Q4 2024 Axcelis Technologies Inc Earnings Call
Good day ladies and gentlemen and welcome to the Accelus Technologies call to discuss the company's results for the fourth quarter and full year 2024.
Dede: My name is Dede, and I will be your coordinator for today. I would now like to turn the presentation over to your host for today's call, David Ryzhik, Senior Vice President of Investor Relations and Corporate Strategy.
David Ryzhik: Thank you, operator. This is David Ryzhik, Senior Vice President of Investor Relations and Corporate Strategy. And with me today is Russell Low, President and CEO, and Jamie Coogan, Executive Vice President and CFO.
David Ryzhik: If you have not seen a copy of our press release issued yesterday, it is available on our website. In addition, we have prepared slides accompanying today's call, and you can find those on our website as well.
David Ryzhik: Playback service will also be available on our website as described in our press release.
David Ryzhik: Please note that comments made today about our expectations for future revenues, profits, and other results are forward-looking statements under the SEC's
David Ryzhik: 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.
David Ryzhik: Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements.
David Ryzhik: Now I'll turn the call over to President and CEO Russell Low. Russell?
Russell Low: Good morning and thank you for joining us for our fourth quarter and full year 2024 results earnings call.
Russell Low: Beginning on slide number 3, we exit the year on a solid note with revenue for the 4th quarter at $252 million and earnings per diluted share of $1.54.
Russell Low: Revenue was slightly better than our expectations. A strong demand for our aftermarket CS&I sales partially offset the anticipated sequential decline in system sales.
Russell Low: This strength in our CSI business was the primary driver behind our better than expected margins and EPS in the quarter.
Russell Low: Within our system's sales, a sequential decline in power and image sensors was offset by an improvement in general mature and memory sales.
Russell Low: Our backlog declined during the quarter but remained at healthy levels. We also saw bookings stabilise which came in flat on a sequential basis.
Russell Low: Turning to slide 4, in the quarter as well as for the full year, sales and mature load applications remain the lion's share of our business, in particular power and general mature.
Russell Low: Now let me review Shipped System Revenue by NMarket and I will begin with Mature Nodes on slide 5.
Russell Low: Revenue from our power market was 51% of our MIPS, down sequentially from 57% in Q3 2024.
Russell Low: Shipments of silicon carbide applications moderated slightly in the fourth quarter. However, on a full year, 2024 basis, our system sales of silicon carbide grew approximately 6% year-over-year.
Russell Low: Over the past several years, Xcelix has established itself as a market and technology leader in iron implantation for silicon carbide, one of the defining process steps in device manufacturing.
Russell Low: We were first to identify this emerging opportunity several years ago and quickly leveraged our Purion platform to drive necessary innovation. This included the development of a differentiated medium-current implanter followed by an extension of capabilities to our Hindi tools.
Russell Low: close collaboration with customers to understand their production needs and finally we launched our High Current Implant to optimize the silicon carbide.
Russell Low: This all translated into our systems shipments to silicon carbide growing from approximately $8 million in 2020 to over $300 million in 2024.
Russell Low: And while we expect revenue from Silicon Carbide to decline sequentially in the first quarter of 2025, as customers undergo a digestion period, the fundamental long-term drivers remain intact as we expect adoption of Silicon Carbide to continue to increase, particularly as costs come down and new applications become economically viable.
Russell Low: A case in point, we expect the EV industry to transition from 400 volt to 800 volt architecture to greatly improved charging times and this will require silicon carbide.
Russell Low: We're also closely monitoring power applications in the data center, where the demand for energy is rising rapidly and silicon carbide can be used to deliver more power, more efficiently.
Russell Low: We are deeply embedded with customers on their technology roadmaps, which include the transition from 150mm to 200mm.
Russell Low: wafer size, the transition from planar to trench MOSFET, the transition from trench to superjunction, and some customers are even exploring wafer splitting applications to improve yield and lower cost.
Russell Low: In all of these cases, Xilis is a key enabler, and we believe the need for higher performance devices with higher yield and lower cost will only unlock new opportunities for silicon carbide in power applications. We believe we're in the early stages of the silicon carbide market growth.
Russell Low: Turning to Silicon IGBT, system sales declined in the fourth quarter and we anticipate this market to continue to soften in 2025 as our customers continue to work on managing capacity amidst the slow than expected industrial auto recovery.
Russell Low: In General Mature, revenue increased sequentially in the fourth quarter led by investments in China while other regions remained muted.
Russell Low: As a reminder, General Mature represents a broad array of semiconductor applications requiring a 28nm process node or above. This includes RF, analog, microcontrollers and other semiconductor applications.
Russell Low: We continue to monitor key end markets, mainly auto, industrial and consumer, which generally are drivers of our general mature segment.
Russell Low: Given the recent industry commentary of a slower than expected recovery in the auto and industrial markets, along with an anticipated digestion of mature node capacity in China, we expect our general mature revenue to decline sequentially in the first quarter.
Russell Low: Over the long term, as inventory levels normalise and demand recovers in key end markets, we anticipate a general mature business to benefit accordingly as iron implant intensity is particularly high for process nodes at 28nm and above.
Russell Low: Turning to image sensors, as we anticipate its revenue moderates in the fourth quarter following a large customer order in China in the third quarter.
Russell Low: Image sensor production will continue to lie in a large part on smartphone volumes, but also to a lesser extent on auto, as we are seeing increased camera content in autos. As we think about the first quarter, we expect image sensor revenue to be flattish on a sequential basis.
Russell Low: Turning to slide 6, in Advanced Logic we shipped a system to a new Advanced Logic customer in the fourth quarter following a previous announced order received in the second quarter and we had discussions for a follow-on order.
Russell Low: We continue to work actively with customers as well as with a leading European advanced logic research centre in understanding next-generation advanced logic applications for ion implantation.
