Axcelis Technologies Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 4, 2023

There are 10 speakers on the call.

Operator

Day, ladies and gentlemen, and welcome to the Axodus Technology Call to discuss the Company's Results for the First Quarter. My name is Leeway, and I will be your coordinator for today. At this time, all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of this conference. As a reminder, this conference is being recorded for replay purposes.

Operator

I would now like to turn the presentation over to your host for today's call, Mary Puma, President and CEO of Axos Technologies. Please proceed, ma'am.

Speaker 1

Thank you, Leeway. With me today is Kevin Brewer, Executive Vice President and CFO Russell Lowe, Executive Vice President of Global Customer and Engineering And Doug Lawson, Executive Vice President of Corporate Marketing and Strategy. If you have not seen a copy of our press release issued yesterday, today. It is available on our website. Playback service will also be available on our website as described in our press release.

Speaker 1

Please note that comments made today about our expectations for future revenues, profits and other results Are forward looking statements under the SEC's Safe Harbor provision. These forward looking statements are based on management's Current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form 10 ks Annual Report and other SEC filings, which we urge you to review. Our actual results may differ materially from our Good morning, and thank you for joining us for our Q1 2023 earnings call. In March, we celebrated the 45th anniversary of the founding of As we pass this milestone and as I pass the leadership baton to Russell, I'm happy to report that Axcelis is in a great place.

Speaker 1

We have a solid balance sheet, the strongest product portfolio in our 45 year history and an excellent team of employees, suppliers and customers. We are well positioned for future growth and profitability. Exiting the Q1 of 2023, Demand for the Purion product family remains extremely strong, especially in the high growth silicon carbide power segment. Revenue for the Q1 was $254,000,000 with earnings per share of $1.43 Backlog set a record at $1,270,000,000 with quarterly bookings of $298,000,000 driven by Purion demand and strength in the power market. For the Q2 of 2020 We expect revenue between $255,000,000 $260,000,000 gross margin of roughly 42%, Operating profit of around $55,000,000 and earnings per share of $1.44 to $1.48 At the beginning of this year, we expected 2023 revenue to exceed $1,000,000,000 We are now forecasting To beat that estimate by $30,000,000 exceeding $1,030,000,000 This represents revenue growth of approximately 12 In a year in which overall wafer fab equipment is expected to decrease by over 20%.

Speaker 1

In the second half, in addition to stronger revenues, we expect significant margin expansion driven by mix and improved costs. The mature process technology market continues to be an area of strength for Axcelis, with 89% of first quarter system shipments going to mature foundrylogic customers and 11% to memory customers composed entirely of DRAM. The geographic mix of our system shipments continues to be distributed globally and representative of spending patterns in each geography. In the Q1, China accounted for 45%, the U. S.

Speaker 1

17% Korea 14% Taiwan 4% Europe 2 The power device market continues to drive our growth during this industry downturn. We are actively engaged with all customers in this high growth market segment, winning business from new customers and expanding our footprint At existing customers, we expect over 55% of our system revenue in 2023 to come from this segment, With greater than 50% of total power device system revenue coming from silicon carbide applications. In addition to significant pull for our Purion M silicon carbide tool, we also see increasing adoption of Purion H 2 hundred silicon carbide and Purion XE silicon carbide systems. As a result, we expect revenue from silicon carbide to be spread relatively evenly across the Purion Power Series product family. Purion Power Series products Our silicon carbide have been designed to support the technical challenges facing our customers as they ramp to high volume in support of their automotive Exelis is the only ion implant company that can deliver complete recipe coverage for all power device applications.

Speaker 1

The full Purion Power Series family of products allows customers to optimize their fabs for high volume manufacturing and Technology leader and supplier of choice providing the best product family and manufacturing capabilities. This means that using Axcelis tools provides the lowest risk path to high volume manufacturing required to support aggressive fab ramp Excellus places significant value on enabling our customers to succeed in this exciting market by providing differentiated product performance and a high level of customer satisfaction. Although our memory and advanced logic customers are experiencing a downturn, Axcelis continues to stay close to them to support their to expand opportunities for Axcelis during the next upturn. We have multiple evaluation systems in the field and many customer engagements designed to increase our footprint in these market segments. As the industry exits this downturn, Axcelis will experience significant growth as these traditional semiconductor segments recover.

Speaker 1

This combined with continued strength in the power and mature markets will drive Axcelis to our $1,300,000,000 model and beyond. Now I'd like to turn it over to Kevin.

