There'll be a material impact on the model as far as.

Kris cost structure goes.

Before that.

There's a little more opportunity to get the cost out.

And ultimately do you expect that.

To decrease the cost going forward or just it's more just to increase the efficiency of what you can share.

But we are I guess, the good news right now Tom as we are starting to see favorable cause coming in on material, which should start hitting us and.

I think it all the time.

So I mean, we have the we have the cost of that in the model. So when we talk about the.

Back in the ear in Q3, Q for which is why we feel comfortable taking the margins you know backup on a pull your basis to about 44%.

Full year gross margins in full year operating expense of approximately 25% that's in there Tom but.

You know that suggests we've gotta get three to 400 basis points better margins and otherwise two quarters and based on mix and based on what we're saying.

The reality is we have a lot of.

Yes.

Random buildings all over the place we're restoring material right now, which is what's out of the lease cost with it.

Supply chain cost.

So when.

Using up some of the high cost inventory that we've had which has been the other problem. You know we feel comfortable getting back you know getting out for your gross margin. So.

When we initially opened.

We're going to have some some duplication, but over about a six month period. So maybe it's probably nine months. These other locations the leases run out.

I guess you know a quick summary is.

Some things are probably never Gonna go back to where they were but those opportunities through supply chain <unk> rationalization to get you know get cause back down and maybe even better customer service with us.

So the net impact of it is going to be favorable.

Bulk terminal cash needs.

A point of view.

From the ability to have everything in one location. So we're going to have a lot of them.

Okay.

Robotics, and very sophisticated material handling in this new facility and again, we're going to exit several buildings that are scattered around the Berkeley campus.

Followed up on that when you look at your logistics under the trip. This summer will there there'll be able material impact on the bottle as far as increased cost structure goes before that and ultimately do you expect that to decrease the costs going forward or just it's more just to increase the efficiency.

Surround the communities right now.

Once this thing is up and running.

It sounds like it would be a good place for an analyst meeting.

Well, we can give you right.

[laughter] well it was the last question for Mary when you look at the non mature markets and non power markets memory and high end logic could you just talk a little bit about how you are positioned to take advantage of the recovery in the industry. When it happens over the next couple of years sure. So as I mentioned in the <unk>.

<unk> of you know, making sure Thanksgiving with your own time.

Yeah. So I mean, we we have the we have the cost and the model. So we talk about before your gross margins and for your operating expense at approximately 25 per cent. That's in no time, but the reality of it is we have a lot of.

Script, we're working very closely with our memory customers right now to qualify both new purion tools and additional recipe.

The buildings all over the place we're restoring material right now, which is which added lease cost for that.

So you know when we initially often.

Obviously things are slow right now, but as things do improve we expect to be able to leverage the work that we're doing right now to actually increase our business at our existing customers and make.

You know, we're gonna have some some duplication, but over about a six month period. So maybe it's Friday nine months. These are the locations of leases run out.

So the net impact of it is going to be favorable ultra.

Some additional headway, even with some customers, where we haven't been particularly strong in the past in terms of advanced logic you know we've.

From an assertion.

The point of view and from.

From the ability to have everything in one location. So we're gonna have a lot of.

We've talked about this at length, we continue to work with all the major advanced logic customers to find opportunities, particularly where purion as differentiated where we can bring them bring that differentiation to improve their cost of ownership in their device performance.

<unk> very sophisticated material handling this new facility and again, we're gonna exit several buildings that are scattered around the Beverly campus in surrounding communities right. Now once this thing is that per month.

It is ongoing and we also have talked about how we have recently placed a purion dragon into an advanced logic customer.

Sounds like it'd be a good place for an animal sweating, okay, well, we can give you a ride.

[laughter]. The last question from Mary when you look at the non mature markets are known power markets memory and logic could you just talk a little bit about how you position to take advantage of the recovery in the industry. When it happens over the next couple of years sure. So as I mentioned in the script.

That is it's an evaluation system that is going extremely well and.

And we expect that to result in more business and we've also recently closed on an evaluation for our Purion H for advanced logic, and we expect that to grow into additional business in the future as well. So nothing really has changed Tom in terms of what what we're focused on we're focused on just meeting our customers' requirements.