Russell Low: Growing footprint within the advanced logic market is a strategic goal there, which is a multi-year initiative and we are still in the relatively early stages.
Russell Low: Moving to memory, as we anticipated, we saw a sequential improvement in sales to the memory market, specifically for DRAM.
Russell Low: Looking ahead to the first quarter, we expect sales and memory to be relatively consistent on a sequential basis, entirely in DRAM. In the end, we believe customers have ample capacity given current demand trends and expect this to remain the case in 2025.
Russell Low: As we think about our memory business over the long term, we are quite excited about the opportunity, both in DRAM and LAN, given the following drivers. One, growth in AI and its structural impact on high-bandwidth memory, which is absorbing DRAM capacity.
Russell Low: In fact, not only are AI server unit volumes expected to grow significantly, but HBM content per server is also expected to grow, enabling a multiplier effect on HBM capacity.
Russell Low: 2. AI's impact on new data creation, particularly in forums whereby new data sets need to be manipulated and stored, which we believe will be a tailwind for DRAM and NAND.
Russell Low: 3. Riding memory and storage content in smartphones, servers and PCs as devices need to process and store more data. 4. Device volume growth resulting from improved macro and potential refresh cycles.
Russell Low: We believe that the confluence of these catalysts translates into an attractive long-term market for Excellus.
Russell Low: And while our market recovery is instrumental to any growth in our memory business, we are not standing still. We are focused on penetrating new customer opportunities within memory where we historically had a low share. And I'm pleased to say we've had some initial progress in this regard.
Russell Low: Turning to slide 7, as we look back on 2024, I'm proud of how our team executed amidst this dynamic demand environment.
Russell Low: The full year we saw continued growth in sales of silicon carbide while silicon IGBT softened considerably.
Russell Low: In memory, demands remained soft as customers navigated through lower utilizations.
Russell Low: Despite this, we focused on what we can control, and this included working close with our customers to enable their technology production roadmaps, placing evaluation units into the field, seeding new opportunities.
Russell Low: Continuing to invest in our R&D to maintain our robust pace of innovation, and maintaining strong margins due to favourable mix and cost control. In fact, despite a year-over-year decline in revenue, we grew our gross margins by more than 100 basis points.
Russell Low: On slide 8, let me now discuss some of our initial perspectives on 2025. We anticipate overall revenue in 2025 to decline on a year-over-year basis.
Russell Low: As we think about the trends by segment, we expect a digestion of capacity in the power and general mature markets, primarily in China. In memory, we expect year-over-year growth in 2025, specifically tied to DRAM investments while NAND remains muted.
Russell Low: And we expect modest revenue from our initiatives in advanced logic, consistent with our expectations of being in the early stages of a multi-year growth effort.
Russell Low: In summary, while the near-term demand backdrop is muted, the fundamental long-term drivers of ad business remain intact.
Russell Low: Namely, long-term secular growth in power, particularly silicon carbide, which we believe will continue to proliferate with an existing and new application given the world's insatiable demand for more power and greater efficiency.
Russell Low: Market Recovery and Memory in General Mature, Share Gain and Advanced Logic, and Geographic Expansion into Japan, which is a sizable market for island plantations where we have relatively low penetration.
Russell Low: As a result, we are taking action today to increase our technology engagement with customers to help accelerate their roadmaps.
Russell Low: On that note, before I hand over to Jamie, as you can see in slide 9, I'm particularly proud of the Excellus team and the recognition we've received from customers in 2024.
Russell Low: We received 22 customer awards covering overall supplier excellence to support safety, health and others and this represents a significant increase compared to 2023.
Russell Low: The core of our culture at Sales is customer first, then company, and then sales, and this is a shining endorsement of how we operate.
Russell Low: With that, let me turn the call over to Jamie for a closer look at our results and outlook. Jamie?
Jamie: Thank you, Russell, and good morning, everyone. I'll first start with some additional detail on our fourth quarter and full year results before turning to our outlook for Q1.
Jamie: Starting on slide 10, fourth quarter revenue was 252.4 million dollars with systems revenue at 187.4 million dollars and CS&I at 65 million dollars.
Jamie: This was Above Our Outlook, largely driven by better-than-expected CS&I sales.
Jamie: As a reminder, CS&I is driven by our installed base and represents consumables, spares, services, and upgrades.
Jamie: In the quarter, we saw stronger upgrade activity as customers are looking for ways to enhance their technology within the same factory footprint. We also executed well on service contracts.
Jamie: From a geographic perspective, China remained our strongest region at 49% of total shipped system sales, with the sequential decline quarter over quarter primarily due to an anticipated decline in image sensor falling a large order in the third quarter, as well as a moderation in sales to the power market.
Jamie: On the other hand, we saw system sales to Korea improve to 11% in the fourth quarter compared to only 1% in the third quarter, mainly due to improved shipments and memory.
Jamie: Bookings in the fourth quarter were 84.5 million dollars or flat on a sequential basis, while backlog exiting the year was 646 million dollars.
Jamie: On a full-year basis, 2024 revenue totaled $1.02 billion, consisting of $783 million in systems revenue and $235 million in CS&I revenue.
Jamie: Turning to slide 11 for additional detail on the fourth quarter and full year results.
Jamie: Gross margins in the fourth quarter was 46%, which exceeded our outlook of 42.5%, driven primarily by stronger-than-expected CS&I revenue, which carries higher than corporate average margins.
Jamie: Operating expenses totaled $61.7 million, slightly above our outlook of $60 million, partly due to higher variable compensation associated with our stronger performance.
Jamie: As a result, operating profit was $54.5 million, reflecting a 21.6% operating margin.
Jamie: We generated approximately $4.1 million in other income, a sequential decline due to an FX gain we saw in the third quarter. And our tax rate in Q4 was 15%, in line with our outlook.
