Full Year 2023 Axcelis Technologies Inc Earnings Call

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Yeah.

Operator: Good day, ladies and gentlemen, and welcome to Axcelis Technologies' call to discuss the company's results for the fourth quarter and full year 2023. My name is Michelle, and I will be your coordinator for today. At this time, all participants are in a listen-only mode.

Good day, ladies and gentlemen, and welcome to excellent technologies call to discuss the company's results for the fourth quarter and full year 2023. My name is Michelle and I will be your coordinator for today at this time all participants are in a listen only mode.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. 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.

After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one on your telephone.

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I would now like to turn the presentation over to your host for todays call, Doug Lawson Executive Vice President of corporate marketing and strategy. Please proceed.

Doug Lawson: Thank you, operator. This is Doug Lawson, Executive Vice President of Corporate Marketing and Strategy. And with me today is Russell Lowe, 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 services 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 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.

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've 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.

Russell Luff: Now I'll turn the call over to President and CEO, Russell Luff. Good morning, and thank you for joining us for our fourth quarter and year-end 2023 earnings call. Axcelis delivered record revenue for the fourth quarter of $310.3 million and $1.13 billion for the full year 2023.

Now I will turn the call over to President and CEO Russell Wow.

Good morning, and thank you for joining us for our fourth quarter and year end 2023 earnings call.

<unk> delivered record revenue for the fourth quarter of $310 3 million and $1 $1 billion for the full year 2023.

Russell Luff: The implant intensive power device segment enabled Axcelis to achieve 23% year-over-year revenue growth during a significant industry downturn. Fourth quarter earnings per share of $2.15 exceeded our revised guidance, while full year 2023 earnings per share came in at $7.43. Looking at the geographic mix, China continued to provide strength, especially in the power device segment. In the fourth quarter, China represented 49% of our system revenue, with Korea 18%, Europe 12%, the US 11%, Japan 5%, and the rest of the world 5%. For the full year, China represented 46%, the U.S. 15%, Korea 14%, Europe 11%, Japan 3%, Taiwan 2%, and the rest of the world 9%.

The employee intensive power device segment enabled <unk> to achieve 23% year over year revenue growth during a significant industry downturn.

Fourth quarter earnings per share of $2.15.

We exceeded our revised guidance for full year 2023 earnings per share came in at $7 43.

Looking at geographic mix, China continued to provide strength, especially in the power device segment in the fourth quarter, China represented 49% of our system revenue with career at 18% Europe, 12% the U S, 11%, Japan, 5% and the rest of the world five.

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The full year, China represented 46% the U S, 15% Korea, 14%, Europe, 11%, Japan, 3%, Taiwan, 2% and the rest of the world 9%.

Russell Luff: Looking at the market segment distribution for 2023, the overall mature segment represented 88% of the ship system revenue, Mary was 10%, and Vance Logic was 2%. Breaking down the mature segment in more detail, power continued to lead systems shipments with 59% of total systems revenue. Silicon carbide made up 34% and silicon made up 25% of total system revenue, respectively. The general mature segment was 26%, image sensors were 3%, and DRAM represented the entire 10% of memory systems revenue.

Looking at the market segment distribution for 2023, the overall mature segment represented 88% of the ships system revenue, maybe it was 10% and advanced logic was 2%.

Breaking down the mature segment in more detail how continued to lead system shipments with 59% of total systems revenue.

Silicon carbide made up 34% and silicon, 25% of total system revenue respectively with.

The general mature segment was 26% image sensors, with 3% and DRAM DRAM reps into the entire at 10% of memory systems revenue.

In 2020 for the systems revenue profile will be very similar to 2023, <unk> continuing to be an area of strength for <unk>.

Silicon carbide and Silicon GBT combined are expected to represent approximately 60% of our system shipments for the second consecutive year.

The general mature process technology market is expected to start out slower in the first half of 2024 and improve in the second half dependent on economic conditions.

Russell Luff: In 2024, the system's revenue profile will be very similar to 2023, with power continuing to be an area of strength for Axcelis. Silicon carbide and silicon IGBT combined are expected to represent approximately 60% of our system shipments for the second consecutive year. The general mature process technology market is expected to start out slower in the first half of 2024 and improve in the second half, dependent on economic conditions. Currently, DRAM is expected to pick up towards the end of the year and contribute less than 10% of total systems revenue in 2024. NAND is not expected to recover until 2025, when DRAM and NAND are forecast to have a strong year.

Currently DRAM is expected to pick up towards the end of the year and contribute less than 10% of total systems revenue in 2024.

NAND is not expected to recover until 2025, when DRAM and NAND are forecast to have a strong year.

Geographically in 2024, we expect China to represent 40% to 60% of our quarterly systems revenue with the remaining revenue spread relatively evenly across the other geographies dependent on specific customer projects.

The power of our segment and in particular Silicon carbide has driven our growth in 2023, we have developed a large and diverse customer base in this market and we continue to win business from new customers as well as expanding our.

Our footprint with existing customers.

The full portfolio of Purion Palace series products is valued by these customers new fab projects and customers often startup by establishing a core appeared Emerson carbide tools and then adopt the use of the Purion H 200, silicon carbide and Purion XE silicon carbide systems to improve productivity cost.

Ownership and device performance.

As a result, we have seen a significant increase in the adoption and great success with the Purion H 200, and should exceed second carbide systems.

Additionally, we continue to work with customers to further increase this opportunity and currently we have three purion H 200, silicon carbide system evaluations underway with customers in multiple geographies. Two of these systems are 150 millimeters or one is 200 millimeters.

Russell Luff: Geographically, in 2024, we expect China to represent 40 to 60% of our quarterly systems revenue, with the remaining revenue spread relatively evenly across the other geographies dependent on specific customer projects. The power device segment, and in particular silicon carbide, drove our growth in 2023. We have developed a large and diverse customer base in this market, and we continue to win business from new customers, as well as expanding our product footprint with existing customers. The full portfolio of Purion Power Series products is valued by these customers. New fab projects and customers often start by establishing a core of pure and air-absorbing carbide and then adopt the use of the Purin H200 silicon carbide and Purin Xe silicon carbide systems to improve productivity, cost of ownership, and device performance.

Customers are using these evaluation units to qualified productivity limiting recipes.

Apache ramp to higher volumes.

So by utilizing the higher LNG and dose capabilities of the Purion H 200, silicon carbide. So customers can begin optimization work on the devices during the evaluation period.

Astellas is the only Unimplanted <unk> 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 X series tools provides the lowest risk path to high volume manufacturing required to support aggressive fab ramp plans.

We expect the memory and mature markets will recover later this year, but during the slow period et cetera remains close to our customers supporting the installed base and working with them on future technology and manufacturing needs journey and see slowdowns like this customers have more time to collaborate with <unk> on new technologies and product capabilities.

We use this opportunity to focus our R&D efforts in key areas.

Critical to customers as they enter their next phase of growth. Ultimately this results in shipping evaluation systems to customers and joint development engagements that help us grow our market share.

We have an evaluation system with customers across nearly all market segments and multiple technical customer engagements designed to improve capabilities and increase our footprint across all segments.

Russell Luff: As a result, we have seen a significant increase in the adoption and great success of the Purin H200 and Purin Xe silicon carbide systems. Additionally, we continue to work with customers to further increase this opportunity, and currently, we have three Purin H200 silicon carbide system evaluations underway with customers in multiple geographies. Two of these systems are 150 millimeters, and one is 200 millimeters.

We are focused initiatives expected to grow share in advanced logic segment and geographically in Japan.

In 2023, we shipped the Purion Dragon and most advanced high current employer to a leading research Institute folks in advanced logic process development.

Also have another purion dragon undervaluation of the leading advanced logic customer.

These tools and the associated technical collaboration will be critical to the customers development of next generation logic technology.

Russell Luff: Customers are using these evaluation units to qualify productivity-limiting recipes as they prepare to ramp to higher volumes. Also, by utilizing the high-energy and dose capabilities of the Purin H200 silicon carbide tool, customers can begin optimization work on their devices during the evaluation period. Axcelis is the only iron implantation company that can deliver complete recipe coverage for all power device applications.

In Japan, we have seen initial success in the power market due to the strength of the Purion <unk> series.

Gauged with multiple Japanese customers and additional market segments. We expect these efforts to increase the purion footprint in this important and growing geography.

As the industry exit this downturn extends for return to healthy growth in the mature memory markets. This combined with continued strength in the power segment is expected to drive accelerates to a $1 $3 billion revenue model in 2025. Additionally investments being made in advanced logic and Japan.