We're working very closely with our memory customers right now to qualify both new Purion tools and additional recipes, obviously things are slow right now, but as things do improve we expect to be able to leverage the work that we're doing right now to actually increase our business at our existing <unk>.

Not only in terms of their installed base, but also in terms of their emerging technology and manufacturing challenges.

And then.

One other thing.

Just to notice.

Customers and make you know some additional headway, even with some customers, where we haven't been particularly strong in the past in terms of advanced logic. Yeah. We've talked about this at length. We continue to work with all the major advanced logic customers to find opportunities, particularly where periodic.

So the things Mary is talking about are the things that will drive us to that $1 3 billion model. So as memory recovers as we continue to make deeper penetrations into advanced logic that combined with continued growth in mature markets and empower are what drive us to the $1 3 billion model.

Differentiated where we can bring them bring that differentiation to improve their cost of ownership in their device performance that is ongoing and we also have talked about how we have recently placed a purion dragging into an advanced logic customer that is go instead of value.

Great. Thanks, Doug. Thank you three I appreciate it.

Thanks, Tom.

Thank you so much.

And your next question comes from the line of Craig Ellis of B Riley <unk> Securities. Your line is now open.

Yes, thanks for taking the questions. This morning, and Mary I, just wanted to start by congratulating you.

<unk> system that is going extremely well and we expect that to result in more business and we've also recently closed on an evaluation for a purion H for advanced logic, and we expect that to grow into additional business in the future as well. So nothing really has changed Tom in terms of what what we're focused on works.

The transition you've had a remarkable career and really transitioning at a spectacular place.

We're <unk> or without arc, so with that said, let me just start with the first question. So as I was talking about inverse.

Investors through the quarter, but especially through March and April there was a lot of concern about some of the things that we're seeing in the automotive market. It seems like a lot of your.

Focused on just meeting our customers requirements not only in terms of their installed base, but also in terms of their emerging technology and manufacturing challenges.

Prepared commentary really address the company's momentum, but can you just talk about whether you did see any.

12, one one other thing just to notice so the things Mary is talking about are the things that will drive us to that 1.3 billion dollar models. So as memory recovers as we continue to make deeper penetration into advanced logic that combined with continued growth in mature markets.

Quarter movement as you went through March and April or <unk>.

Very early may to date.

And any signals that may be coming out of automotive related to potentially slowing TV uptake or or anything else.

Yeah. Thank you very much Craig it's been a pleasure working with you.

And power are what drive us to the 1.3 billion model.

We have not seen any significant changes at all particularly in the mature process technology area related to power devices. I mean, there are always minor shifts here and there depending on fab readiness, but we haven't seen anything move out and in fact if anything.

Great. Thanks, Doug. Thank you three I appreciate it thanks.

Uhm.

You so much.

And your next question comes from the line of Creek Ellis B Riley Security for your line is now open.

Yeah. Thanks for taking the questions. This morning, and Mary I, just wanted to start by congratulating you.

You know our customers are basically in some cases asking for more they're asking for more and they're asking for more quickly. So I think that that's a very positive sign.

The transition you've had a remarkable career and and really transitioning it a spectacular place in <unk>.

Terms of where <unk> so with that said, let me just start with the first question service I was talking with <unk>.

Russell and I had dinner last night.

With a major player.

A customer who produces power devices and that was really the gist of the conversation that things are going extremely well.

Investors through the corner proud, especially through March and April there was a lot of concern about some of the things that we're seeing in the automotive marque and it seems like a lot of your.

They are looking for additional capacity there are all sorts of things going on with new Fabs that are currently being announced and built so we do not have any data points right now indicate that there is an issue and I know people in particular, sometimes worry about China.

Prepared commentary really address the company's <unk> can you just talk about whether you did see any order movement as she went through marching in April or your <unk> very early made today and and any signals that may be coming out about a motive related to potentially swelling.

But China is very strong.

Right now, particularly in the power device area that is a definitely a growing area.

DB uptake or or anything else.

Yeah. Thank you very much Craig it's been a pleasure working with you.

For investment for those customers. So right now everything seems time, we haven't seen any significant changes.

We have not seen any significant changes at all particularly in the mature process technology area related to power devices, I mean, they're always minor shift here and there depending on fat readiness, but we haven't seen anything move out and in fact, if anything you know our customers are basically.