Jamie: Our weighted average diluted share count in the quarter was 32.5 million shares.
Jamie: This all translates into diluted earnings per share of $1.54, which exceeded our outlook of $1.25.
Jamie: For the full year, we delivered gross margins of 44.7%, a 120 basis point increase year over year, despite lower revenue volume. This was due to favorable mix and the continued focus on cost control.
Jamie: Operating expenses for the full year of 2024 were $244 million.
Jamie: And operating income was $211 million, translating into an operating margin of 20.7%. Our full-year tax rate was 13%, and our full-year diluted earnings per share were $6.15.
Jamie: Moving to our cash flow and balance sheet, we generated $8 million of free cash flow in the quarter. The lower cash flow in the quarter was primarily due to the timing of cash receipts associated with deliveries in the fourth quarter.
Jamie: In the quarter, we repurchased $15 million of shares and exited the fourth quarter with $130 million remaining in share repurchase authorization.
Jamie: For the full year, we repurchased $60 million in shares, which amounted to 47% of our free cash flow.
Jamie: We exited the year with a strong balance sheet consisting of $571 million of cash, cash equivalents, and short-term investments on hand, with no debt. This provides a solid foundation for our capital allocation strategy, which falls into three main categories.
Jamie: First, continued organic investment. Our strong cast position allows us to continue to invest in product innovation despite the near-term digestion in some of our end markets.
Jamie: While the semi-industry has had many cycles in its history, the overarching trend is one of strong, secular growth, and the current environment is a great opportunity to increase our engagement with our customers on their technology roadmaps as we work to best position the company as and when markets return to growth.
Jamie: Second, our strong cash position allows us to continue to execute on our buyback program, which more than offsets the dilution from equity compensation.
Jamie: For historical context, over the past five years, we've repurchased more than $200 million in shares.
Jamie: Third, we continue to evaluate opportunities for inorganic growth. We remain disciplined in our approach and consider opportunities only if they deliver sustainable long-term shareholder value creation.
Jamie: Before I move to our outlook, I'd like to discuss a few reporting changes beginning with our first quarter 2025 report.
Jamie: Following a thorough review of our peers, we've decided to add non-GAAP measures as part of our quarterly reporting process. We believe this enhanced layer of disclosure will improve transparency on the underlying performance of the business.
Jamie: This will also help us align with the practices of our peer group, which can result in an easier benchmarking process by our analysts and investors.
Jamie: Second, starting in the first quarter we will begin including image sensor revenue.
Jamie: as part of our general mature category. Given the relatively small size of image sensor business, we believe it's a logical fit within our general mature category, which already consists of a broad array of applications. We believe this further simplifies our disclosures.
Jamie: With that, let me discuss our first quarter outlook on slide 14.
Jamie: We expect revenue in the first quarter of approximately $185 million. The sequential decline is primarily a result of lower systems revenue from China customers for the power and general mature applications, as well as a seasonal decline in our CS&I revenue.
Jamie: As we think about the balance of the year, we expect revenue in the second quarter to be relatively consistent with the first quarter. And based on our discussions with customers and our view into our current backlog, we anticipate that revenue will improve slightly in the second half compared to the first.
Jamie: Turning to gross margins, we expect first quarter gross margins to be approximately 40%. The primary driver of lower gross margin is lower overall volumes, as well as anticipated mix.
Jamie: While gross margin in any one quarter can be dictated by a variety of factors, we expect gross margin in the first quarter to be the low point of the year, and we anticipate a gradual sequential improvement resulting from mix and our continued cost controls flowing through over the balance of the year.
Jamie: We expect first quarter operating expenses of approximately $63 million, with a slight sequential increase resulting from the seasonal increase in payroll taxes.
Jamie: For the full year, we anticipate operating expenses to be relatively flat on a year-over-year basis as we continue to manage our cost structure with discipline while ensuring we are making the necessary investments to capture the long-term growth opportunities that lie ahead.
Jamie: We expect our tax rate for the first quarter and the full year to be approximately 15%. This all translates into an estimated diluted earnings per share in the first quarter of approximately 38 cents.
Jamie: Finally, on January 10th we filed an AK discussing our preliminary review of the new restrictions put in place by the U.S. government on December 2nd, 2024.
Jamie: At that time, we estimated an approximately $20 million to $50 million impact to our revenue to China in 2025.
Jamie: We now estimate the full-year impact to be closer towards the low end of that range, and this is factored into our outlook.
Jamie: In summary, we are pleased with our performance in 2024. Despite a decline in revenue, we were able to deliver higher gross margins, generate solid free cash flow, return capital to shareholders via our existing $200 million stock buyback program.
Jamie: and exit the year with a stronger balance sheet than we did coming into it.
Russell Low: With that, let me hand the call back to Russell for closing remarks. Russell?
Russell Low: Thank you, Jamie. We exit 2024 on a strong note and are focused on capturing the growth opportunities that lie ahead.
Russell Low: We are investing in pipe innovation, managing our costs and working closely with customers on their technology roadmaps, which we believe will help put us in an even stronger position for the next upturn.
Russell Low: In closing, I want to thank our customers, employees, shareholders and partners for their continued support and trust in Excellus.
With that, operator, we are ready to take your questions.
Speaker Change: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.
Russell Low: To withdraw your question, please press star 11 again. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from Charles Shee of Needham and Company. Your line is open.
Speaker Change: to Q2, but what are some of the factors you are seeing that could get your second half slightly higher than the first half? That's the first question, thank you.
Russell Low: Yeah, hi Charles, it's Russell. Thanks for your question. So, you know, I think, you know, why do we believe the second half is going to be stronger than the first half? So this view is based on our backlog.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.K. and Australia.
Speaker Change: Each and every one of the tools in the forecast now actually belongs to a project, a customer project.