Russell Luff: We are considered the technology leader and the supplier of choice, providing the best product family and manufacturing capability. This means that using Axcelis tools provides the lowest risk path to high volume manufacturing required to support aggressive fab rampage. We expect the memory and mature markets to recover later this year, but during this slow period, Axcelis remains close to its customers, supporting their in-store base and working with them on future technology and manufacturing needs. During slowdowns like this, customers have more time to collaborate with Axcelis on new technologies and product capabilities. We use this opportunity to focus our R&D efforts on key areas that will be critical to customers as they enter their next phase of growth. Ultimately, this results in shipping evaluation systems to customers and joint development engagements that help us grow our market share.

Will help drive our continued growth beyond 2025.

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

Thank you Russell and good morning, everyone. We are pleased with our financial results for the fourth quarter and for the full year 2023, especially with the 23% year over year revenue growth during this industry downturn as.

As we enter 2024, the industry continues to deal with market weakness, but as Russell discussed there are also clear signs of recovery and an expectation for a strong 2025.

As a result of the current market conditions, we are guiding first quarter revenue of approximately $242 million with gross margins of around 43, 5% operating income of approximately $45 million and earnings per share of about $1 and 22.

We expect full year 2020 for revenue levels to be similar to 2023 with revenue weighted towards the second half of the year.

Power is expected to remain solid throughout the year with the mature markets in memory recovering in the second half.

Our strong systems backlog and the expected recovery of these markets sets us up to achieve our $1 $3 billion revenue target in 2025.

Russell Luff: Currently, we have an evaluation system with customers across nearly all market segments and multiple technical customer engagements designed to improve capabilities and increase our footprint across all segments. We have focused initiatives expected to grow share in the advanced logic segment and geographically in Japan. In 2023, we shipped a Purin Dragon, our most advanced high-current implanter, to a leading research institute focused on advanced logic process development. We also have another Purin Dragon under evaluation with a leading advanced logic customer. These tools and the associated technical collaboration will be critical to the customer's development of next-generation logic technology. In Japan, we have seen initial 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. We expect these efforts to increase Purion's footprint in this important and growing geography.

Looking at our fourth quarter revenue and earnings per share finished above our revised guidance due to solid execution and continued demand for period, especially in the silicon carbide power market Q.

Q4 revenue was 310 $3 million with system revenue at $241 $8 million in C&I at 68 $5 million.

The year revenue was 1.13 billion with systems revenue of $883 $6 million and <unk> at $247 million.

Q4 earnings per share of $2 15 was driven by higher than expected revenues and gross margin as well as lower overall operating expenses. This performance led to full year earnings per share of $7 43.

Despite softness in the general mature and memory markets bookings in quoting activity for systems in the power segment remains solid and continue to support our revenue expectations.

Bookings in the quarter were $236 million, maintaining our backlog at $1 2 billion, a portion of which stretches into 2025.

Russell Luff: As the industry exits this downturn, Axcelis will return to healthy growth in the mature and memory markets. This, combined with continued strength in the power segment, is expected to drive Axcelis to our $1.3 billion revenue model in 2025. Additionally, investments being made in advanced logic and Japan will help drive our continued growth beyond 2025. Now, I'd like to turn it over to Jamie. Thank you, Russell. And good morning, everyone.

Given the increase in installed Purion systems, we expect <unk> revenue to increase in 2024 over 2023.

Although revenue will fluctuate quarter to quarter <unk> should be modeled at approximately $260 million for 2024, and approximately $300 million for a one $3 billion revenue model.

Q4 gross margin finished at 44, 4% and at 43, 5% for the full year.

In 2024, we expect to see year over year improvement in gross margin.

However, quarterly gross margins will fluctuate based on product mix.

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

James G. Coogan: We are pleased with our financial results for the fourth quarter and for the full year 2023, especially the 23% year over year revenue growth during this industry downturn. However, as we enter 2024, the industry continues to deal with market weakness. But, as Russell discussed, there are also clear signs of recovery and an expectation for a strong 2025. As a result of the current market conditions, we are guiding first quarter revenue of approximately $242 million with gross margins of around 43.5 percent, operating income of approximately $45 million, and earnings per share of about $1.22. We expect full-year 2024 revenue levels to be similar to 2023, with revenue weighted towards the second half of the year. Power is expected to remain solid throughout the year, with mature markets and memory recovering in the second half.

Execution on these initiatives will allow us to model gross margin at greater than 45% and our one $3 billion revenue model.

Turning to operating expenses, the fourth quarter ended at 19% of revenue better than our guidance and at 19, 9% of revenue for the full year.

We expect Opex in the first quarter of 2024 to be approximately 25% of revenue the.

The increase as a percentage of revenue as a result of the lower sales volume in the first quarter and the incremental investments we've made to support the higher revenue loads, we anticipate in the future opt.

Opex as a percentage of sales as expected declined over the course of 2024, given the higher volumes expected in the second half of the year.

Investments in R&D will increase in 2024 to approximately nine 5% of revenue compared to the eight 6% of revenue we invested in 2023.

The incremental funding of R&D will be focused on the continued development of our purion product extensions and upgrades.

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 <unk>.

James G. Coogan: Our strong systems backlog and the expected recovery of these markets sets us up to achieve our $1.3 billion revenue target in 2025. Looking at our fourth quarter, revenue and earnings per share finished above our revised guidance due to solid execution and continued demand for Purion, especially in the silicon carbide power market. Q4 revenue was $310.3 million, with system revenue at $241.8 million, and CS&I at $68.5 million. Full year revenue was $1.13 billion, with system revenue of $883.6 million, and CS&I at $247 million. Q4 earnings per share of $2.15 was driven by higher than expected revenues in gross margins as well as lower overall operating expenses. This performance led to full year earnings per share of $7.42.

<unk> skills equipment and facilities required to achieve our financial models.

Moving to our balance sheet and cash flow. We ended Q4 with $506 $1 million of available cash and generated $65 $6 million of cash from operations in the period and $156 9 million for the full year.

We continue to execute against our share repurchase program buying back $15 million of stock in the quarter. In total we've returned over $185 million of cash to shareholders since 2019 through our share repurchase programs.

Before turning the call over to Russell for final remarks.

Wanted to remind you that we will be participating in a number of upcoming investor events, including Wolfe Research's inaugural semiconductor conference in San Francisco on February 14th and Susquehanna <unk> Annual Technology conference virtually on March one.

In addition, we intend to host a capital markets day on July 11th of this year in San Francisco and the time slot, we usually hold our technical symposium.

James G. Coogan: Despite softness in the general mature and memory markets, bookings and quoting activity for systems in the power segment remain solid and continue to support our revenue expectations. Bookings in the quarter were $236 million, maintaining our backlog at $1.2 billion, a portion of which stretches into 2025. Given the increase in installed period systems, we expect CS&I revenue to increase in 2024 over 2023. Although revenue will fluctuate quarter to quarter, CS&I should be modeled at approximately $260 million for 2024 and approximately $300 million for our $1.3 billion revenue. Q4 gross margin finished at 44.4% and at 43.5% for the full year.

At this event, we will provide our next long range financial model discuss our expectations for the market review, our new product innovations and introduce the team members that will help drive <unk> towards its next phase of growth.

We will provide more details on this event in the coming months 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.

Thank you Jamie you said lets achieved record revenue of $1, one $3 billion in 2023, and <unk> targeting revenue of $1 $3 billion. In 2025. This growth is achievable to the same factors discussed last quarter.

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 tab.

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 <unk>. The only company with a product line capable of covering implant recipes in these key markets.

<unk> uniquely positions <unk> to benefit from high growth in the mature process technology markets.

James G. Coogan: In 2024, we expect to see year-over-year improvement in gross margin. However, quarterly gross margins will fluctuate based on product missed. We remain laser focused on margin improvement and have a number of initiatives underway to lower the cost of goods sold and to drive higher sales of the Purion product extension. Execution on these initiatives will allow us to model gross margin at greater than 45% in our $1.3 billion revenue model. Turning to operations, the fourth quarter ended at 19% of revenue, better than our guidance, and at 19.9% of revenue for the full year.

And finally, <unk> has strong long term customer relationships and a fundamental culture designed to win by making our customers successful.

2023 was a record year for access, but a turbulent year for the industry I want to thank our employees suppliers customers and investors for your continued support throughout 2023 and into 2024 with that I'd like to open it up for questions.

Thank you.

Reminder, to ask a question. Please press star one one on your telephone and wait for your name to be announced to.

To withdraw your question. Please press star one again please.

Please standby, while we compile the Q&A roster.

The first question comes from Craig Ellis with B Riley Securities. Your line is now open.