That's really helpful color. Thank you. The next question is really related to the new one 3 billion plus SKU per calendar 'twenty three so thanks for thanks.

Thanks for providing that update the question is this if I incorporate.

First quarter results in <unk> guide.

In some cases asking for more they're asking for more than they're asking for more quickly. So I think that that's a very positive sign <unk>.

It could imply flattish sequential trends in the back half.

And that seems to fit with some of the.

Some of the larger companies that we've heard from this reporting season to date I'm, just wondering without providing guidance could you just provide some qualitative color on how you see the back half of the year.

Russell and I had dinner last night with a major player <unk>.

Customer who produced this power devices and that was really the gist of the conversation that things are going extremely well you know they're looking for additional capacity, they're all sorts of things going on with new Sab's that are currently being announced and built so we do not have any data points right.

Well I'll take that Greg.

<unk>.

Thanks, Kevin So I guess I'll start by saying, we did say we expect to.

Steve.

So that's all right.

Now did indicate that there is an issue and I and I know people in particular, sometimes worry about China, but.

It doesn't mean, there couldn't be more there but.

Right now that's a 12% year over year growth of this add Mary just talked about this continued strong demand.

China's very strong right now, particularly in the power device area that is definitely a growing area enough for investment for those customers. So right now everything seems fine we haven't seen any significant changes.

I'll also say our book to Bill in the quarter came back up to one five and I think last quarter. It was <unk> 99. So it was one roughly.

That's really helpful color. Thank you. The next question is really related to the new 1.03 trillion plus two per calendar twenty-three. So thanks for thanks.

So.

Things are still.

On a positive side for us correct. So it.

It doesn't mean, there can't be more of a at this point.

This is what we're comfortable with.

The record backlog that we have.

Right now.

Customers clamoring to want to pull things in.

We'll do our best to.

Try to exceed that one final threat.

Great and then I'll just finish up with.

No question Thats related to that Kevin, but it goes back to some of the prepared comments on gross margin. So.

Acknowledging that.

With the back half means.

The 300 to 400 basis point rise from here.

But with some of the issues working out prior higher cost inventory.

It would seem to suggest that more of the step up would be in the fourth quarter than the third just given the underlying cost dynamics that are at play is that a reasonable way to look at things.

But yes, we're going to stay incremental improvement.

We obviously have to come up quite a bit in Q3 so.

But it will be incremental.

As it comes through in the back half and again based on everything I see right now with the MX and.

And the cost profile that we have we should get very close to that 44% considering kind of the hole, we dug ourselves starting out.

Full year will be good and I think that's the other point I'll make to you know.

I always tell them you know this as well I always tell people look at <unk> gross margins on a full year basis, because so much can move quarter to quarter, but I honestly look at always like a full year.

Everything we do with programs to make things better we're looking at a full year average so.

Yes, so I would.

Youre going to Youre going to have to step it up a little bit in Q3, though they get there.

But it will be incremental and then.

But back to your prior question.

Any any revenue growth would probably be the same way.

Mel.

As the quarters come on us if things grow beyond the number we put out there.

Got it.

Kevin Mary Thank you very much for the help and congratulations on very strong execution. Thanks, Chris.

Thank you. So much. Your next question comes from the line of Christian Schwab of Craig Hallum. Your line is now open.

Hey, guys congrats on another solid quarter.

Areas, we're looking at China, you know we've heard from applied materials in.

And Lam and others talk about the.

The significant investment that's going on in the mature nodes a lot of that obviously power.

And.

So kind of a strategic.

Align production with domestic demand, which.

Looks to be maybe a three to four year endeavor at least.

So.

Are you guys.

Very optimistic about that type of market or are you just happy with the strength today and watching it closely.

So we are very happy with what we're seeing right now in the mature process technology area and you know.

We've talked many times about how we have leadership.

Any implant in the mature process technology area, and we've talked about power devices, and we've talked about image sensors and that all holds true.

We believe that this strength will continue on into the future.

Right now there are still new Fabs being announced there is a lot of new construction.

<unk>.

Expansion and we expect that to continue want what I actually expected you to ask me about it is if we had seen any change in some of the.