Speaker Change: With the turn of the year, customers have put their budgets in place.
Speaker Change: that begin to formalize and stabilize their plans for the year and that's allowing us to work with the customers to make sure we understand their shipping plan. So, you know, I would say that we have fairly good confidence that the second half is going to be better than the first half.
Speaker Change: Yeah, and just to add into that, you know, although we're not giving specific revenue figures for 2025, Charles, and, you know, as I said in the prepared remarks, we do expect a slight uptick.
Speaker Change: in the second half of 25. But again, all the factors Russell just mentioned, our backlog, the customer conversations, it doesn't take a whole lot of incremental systems for us to sort of be in and around that $800 million number for the full year period.
Speaker Change: This is a cycle. We've been through many, many cycles. So, you know, we do expect the cycle to disappear, start to see growth again. And, you know, we'd like to think that 2026 will be a growth year for us as well. We'd like to see the second half of 25 be better than the first half and we'd like to see some of that strength continue into 2026.
Speaker Change: Thanks for walking us through a few of the market assumptions behind the outlook.
Speaker Change: Maybe another question, maybe this is not a big part of the business, I do want to ask about memory.
Speaker Change: It sounds like you guys still think a vast majority of the memory revenue in 2025 is going to come from DRAM, but over the course of the last couple weeks we did hear a little bit more positive
Commentary from some of your peers on a man
Speaker Change: side of the spending, but sounds like you're not expecting a pickup in NAND. Wonder if this is still a difference between Greenfield versus Node Upgrade or
Speaker Change: Well, maybe there's some hope and maybe at some point you're going to see some upside in NAND. I just want to get your thoughts on that.
Speaker Change: Right, so we do believe that NAND is still going to be very muted in 2025, so yes, you're correct. What we're seeing in 2025, which, yeah, we are seeing an improved memory situation in 2025 relative to 2024, albeit 2024 with a low base.
Thinking specifically about NANDs, we only sell more implanters.
Speaker Change: to memory in general, both DRAM and NAND, when they expand the number of wafers out.
Speaker Change: So, if they change the technology node, and in terms of NAND, they put more and more layers on, that might be great for depth and etch, it's not really helping the number of wafers out. So, right now, I'd say that, you know...
Speaker Change: Customers in the quiet times, they use that time to do node changes, and those node changes may drive some revenue to our peers, but until we start to see more capacity, and bear in mind, a lot of these customers do have actually capacity planned, but until they start filling those new factories, we won't start to see the benefits of that.
Speaker Change: Got it. Maybe a last question about export control. I recognize some of the expected the China weakness probably as
has very little to do with export control, but...
Speaker Change: but you are actually seeing potentially the impact that could be at low end of your previously guided range.
Speaker Change: I wonder what was the reason for that, and what do you see, why you...
Speaker Change: feel like you are able to actually ship some of the, I don't know if it's a product or a service, but that you are able to sell a little bit more than you thought.
Speaker Change: Yeah, no, Charles, thanks for the question on that. In the EK that we prepared, you know, we ultimately, you know, that was a preliminary estimate based on our, you know, review of the rules. And out of an abundance of caution, we included some system shipments in that number to build us up to the high end. So you may recall the low end represented.
sort of the CS&I impact.
Speaker Change: and the high end included some incremental systems that could be at risk based on the interpretation of the rules. Since then, we've received some incremental information and data that provides confidence in our ability to be able to deliver on those system shipments, which is why we're now predicting the impact to be closer to the low end of that range. And that low end of the range has already been baked into our guidance for the full year.
Thank you.
Thank you.
Speaker Change: Our next question comes from Craig Ellis at B Reilly Securities. Your line is open.
Yeah, thanks for taking the question, and congratulations on...
Speaker Change: 2024 Esquire's Margin Performance Guides. I wanted to start just focused on
some of the near-term dynamics so
Speaker Change: The first quarter would be a bottom for the digestion that's occurring, and alternatively, what might be indicating that that may play out more in the second quarter.
Speaker Change: and related to digestion, since power in general, mature digestion is mostly in China. Does that mean there are some more positive things going on in other geos or just an easier base coming off of the second half of last year?
You know
Speaker Change: will be lower than the second half. We haven't kind of broke it down into quarters at this this point.
Speaker Change: We do think that, you know, obviously there's a lot of digestion in mature technologies in China. That digestion isn't necessarily just...
Speaker Change: over supply. In some cases, it's getting to grips with the technology, ramping, and making sure the yield holds together. So as you know, China certainly has ambitions to be very self-sufficient. They're not close to that at this stage. So I think right now, really, it's all about kind of getting the technology under control before ramping.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE & SIPC, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com. All information on this website is purely information and should not be used as the sole basis for making financial decisions. The opinions rendered herein are those of the guests, and not necessarily those of Douglas Goldstein, Profile Investment Services, Ltd., or Israel National News.
It's been...
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host
Speaker Change: still actually holding together for 2025. And obviously you've heard about automotive and in general, IGBTs have been very soft, but I'd say in general, we're actually seeing
Speaker Change: positive spots from the U.S., from Europe, from Korea and other locations? Yeah, just to add into that, right, I guess each of the, based on our customer conversations and what we're hearing, right, each of them are at a different point in their investment cycle, you know, Craig, and so, you know, get some who are continuing to push ahead.
Speaker Change: You know, we think about this in the vein of silicon carbide, right, that we still have customers outside of China who are pushing ahead with their investments and building out capacity. We have others who are being a little bit more cautious in the spend of those CapEx dollars in 2025.
Russell Low: But that mix, as you noted, relative to where we were in 24, you know, 2025 outside of China, is still going to be relatively resilient, as Russell noted. You know, we are seeing a bit of weakness in that silicon IGBT market, you know, and so I think that the, you know, the level of digestion there is a little bit greater in the silicon IGBT space.