James G. Coogan: We expect OPEX in the first quarter of 2024 to be approximately 25% of revenue. The increase as a percentage of revenue is a result of the lower sales volume in the first quarter and the incremental investments we've made to support the higher revenue loads we anticipate in the future. OPEX says the percentage of sales is expected to decline over the course of 2024 given the higher volumes expected in the second half of the year.

Thanks for taking the question and congratulations on the very strong exit to 2023, guys I wanted to start off with a question that combines.

Some near term items with some intermediate term items so.

Russell and Jamie from your color it sounds like because we look at first quarter guidance.

The way calendar 'twenty pores linearity plays out with the inflection in the second half, but mix would be fairly even within systems across mature foundry and <unk>.

James G. Coogan: Investments in R&D will increase in 2024 to approximately 9.5% of revenue compared to the 8.6% of revenue we invested in 2023. The incremental funding for R&D will be focused on the continued development of our period product extensions and up. 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 and increasing our footprint in the memory and advanced logic market. 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 model. Moving to our balance sheet and cash flow, we ended Q4 with $506.1 million of available cash and generated $65.6 million of cash from operations in the period and $156.9 million for the full year.

In memory can you confirm that and then.

On the latter part of that what are the things that you see that give you conviction in the second half inflection is should look at your backlog and customer engagements et cetera.

So hey, Greg This is Doug I'll take the first going back to that question.

So mix wise power. It continues to be strong we expect for the year power to continue to represent about 60% of our total revenue and silicon carbide will be 50% of our total systems revenue.

So we do expect that to continue to be strong.

We get into the second half we expect.

The mature markets to recover.

Really tied to the economy more than anything is consumer automotive and industrial start to return and then we expect DRAM to recover ahead of NAND NAND being more of a 2025.

So if you look at the updated presentation, we're expecting close to 90% of our business come from the overall mix.

Your markets and about 25% of it from the general mature.

And regarding kind of conviction about the second half Craig. So yes, we do have a strong backlog, we do have a solid business.

Power, especially in China.

And in speaking with our customers. They are looking to start ramping that business is in the second half of the year.

That's really helpful guys and the second one is just more for Jamie Jamie It's really impressive to see how resilient first quarter gross margins are as volumes decline and I'm, hoping that you can do is provide some color on how mix and some of the other <unk>.

James G. Coogan: We continue to execute against our share repurchase program, buying back $15 million of stock in the quarter. In total, we've returned over $185 million of cash to shareholders since 2019 through our share repurchase program. Before turning the call over to Russell for final remarks, I wanted to remind you that we will be participating in a number of upcoming investor events, including Wolf Research's inaugural Semiconductor Conference in San Francisco on February 14th and Susquehanna's 12th Annual Technology Conference virtually on March 1st. In addition, we intend to host a Capital Markets Day on July 11th of this year in San Francisco at the time slot we usually hold our At this event, we will present our next long-range financial model, discuss our expectations for the market, review our new product innovations, and introduce the team members that will help drive Axcelis towards its next phase of growth. We will provide more details on this event in the coming months, 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. Thank you, Jamie.

Company specific factors are playing out.

And you indicated that calendar 'twenty poor gross margins could rise year on year can you give us any color on the magnitude of the increase that we might see thank you.

Yes.

Great question, Craig and thank you and the team has done a fantastic job of putting in place some initiatives here to one lower our cost of goods sold for the systems and try to drive some greater efficiency without necessarily having to raise prices for some of these products given the competitive environment. In addition to that we have identified.

Side, some service and upgrade opportunities, which are providing incremental margin opportunities in our <unk> business and.

And given that we expect CNS and I continue to grow in light of the higher installed base that we continue to build out there of the Purion product platform, that's going to that part of the mix is going to continue to contribute incremental margin opportunity over the course of the year and then on top of that it's also where the systems are coming from <unk>.

Over the course of the year.

We are seeing some higher volume in 2024 of some of our higher margin products.

Sort of shifting the mix a little bit towards that especially in light of lower memory volume year over year as you guys know memory.

Russell Luff: Axcelis achieved record revenue of $1.13 billion in 2023 and is targeting revenue of $1.3 billion in 2025. This 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.

Market.

A little bit more competitive there margins are not as strong on those products as they are in some of our other areas and so with the lower memory volume. We're also seeing benefit from that.

That's really helpful guys I'll hop back in the queue. Thank you.

Great. Thanks, Craig.

One moment for the next question.

The next question comes from Tom <unk> with D. A Davidson your line is open.

Okay, great. Thanks for taking my question.

Probably for Doug when you look at the Tam for <unk> 24 in your slides you have it actually going up for the full year, but youre talking about your business being flattish just curious what the differences are there certain sectors that you are not as strong and that are doing well.

Russell Luff: Third, high-value Purion product extensions were designed to optimize power and image sensitive 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 market. And finally, Axcelis has strong long-term customer relationships and a fundamental cultural desire to win by making our customers successful. 2023 was a record year for Axcelis, but a turbulent year for the industry. I want to thank our employees, suppliers, customers, and investors for your continued support throughout 2023 and into 2024. With that, I'd like to open it up to questions. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Yes.

That is exactly what's gone on Tom is is where we see the Tam for implant going up.

Where we are strong.

Is where we're taking advantage of that we're seeing early recovery in advanced logic, which well less implant intensive makes us as a much smaller position than one that we expect to grow over the next years, but in 2024, it will continue to be smaller.

As the mature markets grow in the second half than.

And then we will benefit from the increased.

Sam there as well and as we get into 'twenty five.

As you can see the Tam continues to grow we are expecting a good year across all markets in 2025.

Okay, and then Russell just kind of a general question about how the year is playing out.

Think back a quarter or two ago, where you're expecting a dip in the first quarter or the first half of the year before second half strength or did the book of business look more contiguous a couple of quarters ago.

I think so I guess, what I'd say is that the power business has stayed solid I think the general mature has softened significantly I think you've heard that from a number of customers. So really.

Operator: Please stand by while we compile the Q&A roster. The first question comes from Craig Ellis with B Raleigh Securities. Your line is now open.

I would say that it's an evolving picture and we now.

Have a little bit more visibility.

Doug Lawson: Thanks for taking the question and congratulations on the very strong exit to 2023, guys. I wanted to start off with a question that combines some near-term items with some intermediate-term items. So, Russell and Jamie, from your color, it sounds like, as we look at the first quarter guidance and then the way Calendar 24's linearity plays out with the inflection in the second half, that mix would be fairly even within systems across mature foundry and memory. Can you confirm that? And then on the latter part of that, what are the things that you see that give you conviction about the second half inflection as you look at your backlog and customer engagements? Hey, Craig, this is Doug.

In Q1, and the rest of the year that we wouldn't have had a few months ago.

Yeah, and Tom on that point, we had very as you noted in the call. We had very strong bookings in the fourth quarter of this year relative.

Relative to our systems revenue.

And our backlog again, we maintain that backlog above $1 2 billion for the full year and as we look where we are today, we don't really see a meaningful change in the amount of backlog that we're carrying however, we have seen some shifting in the timing of deliveries and as Russell noted that's consistent with what our customer commentary has been on that.

<unk>.

Okay, Great. That's helpful. And then Jamie last question when I look at the margins going back to 'twenty. Two 'twenty. Three you had really nice revenue growth very de Minimis margin expansion and yet you're projecting pretty healthy margin expansion over the next year.

Maybe just take us back to what.

<unk> margins from expense in 'twenty three versus 22.

I guess why you're confident that it accelerates here going forward.

Yes, that's a good question that a lot of that has to do with memory mix in the period and then the efforts that we're taking right.

Doug Lawson: I'll take the first half of that question. So, you know, mix-wise, power continues to be strong. We expect for the year power to continue to represent about 60% of our total revenue, and silicon carbide will be 50% of our total systems revenue. So we do expect that to continue to be strong. As we get into the second half, we expect the mature markets to recover, really tied to, you know, the economy, more than anything, as consumer, automotive, and industrial start to return. And then we expect DRAM to recover ahead of NAND, with NAND being more of a 2025 thing.

So we say mixed within the year relative to memory and then our CNI business related to service upgrades and other opportunity sets that we see for 2024, but on top of that a number of the initiatives. We put in place to drive incremental opportunities on cost savings specifically on the cost of sales line item.

Really our multiyear benefit providers to us. So these are things like the investments that we've made and the automated logistics center, where we consolidated our footprint here in the Beverly area and then also.

The continued work of the R&D team to identify.

New opportunities upgrades and services on the <unk> front, which as you guys. All are aware it does provide some meaningful uplift on mix.

James G. Coogan: So if you look at the updated presentation, we're expecting close to 90% of our business to come from the overall mature markets, and about 25% of it from the general mature. And regarding kind of our conviction about the second half, Craig, so, you know, we do have a strong backlog. We do have solid business in power, especially in China, and in speaking with our customers, they are looking to start ramping up their businesses in the second half of the year. That's really helpful, guys. And the second one is for Jamie.