Export control regulations, and we have not seen anything there.

Things continue to flow for us from a licensing and export control standpoint, and we continue to monitor that extremely closely and at this point.

Believes that that situation will continue that things will continue to be positive. So we're very bullish about China right now.

Hey, Christian this is Doug the other comment.

Like to make is that China represents one of the largest opportunities for electric vehicles government incentive programs and so forth of course that country to last year was over 30% of new cars sold where where evs. So so theres a lot of activity in the supply chain, which which is where we play with the silicon <unk>.

By devices. So so we are very optimistic over over the next few years for that to continue.

Yeah, and everyday I read about somebody else getting more funding from somebody can China too to add to their capacity.

So extremely strong target market on that as a great.

Segue.

You know not only in China.

Turning to the large automobile manufacturers, who are getting more and more ample.

Ambitious goals about the number of shipments that they expect to ship.

Cars delivered if you will is the every three years doubling of silicon carbide.

Wafers, what are the puts and takes of that where that you know three.

Three years from now we can look at the out or two years from now and say that that was probably too conservative.

Well we're still.

That's the data that we've got right now will be re looking at that.

There is certainly.

Lots of people.

And one on ones that we're being conservative there but.

The numbers vary all over there's a lot of variables.

Depending on the EV adoption rate depending on the types of devices that are built depending on the the yields depending on the ramp of AV 200 millimeter versus $1 50, So theres a lot of a lot of variables Christian that go into the equation. So.

We're very comfortable with the with the doubling every three years and we'll revisit that over probably over the next six months.

That's great Alright, great no other questions. Thank you.

Thank you and thank you so much.

And your next question comes from the line of Quinn Bolton of Needham. Your line is now open.

For Quinn and congrats on the continued success.

So for my first question as more power devices and orders shift to Silicon carbide, what do you expect the impact to be on the traditional silicon power device market over the coming years will it still be a growth segment for some time or do you see an inflection point where that market will decline.

Thanks.

So Quinn.

With that one.

We expect book in market to continue to grow.

Our solid state power applications do continue to grow and there is there is.

Lots of places.

Where the silicon is sort of better <unk> and a lot of places and carve out.

Lots of places, where it's going.

So there is three.

<unk> via multiple software tech Gs, but really depends on the application. So we expect to see your silicon carbide will will probably dominate.

And over time, although there will be applications for silicon and auto.

Then.

So can carve out it will start to make some growth in other areas in energy for example.

As cost comes down as a result of volume driven by the automotive side.

And then.

Silicon has.

Silicon is always going to be.

Less expensive substrate.

Lots and lots of silicon and so.

That's always going to be a consideration. So we expect growth in both if you look at the trends that we've got in our presentation. You can see silicon carbide is currently overtaking in terms of the amount of implant tools.

But silicon continues to be very very strong.

Okay.

Thanks, very helpful and so for my second question could you provide any color into the Cmos image sensor market is the ongoing weakness, mostly driven by the consumer inventory corrections.

Through your conversations with customers are you seeing any signs of a demand recovery in this segment.

Yes.

I'll take the first part of that anyway.

The slowdown in image sensors, certainly is driven by the consumer market so by primarily by phones.

And so as that turns around we would expect that that.

That business as a whole turns around.

<unk>.

The thing Thats going on right now is we've got.

<unk> Max out there and evaluation, we've got one Sis.

System, that's already in production.

The customers are are prepping for the turnaround in their more advanced devices for the next phase.

The other piece that's big for image sensors is all the Adas self.

And that continues to be strong when you look at.

The folks that are announced in the last week or so auto continues to be strong and image sensors are a piece of that so so we would expect that that image sensors turnaround pretty strong as the consumer market turns around.

Thank you and one more quick one if I may.

How much of the margin improvement in the second half is a function of a mix shift.

High energy versus the alleviation of some cost headwinds any additional color there would be helpful.

Yes.

Not really going to break that out, but what I would tell you is that.

Supply chain has been a constant problem for us.

For the last year year, and a half so.

Assuming that Thats, a good chunk of it it's probably not that bad.

But as you know from our <unk>.

Investor presentation high energy does carry better margins than high current so.

I think in Q1.

When we did the guidance, we talked about a bigger mix of high current for example, so.