Russell Low: A smaller portion of the business for us coming into 2025 relative to where we had been historically.
Russell Low: and then generally speaking, memory is, again, looks like there's some, again, continued uptick relative to where we were in 2024. We do expect memory, specifically in DRAM, to be good for us.
Russell Low: Yeah, just kind of going to build on that, so we mentioned IGBT power is down, so when we look at...
Russell Low: our power business. In 2024, we were up in silicon carbide relative to 2023. And even into 2025, we believe that it's still going to be a resilient market for us.
Russell Low: So, you know, it's the silicon IGBT bit that is soft, the silicon carbide part, you know, it seems to be remaining resilient for us.
Speaker Change: That's really helpful color guys. And then Jamie, I wanted to follow up with some of the folio color that was provided.
Speaker Change: some color, not precise guidance, but some color on what the contours of gross margin and OPEX would look like, especially on the former. Does it look like 2025 can be a year where the business realizes another material gain in gross margin year on year? Thank you.
Thank you for joining us. Have a great day.
Speaker Change: Yeah, so coming into the quarter, we expect gross margins to be at the low point in Q1 here. There's some cost absorption flown through as well as mixed within the period. And, you know, a little bit lower CS&I is, you know, we saw some nice volumes in CS&I in the fourth quarter, Craig, specifically in the upgrade space as customers were going through and getting those throughput efficiencies and better utilizing the factory footprint they have. We, you know, that
Speaker Change: That is not uncommon for us to see, you know, sort of a little bit of a tick up in the fourth quarter as folks are going through their budgets for the full year and trying to sort of clear some of those budgets out and then stock up on the shelves. So we're going to see a little bit offset here in Q1 on lower CS&I mix.
Speaker Change: We are expecting memory to be a little bit higher in Q1 as well, which is going to add to some of that gross margin pressure. But ultimately, you know, the team does a really nice job of trying to control cost relative to volume. And as those plans go into place and continue, we do expect the margins to uptick throughout the course of the year, you know, given the mix and the volume that we see in the back half of the year.
Speaker Change: So we're going to use 25 really as an opportunity to continue to make those investments. And so, you know, OPEX is going to be slightly higher as we see RD&E.
our research, development, and engineering expenses.
Speaker Change: As the percentage of sales probably uptick relative to where they were in 2024, we're going to continue to make investments in that space. We want to make sure that we're positioned to meet those customer ramp cycles that we know are coming, just given the sort of transitory nature of what we believe is the current situation in the market.
and really...
Speaker Change: A nice little proof point on this is if you look back, it's like 2018, 2019, you know, 2019 was a down year for us. We maintained OPEX at similar and consistent levels to what we had in that 2018 timeframe.
Speaker Change: not predicting that we're gonna see the same level of growth, but in the periods that followed, we grew revenue by almost 300% coming out of 2019, given the fact that we positioned the business to be able to execute and hit the markets in the way that we needed to. So that's our plan on OPEX. As always, though,
Speaker Change: We'll manage cost, you know, if this seems to be longer than normal, we'll continue to look at our cost structure as appropriate and manage cost accordingly, you know, as we move forward, you know, if this seems to be more prolonged than it currently is.
Thanks for the granularity on those guys.
Thank you.
Thank you. Bye. Bye.
Speaker Change: Our next question comes from Jed Dorsheimer of William Blair. Your line is open.
Hi, thanks for taking my question.
I guess first one...
Speaker Change: If we look at the silicon carbide business, and we look at last year, you know, roughly about 60 tools,
Thank you.
Speaker Change: that you guys did, is China, as you're looking forward, is China still about half of, or was China roughly half of that? I'm just trying to gauge.
Speaker Change: as you look into 25, the total exposure. I know you talked about the 8K and around trade, but I'm looking in absolute terms what that exposure may look like. And then I have a follow-up.
Russell Low: Hey Jed, it's Russell. So, you know, just to kind of recap on Silicon Carbide, so, you know, we're up in 24 relative to 23, and we're basically saying, you know, we might be down slightly in 25, but it's like we say, it's still a robust business for us.
Russell Low: I would say that we have exposure to every silicon carbide project globally. China is a piece of it, obviously it's a very important piece to it, but we don't necessarily break out our silicon carbide out of power by region.
Russell Low: 300 millimeter equipment going into advanced memory and advanced advanced Logic, so the the silicon carbide business at this stage. We do not believe will be impacted by that so You know the silicon carbide like I've said
It obviously varies.
Russell Low: From customer to customer, we've talked about the low penetration of silicon carbide into EVs and the low penetration of EVs into the automotive industry.
Russell Low: The Chinese definitely want to be self-sufficient. They do have some capacity. There's not a huge amount of capacity, and I think a lot of them are, at the moment, trying to optimize their...
Russell Low: architecture of the devices, they're looking to improve their yields, and I think, you know, you're going to see the digestion in silicon carbide that would occur in China is not necessarily because of oversupply, it might be the fact they haven't got the quality applications they're looking for qualified like automotive, or they may not have got the yield and the processes, you know, fully, fully run out.
Speaker Change: That's helpful, Russell. Then, just a two-part follow-up, if you will. I guess, maybe for Jamie, what percentage of your backlog is secured
by Customer Deposits.
Speaker Change: and then Russell, just as you mentioned, on some of the DRAM and advanced logic.
Speaker Change: Is there a technology trend that you've developed that we should be aware of in medium-current
Speaker Change: and in high current that positions Excellus vis-à-vis the competition of what we saw with high energy for silicon carbide. Thanks.