Okay. Thank you for your time.

One moment for the next question.

The next question comes from Mark Miller with the Benchmark Company. Your line is open.

Thank you for the question you mentioned you had three valves underway for Purion H 200, and also dragging email and advanced logic customer.

Are there any other email is currently underway.

Yes, there is.

Avi valves underway Mark we've got one medium current tools.

Out of DRAM customer.

And X EMACS Purion XE Max underdeveloped for an image sensor company company. The three H 200, Silicon carbide tools you mentioned.

For power device and also a purion DXP and our power device application.

General mature, we'd have a purion H and the Purion Dragon and advanced logic. So many customers many applications and many different products across the board.

And what was the medium current I'm sorry customer.

James G. Coogan: So Jamie, it's really impressive to see how resilient first quarter gross margins are as volumes decline. And I'm hoping what you can do is provide some color on how mix and some of the other company-specific factors are playing out. And you indicated that calendar 24 gross margins could rise here on your. Can you give us any color on the magnitude of the increase that we might see? Thank you. Yeah, that's a great question, Craig. And thank you.

DRAM.

Okay.

Thank you.

Thanks, Brian.

Well speed indicated.

We could go that they saw very strong design.

Design and so they are a major silicon carbide as you know.

Manufacturing I'm just curious why.

Sure.

One of your first half will be weaker given.

We'll speed was indicating.

Appear to be very strong design wins, I think 75% of them are for automotive.

Yes, I think mark with that so we see strength in silicon carbide globally.

Now.

There is more strength in coming from the Chinese customers.

The Chinese EV market well.

Getting lots of press in terms of its slowing its growth rate. When you look at the number of EV companies the breadth of the product lines.

They offer they are very focused in China on on Silicon carbide, not only for inside internal to China, but to be a global low cost provider. So were seeing strong bookings and continued strong quote activity.

Operator: The team has done a fantastic job of putting in place some initiatives here to, one, lower our cost of goods sold for the systems and try to drive, you know, some greater efficiency without necessarily having to raise prices for some of these products, given a competitive environment. In addition to that, we have identified some service and upgrade opportunities, which are providing incremental margin opportunities in our CS&I business. And given that we expect CS&I to continue to grow in light of the hire and sell base that we continue to build out there of the period product platform, that part of the mix is going to continue to contribute incremental margin opportunity over the course of the year.

From China throughout the rest of the world It slowed a little bit over the course of the last quarter, but as you comment many of our customers are talking about that picking back up.

As the automakers start to settle on their exact product plans.

Thank you.

One moment for the next question.

The next question comes from Chad door Shimer with William Blair. Your line is open.

Hi, Thanks for taking my question I guess, the first one I just wanted to put a finer point it sounds Russell.

Russell it sounds like to a previous question.

When you pre announced positively three weeks ago that you had in.

Inside that Q1 would be weaker I just want to make sure is that the case that you knew that you started the Q1 will be up by 15% or.

Or did you see any push outs over the last three weeks and then I have a follow up.

Operator: And then on top of that, it's also where the systems are coming from over the course of the year. And we are seeing some higher volume in 2024 of some of our higher margin products, you know, sort of shifting the mix a little bit towards that, you know, especially in light of lower memory volume year over year. As you guys know, the memory market is a little bit more competitive there. Margins are not as strong on those products as they are in some of our other areas, and so with the lower memory volume, we're also seeing benefits from that. That's really helpful, guys. I'll hop back in the queue.

Yes, I'll take that and we have seen again those shifting in those delivery requirements over the past couple of weeks, especially as our customers now are firming up their capex requirements and the timing of those requirements over the course of the year Jed.

So the reality is as we thought through the guide for 2024.

Our historical practice has been to make sure that we can provide them.

Most meaningful guidance to the to the to the folks relative to that.

And we historically have done that on this call. So it was a combination of factors there relative to the timing of that pre announcement.

Got it that's helpful. Thank you and and.

And I appreciate how fluid things and dynamic things can be I guess.

Operator: Thanks. Great. Thanks, Craig.

Along those same lines I know I heard Doug talking.

Operator: One moment for the next question. The next question comes from Tom Diffely with D.A. Davidson.

Speaking positively on China, the average utilization for.

Fabs in China is below 50% most are around sort of 30%. So I'm just wondering what gives you the confidence that those.

Russell Luff: Your line is open. Yeah, great. Thanks for taking my question. Probably for Doug, you know, when you look at the TAM for 24, on your slides, you have it actually going up for the full year, but you're talking about your business being flattish. Just curious what the differences are.

Orders materialize typically you would not see.

Additional capex spend with such low utilization.

The tools are being repurposed for something else. So I'm curious what gives you the confidence that.

In that bookings that you don't see.

Doug Lawson: Are there certain sectors that you're not as strong in that are doing well? Yeah, that's, that is exactly what's going on, Tom is, is where we see the TAM for implants going up. Power, where we are strong, is where we're taking advantage of that. We're seeing, you know, early recovery in Advanced Logic, which, well, less implant intensive, Axcelis has a much smaller position in, one that we expect to grow over the next years, but in 2024, it will continue to be smaller. As the mature markets grow in the second half, then we'll benefit from the increased TAM there as well. And as we get into 2025, as you can see, TAM continues to grow. We are expecting a good year across all markets in 2025. Okay, and then Russell, just kind of a general question about how the year is playing out.

<unk>.

Additional push outside in the power market in China. Thanks.

Yes, so I think to add a lot of it is.

The fact that.

The Chinese companies I think the Chinese government has.

Our long term plan for silicon carbide and Ltvs.

And so the utilization is probably a little less of a factor in determining their investment policy over the course of the next few years.

So we do we see a lot of new customers. In addition to the larger silicon carbide customers.

China, and so there was quite a bit of activity. Despite.

Your comment on lower utilization.

I think they are also preparing for the fact that.

There is still expected to be a significant growth in evs over the course of the next 10 years.

Most of the automakers globally.

Out of China will say.

Have changed their plans a little bit over the course of the last six months, especially.

No no really backing away from the fact that there'll be a significant.

Number of electric vehicles.

And a lot of moving to a combination of hybrid.

And electric and hybrid of course.

Utilize power devices and Inverters as well.

Got it and last question for you guys.

And I'm, assuming it's probably in the software, but just wanted to ask it anyways most of the equipment companies that are sold into China have been re engineered.

Russell Luff: If you think back a quarter or two ago, were you expecting a dip in the first quarter of the first half of the year before second half strength? Or did the book of business look more continuous a couple quarters ago? I think, so I guess what I'd say is that the power of business has stayed solid. I think it's a general mature has softened significantly.

And and are now being supplied by local vendors.

With one exception, which is in implant so I'm just curious.

How do you gauge that with so much exposure to a market that government subsidies are literally tied to reengineering of.

The tooling.

You have confidence that that won't happen with.

With your solution.

Russell Luff: I think you've heard that from a number of our customers. So really, you know, I'd say that it's an evolving picture. And we now, you know, we now have a little bit more visibility into Q1 and the rest of the year that we wouldn't have had a few months ago. Yeah, and Tom, on that point, you know, we had very, as you noted in the call, we had very strong bookings in the fourth quarter of this year, relative to our systems revenue, and, you know, our backlog, again, we maintain that backlog above $1.2 And as we look where we are today, we don't really see a meaningful change in the amount of backlog that we're carrying. However, we have seen some shifts in the timing of deliveries. And as Russell noted, that's consistent with what our customer commentary has been on that. Okay, great. That's helpful. And then Jamie, last question.

So Jeff this is Russell.

So.

They have been a couple of domestic supply is hoping for 20 odd years as a couple of them they've been working on knockoff medium current employers.

One thing I would say that does insulate us a little bit is that these are highly complex technical products and the software is a huge component of it the operation machine the risks be choosing the setup is a huge part so I would say that.

It's a very difficult technology to replicate people have been trying without too much success to date and.

I think we think there's another couple of things that go on here as well.

We are innovating and we are keep moving faster and faster working with our customers to make sure. They have the most up to date solutions that make them competitive with typically the domestic tool manufacturers get left behind so once the technology starts to plateau, then thats when they get that's been.

James G. Coogan: When I look at the margins, you know, going back to 22 to 23, you had really nice revenue growth, very de minimis margin expansion, and yet you're projecting pretty healthy margin expansion over the next year. Maybe just take us back to what stopped margins from expanding in 23 versus 22 and, you know, why you're confident that it will accelerate here going forward. Yeah, that's a good question.

Foreign vendors get run over and.