That is that as part of that the other thing that's in there as well.

On.

The freight side of things, we are seeing improvements with freight.

As the supply chain is.

Continue to recover.

It allowed us to.

Not be doing overnight shipments or air shipments and getting back into containers and getting stuff brought in at much lower <unk>.

Cost.

And then even container shipments from.

You know coming from.

Asia for example.

They're probably I don't think that back to where they were pre pandemic.

They were up four or five X are probably up to X right now so.

There's a lot of pieces coming starting to come through.

Yeah.

Last thing really was.

We had mentioned that in the last call too that we had quite a bit of.

Higher priced inventory.

So that's that's burning through.

Starting to be replaced with.

Newer Amazon.

Paul.

Percentage.

Those are all yes.

Nowhere nowhere, but I appreciate the color, yes, no problem. Thanks.

Thank you so much and your next question comes from the line of David Duley.

Your line is now open.

Good morning, Thanks for taking my question.

Sorry, I just wanted to Echo Craig's comments, congrats on a great run.

We're all very happy shareholders.

First question from me is Kevin I guess, the math works out you kind of guided in the first half gross margins at 41, 5%.

Debt to 44% Youre going to have to average 46, 5% in the back half of the year.

That's just the way the math works out now my question there is.

Would that be the starting point for gross margins.

Calendar 2024 is there any reason to think that we would have a dip back down in gross margins.

Well I mean, we have we have our $1 3 billion a model out there.

Yeah.

If you look at kind of the pieces of gross margin.

Always say see F&I is very accretive right. So.

As we grow to $1 3 billion.

<unk>.

We will not grow as fast systems will grow.

Baxter, which in.

In reality, if those margins aren't as good as CSI that puts a little pressure so I.

I don't think im prepared to say anything beyond that we have a $1 $3 billion model.

Suggest.

At least 45% gross margins as you know we've.

We've made a lot of improvements on gross margins over over the years.

It continues to be as I always say an area, where we're laser focused on.

I think you know I've got.

I've got the Panther <unk>.

Business to when it comes to margins so.

I am constantly looking for ways.

The team define.

How we can make things better so if.

If we can do better we'll do better but for now.

<unk>.

Trying to get back to that 44%.

It's hard for me to say, even in Q1 right I don't know what the mix is going to do necessarily right. So that's why.

I would say look at the full year.

Call me a quarter to quarter, but on a full.

Full year basis, we're going to get to that where we say we're going to get.

Okay, and then kind of as a follow on to an earlier question.

Sure on the 12% revenue growth that you have this year or 39% revenue growth you had last year, how much of that comes from units increasing and how much of that comes from ASP increases.

Plus more.

Yes, we haven't.

I mean as you know we have I guess, if you are asking I mean, the product extensions have higher ASP.

Which helps our margins.

We're.

Sounds like Youre getting a lot.

Getting pricing.

Price increases on products, we've been selling for example.

So it's really it's.

We're shipping more.

Systems, we're shipping more <unk>.

CSI.

Yeah. So that's the simple answer.

Okay.

We announced we announced that we had shipped 500 purion system earlier in the year and so system shipments of have certainly increased dramatically yes.

Okay and then.

As far as the.

Backlog goes are actually not in the backlog.

The big increase in deferred revenue, both sequentially and I think year over year, it's up like.

Two five times.

What's the reason behind that.

Uh huh.

The simple answer is we are getting a lot of prepayment.

And we've got $445 million of cash at the end of the quarter.

Short term investments included.

We have.

What I would call a meaningful amount of prepayments.

So.

Probably the biggest thing moving that Dave is the fact that.

That prepayment balance continues to increase.

On system and.

The other piece of it is as you know were shipping more tools.

And there is a piece of the revenue that gets hung up until the installs complete so that's growing but I would say the most significant reason why we popped.

Over the last few quarters is coming through out of Prepays, and then let's get hung up in deferred revenue.

And just so I understand the accounting of the prepaid are they giving you. The full cost of the system is that of deposits too or are customers trying to secure future capacity.

Just the nature of these payments so we're.

What was with certain customers, where requiring money down.

Typically not the full payment, but in some cases it could be.

The value of the material that goes into a tool.