Speaker Change: Yeah, Jed, thanks for the question on the, you know, again, I would say the majority of our backlog to new entrants into the market and new geographies into the space, that's where you're going to find
Speaker Change: our customer deposits as we sort of manage the collection risk associated with that. And the more traditional semiconductor customers, that may be domestic or European based, we're less likely to secure customer deposits on those just given the long tenure of our relationships.
Speaker Change: and the strength of their balance sheets that they have in place. We haven't broken out specifically that number to kind of give a frame of reference for that, but the backlog itself, I'd say it is not, it is a smaller portion of the backlog than you would imagine all things being equal.
Speaker Change: Hi Jed, so just to clarify, so you were talking about, do we have a differentiation in our high current and medium current products that we believe will allow us to take market share in memory and logic? Was that the crux of your question? Yeah, your market share in high energy is materially different than medium current and high current. And so I'm just wondering, as you start focusing on these applications for medium and high current, you know, has there been a recent development?
Speaker Change: in the use of a linear accelerator, for example, or something that differentiates you vis-a-vis the competition for those other applications.
Speaker Change: Right, absolutely. So, advanced logic, for example, you know, you're absolutely right, it doesn't use high energy. It really is high current and medium current. The real opportunities are in high current. That's where a lot of the sales are. And I would say that, you know, the front end has, you know,
Speaker Change: has an established competitor there. So really, when we look at advanced logic, we're looking at new application in the middle of line and the end of line. So think about the kind of applications that would have been in the old back end, the metallization of, you know, for example, backside power.
Speaker Change: So that's where we're looking to go and a lot of that is material modification. So we are always looking to get very close to our customers, make sure we innovate, we can solve their valuable problems and that's you know exactly what we're doing.
Speaker Change: In addition, I should point out that not only are we working with our customers on advanced logic problems, but we're also working with a very advanced institute in Europe to work out what are going to be...
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host
Speaker Change: Regarding memory, I think it's fair to say that the tool has been battle-hardened for memory. And what you see from memory is a bunch of.
Speaker Change: to really perform well under those situations. So basically, since it's been battle tested and fielded, high current and actually medium current, but specifically high current, we're now looking to fan that out.
to other customers who are in that same memory segment.
Thank you.
Thank you.
Conference Operator: Our next question comes from Jack Egan of Charter Equity Research. Your line is open.
Jack Egan: Great, thanks for taking the question. I was hoping you could go over the big increase in CS&I. I mean 17% sequential growth is pretty big for that business. So you mentioned that it was stronger upgrade activity and execution on some of your service contracts. Was that strength particularly pronounced in any end market or region?
Jack Egan: Yeah, no, I mean, honestly, it was fairly broad based in the fourth quarter. It was, you know, multiple customers across multiple regions where we saw the strength. I think, you know, we did see people taking advantage. We've talked a lot about how, you know, as our customers start to slow down, you know, they try to find ways, they take advantage of these points to find ways to improve the efficiency and yield and throughput of their devices and to optimize the current fab space that they're utilizing. And this is, I think, the yin and the yang to, you know, our business.
Jack Egan: at the end of the day. We've increased the number of Purion products out into the field fairly materially over the last few years.
Jack Egan: The power of that install base is what provides us the opportunity to take advantage of these cycles and get, you know, our team goes in specifically targeting upgrades as we have them available. We focus on making sure that our research development engineering team is working on, you know, differentiated upgrades.
Jack Egan: that provide efficiencies to our customers and to their fab space.
Jack Egan: And so, you know, I think that's kind of what we were seeing here in the fourth quarter as well as a little bit of the budgeting as we talked about before, you know, some of our, you know, fab partners and customers were, you know, looking through and working through their budget opportunities for the period going into 25, you know,
Jack Egan: We've got some, you know, relative expectations for upgrades throughout the course of the year, although we're not going to, you know, we don't, are not currently forecasting the same level of upgrade activity in the first quarter of this year, which is why we, you know, are seeing a little bit of moderation and margin.
Jack Egan: Upgrades typically provide, you know, our highest margin relative to the consolidated average, just given, you know, how valuable they can be to the customer at the end of the day.
Thank you.
Speaker Change: Yes, I can just kind of follow on from that. You know, this is a very focused strategy. We have been investing heavily in upgrades because it is a great opportunity for us and the good thing about an upgrade is you get to sell it to the entire in-store base.
Speaker Change: So, you know, and then obviously we've been making progress on contracts as well as we try to look to kind of create an annuity stream of aftermarket.
Speaker Change: That's super helpful. And then on silicon carbide, you know, we're seeing more weakness crop up there specifically like in the financial results of the device manufacturers. But you mentioned that silicon carbide is still generally pretty resilient and that, I think you said it'd only be down a bit in 2020.
Douglas Lawson, CFP®, Financial Planner & Investment Advisor
Speaker Change: Yeah, I think it's, you know, Jack, it's, you know, as we sit here and say it's expectations relative today based on customer conversations, discussions, reviewing the current backlog.
Speaker Change: as well as some of the bookings activity we've seen through the first quarter so far year-to-date. As Russell sort of said earlier, where we sit right now, we're a little bit of an encouraging sign, probably too early to call it a victory, but encouraging signs relative to bookings where at the same point in the fourth quarter, we're ahead of our bookings rate in 2025, where we were at the same time in the Q4 timeframe.
As we think about silicon carbide broadly,
Speaker Change: truly diversity in the way our customers are engaging with the product, right? So, you know, some of them aligned very well with their public commentary in terms of how they're thinking about making investments going, you know, over the course of 2025.
Speaker Change: Whereas others, you know, again, not that they're inconsistent, but they have a path in place to spend the CapEx dollars and build out the capacity, and we see those, you know, in our expectations for 2025.
Speaker Change: What I think helps us is, you know, we have a broad range of customers in the silicon carbide space.
Speaker Change: and we're not overly tied to one in particular customer in order for us to meet our financial results and objectives in the course of the year.