So that happened a couple of other areas.

Got it thank you I'll jump back in queue.

One moment for the next question.

The next question comes from David Duley with Steelhead Securities. Your line is open.

Thank you I was curious about the memory recovery you talked about in 2024, I think you mentioned that.

Memory would be.

10% of revenue this year and I think historical peaks were around 20%, but.

That was split evenly between NAND and DRAM and I think youre talking about 10%, it's mostly DRAM could.

Could you just elaborate a little bit about the breakout of revenue there and if it is going to be 10% DRAM, that's pretty close to historical peaks I think and just talk about what the drivers are behind that memory business.

James G. Coogan: You know, a lot of that has to do with memory mix in the period and then the efforts that we are taking, right? So, you know, we say mix within the year relative to memory and then our CS&I business related to service upgrades and other opportunity sets that we see for 2024. But on top of that, a number of the initiatives we put in place to drive incremental opportunities for cost savings, specifically on the cost of sales line item, really are multi-year benefit providers to us.

Yes.

Yes, Dave.

No.

The number that we've got in the presentation that will be it will be under 10%. So.

We're monitoring that very closely as the year goes on since it's a second half.

Situation the drivers or.

Are basically getting back to a point, where we start to see wafer start additions by the memory companies on both DRAM and NAND.

We expect DRAM to happen ahead of NAND.

And the drivers for utilizing capacity or our HBM, which.

As currently.

<unk>.

Seeing a lot of our customers shift capacity over.

James G. Coogan: So these are things like the investments that we've made in the automated logistics Center, where we consolidated our footprint here in the Beverly area. And then also, you know, the continued work of the R&D team to identify new opportunities, upgrades, and services on the CS&I front, which, you know, as you guys all are aware, does provide some meaningful uplift in mix. Okay, thank you for your time.

We see shrinks happening.

That will allow them to get more more bids out of Ireland before they add.

Add capacity or add wafer starts and then they'll then they'll start to respond to demand and we expect demand drivers like.

All the consumer and auto stuff as it goes back AIP <unk> look like there could be a big driver of DRAM Microsoft is.

They require and 16 gigabytes.

Operator: One moment for the next question. The next question comes from Mark Miller with The Benchmark Company. Your line is open.

<unk> for Windows 12 in AIP see so so theres a lot of good.

Indicators that we'll start to see capacity additions as we get towards the second half and end of this year.

Doug Lawson: Thank you. You mentioned you had three evals underway for your PRNH200 and also a Dragon eval with advanced logic. Are there any other evals currently underway? Yeah, there are 80 valves underway, Mark. We've got one medium current tool that's at a DRAM customer, an Xe Max, Purion Xe Max under a valve for an image sensor company, the 3H200 silicon carbide tools you mentioned for power devices, and also a Purion VXE in a power device application.

Diving into 2025, where we expect it to be a very very good year for DRAM NAND.

And we don't expect to really see a lot of activity until we get into the beginning of next year.

And so that's that's going to be driven by storage both on device and in data centers.

Yeah.

One moment for our next question.

The next question comes from Charles sure with Needham and company. Your line is open.

Hi, good morning.

Maybe I wanted to start with that without some of the commentary around.

They expected recovery.

Doug Lawson: And then General Mature, we have a Purion H, and then the Purion Dragon in advanced logic. So many customers, many applications, and many different products across the board. D-RAM, Thanks, guys. Bullspeed indicated a week ago that they saw a very strong design. Major Silicon Corbett, I'm just curious why... Why your first half will be weaker given the, ®MD-BO Yeah, I think, Mark, so we see strength in silicon carbide globally. Right now, there's more strength coming from Chinese customers. The Chinese EV market, well, you know, is getting lots of press in terms of slowing its growth rate. When you look at the number of EV companies, the breadth of the product lines that they offer, they are very focused in China on silicon carbide, not only for internal use in China but to be a global low-cost provider.

The general mature in the second half of the year.

So can you kind of remind us what kind of customers what kind of the.

Patients who are considered as general mature and the housing investors get comfortable with a second half recovery.

Part of the market because.

Capex announcement from mature foundries or are some of the larger analog mixed signal IBM ISC and the microcontroller part of their debt.

Access considerate about the general mature isn't very positive.

How do people get comfortable with that that that outlook for quantum 'twenty bought back. So that's my first question.

Okay. So.

So the general mature recovery is.

Likely to be very much tied to the economic recovery or <unk>.

Perception of economic recovery, I guess, and so it's consumer products automotive industrial type products.

In terms of device types microcontrollers analog RF.

Doug Lawson: So we're seeing strong bookings and continuous strong quote activity from China. Throughout the rest of the world, it's slowed a little bit over the course of the last quarter. But as you say, many of our customers are talking about that picking back up, you know, as the automakers start to settle on their exact product plans. Thank you. Thank you. Thank you.

Although a little widgets that go into all of these devices that we buy.

Another.

Strong.

Place for it will be on the internet of things.

We do expect that.

As the AI takes off it does drive another wave of Iot devices.

AI is.

As the data hog, we expect that to happen so so.

So we do we do see activity and our customers talking about second half.

Adding capacity and building, so and I think if you listen.

Operator: One moment for the next question. The next question comes from Jed Dorsheimer with William Blair. Your line is open. Hi, thanks for taking my question. I guess the first one; I just want to make a finer point.

As we listen to our customers directly in and their public announcements most.

Most of our continuing with a reasonably healthy capital plan.

Got it so.

The second question is about.

China, I think I heard you talking about China property contributing 40% to 60% of the revenue this year.

Operator: It sounds, Russell, like to a previous question when you pre-announced positively three weeks ago that you had insight that Q1 would be weaker. I just want to make sure, is that the case that you knew that sort of Q1 would be off by 15%, or did you see any pushouts over the last three weeks? And then I have a follow-up. Yeah, you know, I'll take that on that.

The last year's number seems to be a little bit below that.

One.

I almost feel like Youre guiding to China revenue to be up meaningfully this year.

What's driving that.

Sure.

Due to some of the push out to non China customers.

Actually help you like backfill some of the slots for the China customers with orders, maybe parse that a little.

Further down the road, let's say plenty plenty of Fi. So really just want to understand the dynamics here is that the organic underlying China demand growth this year or that there is a little bit of puts and takes in terms of manufacturing slots going up. Thank you.

James G. Coogan: We have seen, again, the shifting of those delivery requirements over the past couple of weeks, especially as our customers are now firming up their CapEx requirements and the timing of those requirements over the course of the year, Jed. You know, so the reality is, you know, as we thought through the guide for 2024, you know, our historical practice has been to make sure that we can provide the most meaningful guidance to the folks relative to that. And we historically have done that on this call.

Okay. So no there is continued.

Strong demand, especially on the power and especially silicon carbide in the Chinese market and so that's that is where most of the activity is.

Especially through the first half of 2024, and then we would expect the general foundries.

General mature foundries.

Worldwide. We then start to recover and I think that's consistent with all of their public releases over the last couple of weeks and so it has less to do with with movement, creating slots or whatever for China and more the the activity in the bookings level and backlog.

We are seeing from the Chinese customers.

James G. Coogan: So, you know, it was a combination of factors there, relative to the timing of that pre-announcement. Got it. That's helpful.

Lastly.

Definitely the first half numbers are I expect it could be a little bit lower compared with the second.

That second half 'twenty three is the mix in the first half 'twenty four you are expecting something similar like 6% to 8% power when we think about 60% power maybe.

James G. Coogan: Thank you. And, I appreciate how fluid things and dynamic things can be. I guess, along those same lines, you know, I heard Doug talking, you know, speaking positively about China, the average utilization for fabs in China is below 50%. Most are around sort of 30%.

I don't know maybe somewhere between 30% to 50%.

Of that total being silicon carbide any color would be great. Thanks.

Yes so.

Chose for the for the year.

60%.

<unk> of our systems revenue will be power, 50% of our total revenue or around 50% will be silicon carbide.

Doug Lawson: So I'm just wondering, what gives you the confidence that, you know, those orders materialize. Typically, you would not see, you know, additional CAPEX spend with such low utilization unless the tools are being repurposed for something else. So I'm curious, you know, what gives you the confidence that, in that bookings, you don't see, can you know, additional push outs in the power market in China? Thanks.

The remainder is is.

Mix between the general mature image sensors, and DRAM, primarily and so.

We do would expect that we would see higher percentage of power in the first half.

And then we would start to see the other markets come in in the second half and can contribute and change the percentages.

Thanks.

One moment for the next question.

The next question comes from Christian Schwab with Craig Hallum Capital. Your line is open.