If I look at the cost of my tools, 85% of its material. The rest of this flavor all the other stuff so.

We have.

So we want to make sure that if somebody decides they don't want.

Don't want the order.

We're not we're not left hanging on what materials. So so.

Sizeable chunk of money in some cases 10.

And again this isn't this is not what our customers. This is with.

Maybe customers, where we don't have a strong relationship and maybe newer customers that maybe in a particular region, where we want them.

Ask for that.

We haven't had any.

Any problems with people.

Kind of pulling up and putting money down.

Alright, thank you.

Thank you Dave.

Thanks, Dave.

Thank you. So much. Your next question comes from the line of Mark Miller from the Benchmark Company. Your line is now open let me also add my congratulations on the continued exceptional performance.

Good luck on your new position.

I just wanted to follow through you mentioned you closed the Purion H eval during the quarter.

Would you expect to close any other <unk> by the end of the year and do you expect <unk> lead to lead to additional orders.

So we have six E mails out in the field right.

Right now and if you take a look at where they are and the types of equipment I think about half of them Mark will close in 2023.

And then the other three will will bleed into 2024 and a lot of that is just based on the.

The timing of when they were shipped and also the development that we're doing with the customers out in the field.

Basically E mails can either close prior to a 12 month period, which is the exception rather than the rule and then they can bleed, even a little bit over a year, depending on the work that we're doing with that customer. The answer is yes, we expect the eval to turn into.

Additional business.

We have a purion M right now.

Under our evaluations for DRAM application at a customer that has multiple.

Purion types, and we do expect that to turn into additional business we have.

Do you expect to close any other <unk> by the end of the year and and do you expect <unk> to lead to lead two additional orders.

Z maxed out at a customer right now, it's a new customer and that should also turn into new business. Two purion Hs are out there one of the new customer and one is a new high current customer they have other types of purion.

And then.

The Purion XE that's out in the field is also for general mature type of application, but it.

It's a new high energy penetration that customer has other types of.

Purion tools and then finally, the drag in the Purion Dragon, which I mentioned earlier.

Is that for evaluation at for advanced logic, and that's at a customer that has multiple types of purion. So some of these customers are new but most of them are actually customers that are just adding additional types of purion products to their portfolio all of them arent.

I mean, we really wouldn't put the evaluation unit out there if we didn't expect it to be successful and to turn into future.

Repeat business.

Thank you for all the color.

Taxes came down and tax rate came down this quarter, what should we think about for taxes for the remainder of the year.

I'm glad you asked that mark because I'm going to ask.

Lot of people.

What I would tell you is.

I continue to model things at 15%, but I'm going to help you out in Q2 and tell you that I'm modeling it 13% to 14% so.

But you know I always kind of leave it at 15.

Biggest reason why we're not paying the corporate tax rate.

For the 'twenty, one 'twenty two 'twenty, one I guess is because a lot of our shipments cough sure of some of the <unk> reduction I think we paid 13% on shipment they go offshore.

So that's why I always kind of build in 15, but there's R&D tax credits coming in there is this things with stock comp expense and that impact that from quarter to quarter. So.

It was a <unk> 13 or 14.

In Q2, probably going to need to get to the numbers.

All of this as the year goes on as is I feel comfortable maybe I'll take it out but I will tell you personally in my models I just leave it at 15%.

Q3, Q4 right now.

Thank you Jeff.

Thanks Mark.

Thank you so much.

And Sir.

No question at this time and again to ask a question. Please press star one one.

Lose 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 leeway so I'd like to thank you all for joining US today, we have a busy investor calendar in the coming months in May we will be at the B Riley <unk> annual institutional Investor Conference in Los Angeles, and the Craig Hallum, 20th annual institutional Investor Conference in Minneapolis.

We will attend four conferences in June the TD Cowen 51st annual TBD TVT Conference in New York City, The Stifel Cross sector insight conference in Boston, The Needham Virtual automotive Tech conference and the William Blair 40, <unk> annual growth stock conference in <unk>.

Chicago in July we will be attending the CEO summit in San Francisco and conducting additional investor meetings at Semicon West We hope to see you at one of these events. Thank you.

Thank you presenters and this concludes the presentation. Thank you for your participation in today's conference you May now disconnect have a great day.