Speaker Change: And I think that is really what maybe differentiates the expectations of our performance relative to, you know, a single, you know, customer's expectations or public. I think that's exactly right. Each customer is slightly different. So you've got some that want to build ahead of demand, some that are optimized and they yield because they want to get into opportunities.
Speaker Change: some that are looking to gain market share, but it's difficult given the time it takes to get qualified.
Speaker Change: Some are taking the opportunity to transition to 200mm, go to 400-800v architectures, which would be trench and superjunction. So you know, a lot of customers are doing different things. So I would say that it is very customer driven.
specific.
Great. That's super helpful. Thanks, guys.
Thank you.
Thank you.
Conference Operator: Our next question comes from David Dooley of Steelhead Securities, Your Line of Children.
David Dooley: Yeah, thanks for taking my questions. I guess first just a clarification, can you help us with what silicon carbide revenue was in Q4 and for calendar 2024 dollar or percentage?
and then as a follow-up...
David Dooley: Dave, this is Dave Ryzhik. Yeah, it should be in the slide presentation. I think we can pull that up. Thirty-six percent for the quarter and forty-one percent for the full year for sale at the front of the line. Yeah. Yeah. Six percent up year over year.
David Dooley: Okay, and then... Can I help you, Dave? Yes, very much so. Do you expect the silicon carbide business to be part of the second half improvements? Or, I was a little confused, this is a follow-on to Charles's question, is what exact
David Dooley: geographic regions or is silicon carbide expected to be up in the second half of the calendar year?
David Dooley: Yeah, so, you know, geography-wise, we talked about, right, again, we're very broad-based across the board in Silicon Carbide, Dave, and so, again, we...
David Dooley: We are seeing digestion. We expect China to be a lower portion of our revenue base right across the entirety of the portfolio in 2025. And so, you know, there are strengths. There are other geographies that are having strengths.
David Dooley: in the product offer to offset some of that, but we haven't given specific details on geographical expectations or anything like that.
But what we can tell you, Davis, you know...
David Dooley: Now that things, you know, customers have worked out their plans for the year, we are working very, very close to them. We are looking at bookings. We are looking at the forecast. And, you know, so we do know pretty much project by project where we believe these tools are gonna go to. And, you know, we've double-double checked that the fab will be ready for the tools, et cetera. So, you know, this is, and I'll say that, you know, we've talked about the first half being a China digestion. We've talked about, I've been very broad based on silicon carbide.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel.
David Dooley: So General Mature is going to be down more than and other power stuff is going to be down more than SIC is your message
Silicon carbide. Yes, that's correct.
Thank you.
Speaker Change: and now did you I'm sorry you didn't you talked about not wanting to break things out on geographic regions do you expect silicon carbide to be up in the second half of the year even though there's digestion in the first half
Speaker Change: Yeah, we're not going to get in that level of granularity just yet, Dave.
Okay, thanks.
Thank you.
Conference Operator: Our next question comes from Tom Diffley of D.A. Davidson & Company. Your line is open.
Speaker Change: Yes, good morning and thanks for the question. Russell, I was hoping you could give us a little bit of an update on your plans to expand more into Japan in that geographic region.
Speaker Change: Hey Tom, thanks for the question and good morning. So, yes, so there are...
Japan represents about 440,000 people.
Speaker Change: Our percentage of that is, as you know, sub 5%, so it's a really good opportunity for us. We've actually managed to make a bit of a beachhead there in power, and actually in some other areas as well, but like power has been a great opportunity. So obviously the local vendors of iron implantation are
Speaker Change: have often had the lion's share of the business. They haven't innovated and moved forward as quickly as Japan got into power.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel.
Speaker Change: and, you know, making sure that we continue to expand in those applications of power.
Speaker Change: But obviously it's not just power. I think it's interesting, you know, we've just shipped a, so I think in Q2, we mentioned we'd got a system shipping into Japan for Advanced Logic. So that's all shipped in Q4, and we're now in discussions for actually follow-on businesses there as well. So, you know, naturally.
I think, so, you know, we haven't...
Speaker Change: So, when we built our $1.6 billion model back in the summer, we did actually have, you know, we want to see secular growth in silicon carbide, we've talked about that, we want to see recovery in memory and general mature. When it came to advanced logic in Japan, we had modest numbers in the model for that in 2027. So, you know, you're going to see...
again.
Speaker Change: a modest improvement year over year building towards a a modest component in our 1.6 billion dollar uh business and remember that 1.6 billion dollars we're expecting say 400 of that to be after market so really we're looking to have a very modest amount of equipment in advanced logic where we're sowing seeds in japan where we're sowing seeds
as a component of that.
Speaker Change: Great, and then just a quick follow-up. You know, Jamie, on the backlog side, have you seen an extension or expansion of the duration of your backlog and has anything fallen off the backlog?
Speaker Change: So, you know, again, we see customer pushouts occur, right, and so these will be for, you know, for purchase orders in backlog, Tom, and, you know, that was some of the activity that we saw between our third quarter call and fourth quarter call here was, you know, it's a customer request to push out some delivery dates and expectations.
Speaker Change: not inconsistent with what our customers have said externally relative to their views on this. So yeah, to some extent, there's a bit of an extension of the duration in the backlog as a result of that.
Speaker Change: Okay, does the backlog represent the next 12 months or is it total backlog going forward?
Speaker Change: Total backlog. Some of it, yeah, some of it goes to the first couple of quarters, 2026. Yeah, okay. All right, thank you.
Conference Operator: Our next question comes from Mark Miller of the Benchmark Company. Your line is open.
Mark Miller: Thank you for your question. I just had a question. You're projecting a significantly lower sales in the first quarter and OPEX is going to be somewhat higher. I'm just wondering if you can kind of break that down in terms of SG&A and R&D, what's going on there?