Russell Luff: Yeah, so I think, Chad, a lot of it is the fact that the Chinese companies, I think the Chinese government has a long-term plan for silicon carbide and EVs. And so the utilization is probably a little less of a factor in determining their investment policy over the course of the next few years. And so, we do, you know, we see a lot of new customers in addition to the larger silicon carbide customers in China. And so there's quite a bit of activity, you know, despite your comment on lower utilization. I think they're also preparing for the fact that, you know, there is still expected to be significant growth in EVs over the course of the next 10 years.

Great. Thanks for taking my question.

Just curious what your guys thoughts are on the other.

The consequences of the U S government limited advanced.

Chip production in China, which has led to extremely strong investment in mature nodes.

Now they've said now they're going to look into mature no legacy chip production because.

As China has meaningfully increased production of mature ships.

It's leading to a possible.

No.

Competitive situation for U S based company selling similar chips as China again try to attempt to gain market share with that Amy.

Russell Luff: Most of the automakers globally, you know, outside of China, we'll say, have changed their plans a little bit over the course of the last six months, especially. But none are really backing away from the fact that there'll be a significant number of electric vehicles, and a lot are moving to a combination of hybrid and electric. And hybrid, of course, utilize power devices and inverters as well.

The risk that.

They come back at some point this year and start making some semblance of restrictions.

Chip.

Semi cap equipment.

Which would obviously with 40% to 60% of your revenue.

Uh huh.

A material risk.

Yes, Christian I mean, we <unk>.

That very closely.

We don't expect that to happen on the on the mature nodes at this point, especially on the power side.

Russell Luff: Got it. And last question for you guys, and I'm assuming it's probably in the software, but I just want to ask it anyways.

Which is where the strength is especially in the first half.

But it is something we watch very closely so we can't predict the future on on government actions. There. So so it's something we just have to monitor and react to.

Russell Luff: Most of the equipment companies that have sold into China have been re-engineered and are now being supplied by local vendors, with one exception, which is in implants. So I'm just curious, how do you gauge that with so much exposure to a market where government subsidies are literally tied to re-engineering of the tooling? How do you have confidence that that won't happen with your... Jed, this is Russell.

Great and then on the.

Excuse me in the Big DRAM memory recovery in 'twenty five we've seen that every leading memory manufacturer and a significantly reduced.

Production capacity and utilization of the equipment at hand.

And DRAM taking that equipment.

And.

Moving it from.

D var <unk> DDR five wishes.

Now that the chips are available.

Russell Luff: So, there have been a couple of domestic suppliers, probably for 20 odd years, there's a couple of them that have been working on knock-off medium current implanters. One thing I'd say that does insulate us a little bit is that these are highly complex technical products, and the software is a huge component of it. The operation of the machine, the recipe tuning, and the setup are a huge part. So, I would say that it's a very difficult technology to replicate.

And for that is.

Is greater.

But you know the two people in Korea.

Loss.

$15 billion, making memory in 2023, it's going to take quite some time to get all their money back. So we've seen an improvement in pricing because of those actions.

Just trying to understand why do you think that would be a substantial increase in DRAM memory.

By that time frame.

They may not have recovered all of those lost profits, which it's very difficult to make future investments.

Russell Luff: People have been trying without too much success to date. And, you know, I think there's another couple of things that go on here as well, that we are an innovator, and we keep moving faster and faster, working with our customers to make sure they have the most up-to-date solutions that make them competitive, whereas typically, domestic tool manufacturers get left behind. So, once a technology starts to plateau, then that's when they get, that's when, you know, foreign vendors get run over. And, you know, I saw that happen in a couple of other areas.

You are not making a substantial amount of money.

What am I missing.

Well I think right now they have as you said they've been throttling capacity to improve pricing, which has improved.

Converting their capacity to HBM, which is higher asps and higher margin for them.

And also reduces the number of chips on a on a wafer due to the die size change and they are converting to the next shrink which gives them better performance and ultimately a lower lower cost point, so theyre doing all the things that we normally see them do.

As they get to the bottom of the cycle and prepare for the next turnaround.

Operator: Got it. Thank you. I'll jump back to you, Q. One moment for the next question. The next question comes from David Duley with Steelhead Securities. Your line is open.

The next turnaround has.

Demand drivers in AI that are very DRAM intensive.

For higher Asps type.

Type of parts.

And then we will drive.

Consumer products, and so forth that still need the.

Operator: Thank you. Um, I was curious about the memory recovery you talked about in 2024. I think you mentioned that memory would.

The lower costs lower performance items. So we see it is no different than any other cycle.

They are investing in the next technology too.

Right now.

Doug Lawson: 100% of revenue this year. And I think historical peaks were around 20%, but that was split evenly between NAND and DRAM. And I think you're talking about 10%. It's mostly DRAM, to elaborate a little bit about the breakout of revenue there and, you know, if it is going to be 10% DRAM, that's pretty close to historical peaks, I think, talk about what the drivers are behind that. Yeah, Dave.

And then they'll add capacity to meet the growing demand of those end markets, which will be AI consumer markets.

Automotive industrial and then.

Moving out to Iot and edge computing type.

Type of.

Environment. So so I don't think it's any different Christian than any other cycle that we've seen from memory.

Okay, great no other questions. Thank you.

One moment for the next question.

Yeah.

The next question comes from Dukson, Zhang with Bank of America. Your line is open.

Hi, good morning, Thanks for taking the question I have a 2025 question. So you reiterated the $1 3 billion in sales model target and that implies a 15% year over year growth for the system side.

Doug Lawson: So the number that we've got in the presentation is it'll be under 10%. So, you know, there's that. We're monitoring that very closely as the year goes on since it's a second half situation. The drivers for it, you know, are basically getting back to a point where we start to see wafer start additions by the memory companies on both DRAM and NAND. We expect DRAM to happen ahead of NAND, and we've seen a lot of our customers shift capacity over. We see shrinks happening that will allow them to get more bits out before they add capacity or add wafer starts.

You mentioned advanced logic in Japan, as some of the opportunities, but what other types of visibility do you have.

For power in general in mature markets in order to drive that growth. Thank you.

Well I think we see it.

In terms of market trends and then directly from customers.

Discuss their plans with US and then lastly on the area that you discussed.

Expansion of our footprint and so we do see opportunity in <unk>.

Doug Lawson: And then they'll start to respond to demand. And we expect demand drivers, like all the consumer and auto stuff as it goes back. AIPCs look like they could be a big driver of DRAM. Microsoft has said they're requiring 16 gigabytes per AIPC for Windows 12 and AIPCs.

Vance logic.

And we see opportunity in the Japanese market is two areas that <unk> has a lower penetration rate right now. So so we do expect to grow those.

The 2025 number is probably more driven though by the overall market recovery in memory in general mature, we expect as we've said that to really start off in the second half of this year and gained significant momentum as we go into 2025.

Doug Lawson: So there are a lot of good indicators that we'll start to see capacity additions as we get towards the second half and end of this year, driving into 2025, where we expect it to be a very good year for DRAM. NAND, we don't expect to really see a lot of activity until we get into the beginning of next year. And so that's going to be driven by storage, both on the device and in the data center. One moment for our next question. The next question comes from Charles Scherr with Needham & Company. Your line is open. Hi, good morning.

There's a lot of really good long term trends for this industry right now.

2025 and into 'twenty six look like they could be very very good years. So.

We have good confidence based on the market trends in base based on our customers and what they're saying and based on the <unk> position in the Purion product family right now.

Got it onto those growth markets that you talked about so advanced logic I mean is there any way to quantify or estimate how much growth that would be because you're obviously not guiding but it's been at a low single digit run rate for a couple of years.

Doug Lawson: Maybe I want to start with some of the commentary around the expected recovery of the general mature market in the second half of the year. So can you kind of remind us what kind of customers, what kind of applications you've considered as the general mature, and how do investors get comfortable with a second half recovery of that part of the market? Because the CapEx announcement from mature foundries or some of the larger analog mixed signal IDM, I assume the microcontroller part of the CapEx is considered the general mature. Isn't very positive, and how do people get comfortable with that outlook for 2024? Thanks, that's my first question. Okay, so, the general mature recovery is likely to be very much tied to, you know, the economic recovery or, you know, the perception of economic recovery, I guess. And so it's consumer products, automotive, industrial type products, you know, in terms of device types, microcontrollers, analog, RF, you know, all the little widgets that go into, you know, all these devices that we buy.

And you've talked about growth in this area for a while so how do you assure us that you do have some wins coming in and growth is expected there.

Okay. Good question so.

Just a couple of things so I was going to add to what Doug said about a $1 three there's not a lot of advanced logic or Japan baked into the $1 3 billion.

I think those of you have noticed long enough that unless we can see a clear path, we are not going to actually go out state.

This model and I think we've also said as Doug indicated there is multiple path to get to this.

Going off to advanced logic I think.

It's a.

When we work with customers in advanced logic. It has to go through R&D.

It's a time consuming process.

To get qualified as a design tool of record to then get into the higher volume process tool of record.

We have now managed to a physician at Dragon School at two locations now one's an advanced Institute, where we think we're going to get significant learnings and the second one is actually in advanced logic customer we've placed that dragon in their R&D region. So we are making penetrations in those pen.

Doug Lawson: Another, you know, strong place for AI will be on the Internet of Things. We do expect that, as AI takes off, it will drive another wave of IoT devices. Since AI is, you know, a data hog, we expect that to happen. So, we do, we do see activity, you know, and our customers talking about the second half, you know, adding capacity and building. So, and I think if you listen, as we listen to our customers directly and, and in their public announcements, you know, most are continuing with a reasonably healthy capital plan. Got it.

<unk> are always going to be a key technical driven it's not going to be a cost of ownership play it has to be a differentiation play. So we're working.

With a lot of different partners to work out how we can differentiate our technology in their application, obviously that goes to so really valuable customer problems.

Understood.

And as a follow up onto Opex. So in Q1, I think the implied Opex guide is roughly $60 million.

And obviously, it's a little bit of.

Of an increase sequentially despite sales coming down so how should we think about the run rate from here.

The calendar 'twenty four.

Doug Lawson: So the second question is about China. I think I heard you talking about China probably contributing 40 to 60% of revenue this year. The last year's number seems to be a little bit below that. So one, it almost feels like you're guiding to Chinese revenue to be up meaningfully this year. What's driving that?

225% as well because the 25 at $1 3 billion, 19% of sales that's about.

200 <unk>.

45 ish million.

You're kind of already at that level.

Yes, so as we think about Opex going forward, we've talked historically and we mentioned it in the prepared remarks today that we are going to continue to make investments in incremental R&D and so youll see that some of the increased period over period has to do with incremental investments in our research and development team here.

Doug Lawson: And, Did some of the push out by the non-China customers actually help you like backfill some of the slots for the Chinese customers whose orders may be parked a little bit further down the road, let's say 2025? So really just want to understand the dynamics here. Is that organic underlying Chinese demand growth this year?

In addition to that we're going to kind of continue to try to hold our SG&A expenses relatively flat. We believe we built a base here that can support the type of growth that we see coming in the future.

Doug Lawson: Or is there a little bit of a put-and-takes in terms of the manufacturing slots going up? Thank you. Okay, so no, there is continued, you know, strong demand, especially for power and especially silicon carbide in the Chinese market. And so that's where most of the activity is, especially through the first half of 2024. And then, you know, we would expect the general foundries, you know, general mature foundries worldwide would then, you know, start to recover. And, you know, I think that's consistent with, you know, all of their public releases over the last couple of weeks. And so it's, it's less to do with movement, creating slots or whatever for China and more to do with the activity and the booking level and the backlog, you know, that we're seeing from Chinese customers.

So we're going to tightly manage expenses around our SG&A over the course of the year to maintain.

Those at the call Doug.

Exit rate.

2020 for 2023.

Absent normal.

Salary appreciation and other types of cost changes that would flow through our process.

Largely speaking youre going to see that number as a percentage of sales come down.

As the volumes increase over the back half of the year.

As we move to 2025, we will still be very judicious in terms of making sure that we've got the type of efficiency that we want out of our SG&A organization, while continuing to make investments in research and development.

Sounds great. Thanks.

Yes.

One moment for the next question.

The next question comes from Mark Miller with the Benchmark Company. Your line is open.

Mark Your line is now open.

Thank you Hi, just a housekeeping issue what was capital spending.

For the quarter.

$10 million in the quarter and approximately $20 million for the full year.

Alright, and your cash from operations was $65 $6 million is that correct.

Doug Lawson: Thanks. Lastly, definitely, the first half numbers are expected to be a little bit lower compared with the second half 23 is the mix in the first half 24 you're expecting something so similar, like 60% power within that 60% power, maybe. I don't know, maybe somewhere between 30% to 50% of the total being silicon carbide. Any color would be great.

Yeah in the quarter yet.

Thank you.

One moment for the next question.

Yes.

The next question comes from David Duley with Steelhead Securities. Your line is open.

Thanks.

On gross margins you've talked about.

Revenue being flat for the year with second half recovery.

Where should we think about gross margins kind of exiting 2024 or just the progression throughout the year.

I'm, just trying to kind of quantify when you talk about margins being up how much.

Yeah, again, we're not going to provide.

Direct guidance on where the expectations are for margins over the course of the year right now what we're forecasting given the contribution of higher <unk> volumes over the period as well as some system mixes, we do see it being up over.

Doug Lawson: Yeah, so, Charles, for the year, 60% of our systems revenue will be power. 50% of our total revenue, or around 50%, will be silicon carbide. The remainder is mixed between the general mature image sensors and DRAM, primarily. And so we would expect that we would see higher percentages of power in the first half, and then we would start to see the other markets come in in the second half and contribute and change the percentages. Thanks. One moment for the next question. The next question comes from Christian. This is Mary Schwab with Craig Hollum Capital.

2020 threes.

Gross margin overall.

Okay.

What was the reason behind the strong bookings in the quarter I think there were $236 million I think that was the number last quarter was like 198 or.

Something like that.

What were the key end markets and applications that drove the increase in bookings.

Yes.

It's silicon carbide in China.

That's the big driver.

Okay.

Okay. Thanks.

Alright.

One moment for the next question.

The next question comes from Craig Ellis with B Riley Securities. Your line is open.

Russell Luff: Your line is open. Great, thanks for taking my question. I'm just curious what your guys' thoughts are on the, you know, unintended consequences of the U.S. government's limited advance in chip production in China, which has led to extremely strong investment in mature nodes. But now they've said they're going to look into maternal legacy chip production because, as China meaningfully increases its production of mature chips, it's leading to a possible, um, competitive situation for US-based companies selling similar Amy, what is the risk that they come back at some point this year and start making some semblance of restrictions on legacy chip? Semicab Equipment, which would obviously, 40 to 60% of your revenue. Oh, that could be a material risk. Yeah, Christian, I mean, we watch that very closely.

Thanks for taking the follow up guys.

I wanted to follow up on a messaging change that seems a little different than what we're hearing through last year and it's regarding <unk> this year and next year.

It seems like there's a more optimistic view about what upgrades and some other offerings that the company has developed can do for annual revenues in that area is that correct and you can can you provide any color on what specifically you're doing that is driving the growth that you would expect in <unk>.

2025, thank you.

Hey, Craig its Russell.

As you're aware.

Store base is growing really rapidly, particularly in terms of period.

<unk> has a very strong platform. So we are so as we look at a seasonally after market business. We're looking to focus on contracts and we're looking to focus on high value upgrades. So we are actively developing upgrades to add significant value for our customers. So they can that we so we could sell those in it.

Doug Lawson: You know, we don't expect that to happen on the mature nodes at this point, especially on the power side, which is, you know, where the strength is, especially in the first half. But it is something we watch very closely. So we can't predict the future of government actions there.

At this point at the cycle often what you see is that utilization starts to go back up then you see customers buying upgrades that can support increased capacity and then they start buying machine. So this is a perfect time to be working with that customers qualifying. These upgrades working with these upgrades and <unk>.

Russell Luff: So it's something we just have to monitor and react to. Great. And then on the, excuse me, on the big DRAM memory recovery and 25, you know, we've seen that every leading memory manufacturer significantly reduced production capacity and utilization of the equipment on hand, and then in DRAM, taking that equipment and moving it from DDR4 to DDR5. Now that the chips are available, the demand for that is greater, but, you know, the two people in Korea lost, you know, $15 billion making memories. 2023. It's going to take quite some time for them to get all their money back.

Building that part of our business out stronger.

Got it thanks Russell.

This concludes today's question and answer session and presentation. Thank you for your participation in today's conference you May now disconnect have a great day.

Okay.

[music].

Okay.

[music].

Russell Luff: So, you know, we've seen an improvement in pricing because of those actions. I'm just trying to understand why you think there would be a substantial increase in DRAM memory when, by that time frame, they may not have recovered all of those lost profits, which is very difficult to make future investments if you're not making a substantial amount of money. What am I missing?

Yeah.

[music].

Russell Luff: Yeah. Well, you know, I think right now, as you said, they've been throttling capacity to improve pricing, which has improved. They've been converting their capacity to HBM, which has higher ASPs and higher margins for them, and also reduces the number of chips on a wafer due to the die size change. And they are converting to the next shrink, which gives them better performance and ultimately a lower cost point. So they're doing all the things that we normally see them do, you know, as they get to the bottom of the cycle and prepare for the next turnaround.