Mark Miller: Yeah, so as it relates, I think the general commentary is our view is to have, you know, to kind of, in the first quarter inherent, it's specifically, it's going to be relatively flat to what we saw with a slight uptick just given the seasonal component of some of the way the expenses roll through, and that impacts all the line items.
fairly equally across the board.
Mark Miller: And then, you know, throughout the rest of the year, we anticipate, you know, finding ways to continue to invest in our RD&E business, and we'd expect as a percentage of sales, that number to be slightly higher than what we've had historically for that business.
Speaker Change: sort of compensating that would be the difference would go through the SG&A lineup. Yeah, Mark, I think it's clear that, you know, we believe investing in our products and services, working close to their customers is one of the best returns we can have. So, you know, we actually kind of see the downturn slightly as an opportunity in the sense that customers have more bandwidth, we can work with them, we can develop new products, get those products qualified. So then when the upturn arrives, we have new products and services to offer and that's where we take advantage. So, yeah, we are definitely, as Jamie mentioned,
Speaker Change: focused on products and services working with our customers. Yeah, and through this transitory cyclical digestion period, right, you know, we do expect kind of resumed growth in 2026. And so, you know, we want to make sure that we're positioned for that, Mark. Yeah.
Okay, so basically, for the first quarter,
Mark Miller: both SG&A and R&D is flat to slightly up, is that correct?
Thank you.
Thank you.
Conference Operator: Our next question comes from Christian Schwab of Craig Hallam Capital. Your line is open.
Christian Schwab: Great, thanks guys. Just in the mix of business, if we look at it by end market, you know, call it auto and industrial, is it as simple as taking silicon, you know, carbide and and IGBT versus, you know, General Mature to get the mix of business between, you know, end market shipments to say auto and industrial?
So
Christian Schwab: I don't fully follow the question but I would I would say Christian that basically our general mature mature nodes are very driven by consumer industrial automotive and the biggest use of silicon carbide is number one the biggest market is automotive but the second market that's growing actually really quite quickly is the industrial part
Speaker Change: similar dynamic. Yeah, so that was my question. I'm just trying to get in market exposure. So, you know, in 2024, you know, what percentage of your revenue do you believe went to automotive and what percentage went to industrial slash consumer applications?
Speaker Change: Yeah, that's not how we track it, so we don't know. Yeah, it's very hard for us to know what our customers ship their products into. Correct. We don't get discrete data like that from the customers on where they're ultimately putting, so we're using the same sort of, you know, general data on the utilization of silicon IGBT and silicon carbide and making those general assumptions. We don't have specific end product applications necessarily.
Speaker Change: Great, and then follow up to that, on your automotive exposure, you know, what percentage of that do you think services the domestic Chinese market versus global players?
Speaker Change: Pretty much, if you're going to put silicon carbide into an electric vehicle, it's going to come from the North Americans, Europeans, and the Japanese.
Thank you for watching. See you next time.
Speaker Change: perfect thank you for that clarity and then very much that's question
Speaker Change: that's for the all-important MOSFET in the drive system. Remember, there's an awful lot of diodes that go into these cars as well, and I think the Chinese do manufacture a large part of those components, the silicon carbide diodes.
Speaker Change: Correct. Yep, got it. And then we talked about an investment year for customer ramps. I guess I'm kind of confused on
Speaker Change: on what technology investments you're investing for. Is this, you know, for new upgrades to machines? And if you could provide greater clarity of what that exactly means.
you know, is there transitions in...
Speaker Change: in what you're providing as far as a box structure, you know, for different applications, current, energy, etc., you know, for 400 to 800 gig volt changing transition. I'm trying to understand...
Speaker Change: the investments that you're making to drive future growth. What's changing that you're sustaining the investment?
available for those and continue to transition our products.
Speaker Change: to sort of the next generation of the technology. There's examples of investments we're making in memory tools and technologies to meet our customer roadmaps.
Speaker Change: in that space. Yeah, I think it's fair to say, even though we might call these like mature technologies, the equipment that goes into them are anything but.
Speaker Change: So if you think about what we've been going through with silicon carbide, you know, started off with a medium current machine, but we knew that as people moved to trenches and super super junctions, they needed a high energy. And in fact, the energy's actually been creeping up and up and up.
Speaker Change: So that's an example of where we have to develop the right equipment and that's where we're putting our resources.
Speaker Change: The other thing is, I mean, we haven't talked much about it, but, you know, proton implantation for IGBTs. Those energies have gone up significantly, and that takes a lot of innovation to be able to support our customers, the highly productive tool that can achieve the energy. So, you know.
Speaker Change: you know, a recovery in memory and general mature, and that still takes work, while actually expanding into advanced logic and Japan, all of that strategy is very well aligned with our spending on our products and services.
Those are multi-year projects that we're committed to.
Speaker Change: And then my last question, you know, your implied guidance for revenue in 2025, call it $800 million plus or minus.
Speaker Change: You know, it's substantially below your 2027 goal of $1.6 billion.
Speaker Change: I'm having a tough time reconciling what would have to happen in markets for that to still be an attainable objective.
Speaker Change: Right, so that was the model we provided back in July, and we showed a very kind of clear path from where we were to where we need to get to. Yeah, it's fair to say that things have changed.
Speaker Change: We are focused on the long-term secular growth and power, market recovery and memory and general mature, share gain in advanced logic and geographic expansion in Japan. We believe, like I say, that will get us to 1.6. The timing is unclear right now.
Great. No other questions. Thank you, guys.
Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn it back to David Ryzhik at this time for closing remarks.
David Ryzhik: Thank you, DeeDee. I want to thank everyone for joining our call and your interest in Excellus. DeeDee, you can now close the call. Thank you. This concludes the presentation. Thank you for your participation in today's conference, and you may now disconnect. Good day.