Okay.

[music].

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Yes.

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[music].

Russell Luff: You know, the next turnaround has demand drivers in AI that, you know, are very DRAM intensive, you know, for higher ASP types of parts. And then we'll drive, you know, consumer products and so forth that still need the, you know, I'll call them the lower cost, lower performance items. So we see it as, you know, no different from any other cycle where they're investing in the next technology right now. And then they'll add capacity to meet the growing demand of those end markets, which will be AI for consumer markets, automotive, industrial, and then, you know, moving out to IoT and the edge computing type of environment. So I don't think it's any different, Christian, than any other cycle that we've seen from memory.

Okay.

Okay.

Yes.

[music].

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Yes.

[music].

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[music].

Russell Luff: Okay, great. No other questions. Thank you. One moment for the next question. The next question comes from Duxin Zhang with Bank of America. Your line is open. Hi, good morning.

Yes.

Okay.

Okay.

Yes.

[music].

Doug Lawson: Thank you for taking the question. I have a 2025 question. So you reiterated the 1.3 billion sales model target. And that implies 15% year over year growth for the system side. You mentioned advanced logic in Japan as some of the opportunities, but what other types of visibility do you have in your core power and general mature markets in order to drive that growth? Thank you.

Russell Luff: Well, I think we see it both in terms of market trends and then directly from customers as they discuss their plans with us. And then lastly, more on the area that you discussed, expanding our footprint. And so we do see opportunity in advanced logic, and we see opportunity in the Japanese market as two areas that Axcelis has a lower penetration rate right now, so we do expect to grow those.

Okay.

Russell Luff: The 2025 number is probably more driven, though, by the overall market recovery in memory and general maturity. We expect, as we've said, that to really start off in the second half of this year and gain significant momentum as we go into 2025. You know, there's a lot of really good long-term trends for this industry right now that make 2025 and into 26 look like they could be very, very good years. So we have good confidence based on the market trends and based on our customers and what they're saying and based on the Axcelis position and the Purion product family right now. I got it.

Okay.

Okay.

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[music].

Russell Luff: On to those growth markets that you talked about. So Advanced Logic, is there any way to quantify or estimate how much growth that would be? Because you're obviously not guiding, but it's been at a low single-digit run rate for a couple years.

Alright.

Yes.

Okay.

Yes.

Okay.

Sure.

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Sure.

[music].

Russell Luff: And you've talked about growth in this area for a while. So how do you assure us that you do have some winds coming, and growth is expected there? Okay, good question. So just a couple things. So I was going to add to what Doug said about the 1.3. There's not a lot of advanced logic or Japan baked into the $1.3 billion.

Okay.

Sure.

Yes.

Okay.

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Okay.

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[music].

Russell Luff: I think those of you have known us long enough that unless we can see a clear path, we're not going to actually go out and state this model. And I think we've also said, as Doug indicated, there are multiple paths to get to this. Going off of advanced logic, I think it's a When we work with customers on advanced logic, it has to go through R&D. That is a time-consuming process to get qualified as a design tool of record to then get into the higher volume process tool of record. We have now managed to position a Dragon tool at two locations.

Okay.

Yes.

[music].

Okay.

Okay.

Russell Luff: One is an advanced institute where we think we're going to get significant learnings, and the second one is actually an advanced logic customer. We've placed that Dragon in their R&D region. We are making penetrations, and those penetrations are always going to be technically technically driven. It's not going to be a cost of ownership play. It has to be a differentiation play.

Okay.

Okay.

Yes.

Yes.

Okay.

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Yes.

[music].

Yes.

Yes.

Russell Luff: We're working with a lot of different partners to work out how we can differentiate our technology in their applications. Obviously, the goal is to solve really valuable customer problems. And as a follow-up on OPEX, so in Q1, I think the implied OPEX guide is roughly $60 million, and obviously, it's a little bit of an increase sequentially despite sales coming down. So how should we think about the run rate from here for the calendar 24 and on to 25 as well because 25 at 1.3 billion, 19 percent of sales, that's about two hundred percent. $45-ish million. And I think you're kind of already at that level.

Yes.

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[music].

James G. Coogan: Yeah, so as we think about OPEX going forward, you know, we've talked historically, and we mentioned it in the prepared remarks today that, you know, we are going to continue to make investments in incremental R&D. And so you'll see that some of the increased period over period has to do with incremental investments in our research and development team here. In addition to that, we're going to kind of continue to try to hold our SG&A expenses relatively flat. We believe we have built a base here that can support the type of growth that we see coming in the future. And so, you know, we're going to tightly manage expenses around our SG&A over the course of the year to maintain, you know, those at the exit rates of 2024 and 2023.

Yes.

[music].

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Yes.

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[music].

James G. Coogan: You know, absent, you know, normal salary appreciation and other types of cost changes that would flow through our process. Largely speaking, you're going to see that number as a percentage of sales come down as volumes increase over the back half of the year. And as we move to 2025, we'll still be very judicious in terms of making sure that we've got the type of efficiency that we want out of our SG&A organization while continuing to make investments in research and development. Sounds great!

Thank you.

Okay.

Sure.

Yes.

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[music].

Yes.

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James G. Coogan: Thanks. Yep. One moment for the next question. The next question comes from Mark Miller with the Benchmark Company. Your line is open. Mark, your line is now open. Thank you. I just have a housekeeping issue.

Yes.

Okay.

Okay.

[music].

Yes.

Yes.

Yes.

Okay.

James G. Coogan: What was capital spend for the quarter? It was $10 million in the quarter and approximately $20 million for the full year. And your cash from operations was $65.6 million, is that correct? Yeah, in the quarter, yep.

Okay.

Yes.

Okay.

Okay.

Okay.

Thanks.

Okay.

James G. Coogan: One moment for the next question. Thank you. The next question comes from David Duley with Steelhead Securities. Your line is open.

Yes.

[music].

Okay.

Sure.

Okay.

Okay.

Okay.

James G. Coogan: Thanks. I had a question on gross margins. You've talked about revenue being flat for the year with the second half recovery. Where should we think about gross margins?

Okay.

Okay.

Okay.

Okay.

Okay.

[music].

James G. Coogan: Exiting 2024 or just a progression throughout the year, trying to kind of quantify, talk about margins being up. Yeah, again, we're not going to provide direct guidance on where the expectations are for margin over the course of the year. Right now, what we're forecasting, given the contribution of higher CS&I volumes over the period, as well as some system mixes, we do see it being up over 2023's gross margin overall. Okay, and what was the reason behind the strong bookings in the quarter? I think there were 236 million.

Okay.

[music].

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Doug Lawson: I think that the number of last quarter was like 198 or something like that. What were the key markets and applications that drove the increase in bookings? Yeah, it's silicon carbide in China. That's the big driver. All right. One moment for the next question. The next question comes from Craig Ellis with B Raleigh Securities. Your line is open.

Okay.

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[music].

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Yes.

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Russell Luff: Thanks for taking the follow up, guys. I wanted to follow up on a messaging change that seems a little different than what we heard through last year, and it's regarding CS&I this year and next year. It seems like there's a more optimistic view about what upgrades and some other offerings that the company has developed can do for annual revenues in that area. Is that correct? And can you provide any color on what specifically you're doing that is driving the growth that you'd expect in 2024 and 2025? Hey Craig, it's Russell.

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Russell Luff: So, you know, as you're aware, our installed base has grown really rapidly, particularly in terms of period, and that has a very strong platform. So, as we look at our CS&I aftermarket business, we're looking to focus on contracts, and we're looking to focus on high-value upgrades. So, we are actively developing upgrades that add significant value for our customers, so we can sell those. At this point in the cycle, often, what you see is, you know, utilization starts to go back up, then you see customers buying upgrades that can support increased capacity, and then they start buying machines. So, this is a perfect time to be working with our customers, qualifying these upgrades, working with these upgrades, and, you know, building that part of our business out stronger.

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Yes.

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Russell Luff: Got it. Thanks. This concludes today's question and answer session and presentation. Thank you for your participation in today's conference. You may now disconnect. Have a great day. Phone Ringing Phone Ringing Phone Ringing, www.axcelis-rc.com www.axcelis-rc.com www.axcelis-rc.com www.axcelis-rc.com www.axcelis-rc.com www.axcelis-rc.com www.axcelis-rc.com ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? www.axcelis-rc.com www.axcelis-rc.com www.axcelis-rc.com ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? www.axcelis-rc.com www.axcelis-rc.com www.axcelis-rc.com www.axcelis-rc.com www.axcelis-rc.com, ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?

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