Speaker 2

Thank you, Mary, and good morning. We are pleased with our Q1 2023 financial results and are excited about our full year revenues, Which is now expected to exceed $1,030,000,000 representing year over year growth of approximately 12%. Looking at our Q1, revenue finished well above guidance due to solid execution and continuing strong demand for Purion. Q1 revenue was $254,000,000 with systems revenue at 195,200,000 And CS and I at 58.8 percent. Strong bookings and quoting activity for systems in the power segment Continued in the quarter, which supports our expectation that greater than 55% of revenue will come from this market in 2023.

Speaker 2

CS and I revenue will fluctuate quarter to quarter, but should be modeled at approximately $245,000,000 for 2023 And $300,000,000 in our $1,300,000,000 revenue model. Q1 gross margin finished at 40.9%, Slightly lower than guidance due to CS and I being a lower percent of total revenue. We We expect margins to improve to approximately 42% in Q2, but still remain under pressure caused by higher material costs and mix. We are forecasting a significant gross margin improvement in the second half of the year as costs improve We move to more favorable product mix. This should allow us to achieve our full year gross margin target of approximately 44%.

Speaker 2

We remain laser focused on margin improvement and have numerous initiatives underway to lower the cost of goods And drive higher sales of Purion product extension. This allows us to target gross margin greater than 45 percent in the $1,300,000,000 model. Turning to operating expenses. The Q1 ended at 20.7 percent of revenue and better than our guidance. We expect OpEx to be relatively flat in the second quarter At approximately 21%.

Speaker 2

As always, we will continue to tightly control spending while investing in areas of the business that support business growth, solidify our technology advantage in the specialty market and increase our footprint in memory and advanced logic markets. Additionally, we will continue to invest in our employees and the infrastructure required to achieve our financial models. One example of infrastructure investment is our new state of the art logistics center in Beverly, Mass, Okay, just a short walk from our headquarters. The facility is scheduled to open this summer and provides centralized logistics and flex manufacturing We also plan to further ramp our Beverly and Korean operations as capacity needs grow. We are comfortable at this point that we have the initiatives underway that support our $1,300,000,000 model.

Speaker 2

We ended Q1 with $445,000,000 of cash, cash equivalents and short term investments And generated $34,600,000 of cash from operations. In the quarter, we repurchased $12,500,000 of stock We have returned over $145,000,000 of cash to our shareholders while curtailing share count growth. Axcelis has a rare opportunity to grow revenue and profitability during a significant industry downturn. This is a result of a strong product positioning in the power device market and continued strong execution in a challenging environment. We also look forward to continued growth in memory and advanced logic as the overall semiconductor market recovers.

Speaker 2

Once again, I want to thank the entire Axcelis team for their continued outstanding performance. I also want to thank our supply chain partners For the hard work supporting Axcelis and our customers for their confidence in Axcelis to deliver. I will now turn the call back to Mary for closing comments.

Speaker 1

Thank you, Kevin. As I did last time, I will end this call by outlining the Axcelis business thesis, which supports over $1,030,000,000 in revenues in 2023 $1,300,000,000 over the next few years. It is based on the following five key points. First, the implant TAM has more than doubled in the last few years With mature market segments representing greater than 60% of the total TAM. 2nd, power devices and image Sensors are highly implant intensive and the general mature nodes have increasing implant intensity peaking at 28 nanometer.

Speaker 1

3rd, high value Purion product extensions were designed to optimize power and image sensor device manufacturing, uniquely positioning Axcelis to benefit from high growth in the mature process technology markets. 4th, Purion product differentiation has propelled Axcelis to implant leadership in these high growth specialty device market segments. And 5th, we have strong long term customer relationships and a fundamental cultural desire to win by making our customers successful. I have worked closely with Russell and the rest of the executive team to develop and The strategy I just outlined. Axcelis will continue to execute this strategy as Russell and I transition into our new roles.

Speaker 1

I have great confidence that Axcelis will continue to be a leading capital equipment supplier to the semiconductor industry. I want to thank our employees, suppliers, customers and investors for your past support and I hope that you will continue that support into the future. With that, I'd like to open it up for questions.

Operator

Thank you so much, presenters. And our first question comes from the line of Tom Diffely. Your line is now open.

Speaker 3

Materials today, are they back to kind of pre COVID or Are the inflationary levels, are we at a consistently higher rate than we were say 2 years ago?

Speaker 2

I only got half of that question. I don't know if Doug or Mary did you get the whole thing?

Speaker 4

No. No. Tom, can you repeat it?

Speaker 3

Is that better?

Speaker 2

Yes. So I missed the first part. So if you wouldn't mind.

Speaker 3

Okay. Yes, my part. So just on the gross margin front, when you're getting into new contracts and looking at the materials on a go forward basis, Are prices back to kind of pre COVID or levels they were a couple of years ago or we had a permanently higher level That's just a fact of business today.

Speaker 2

So that's a good question. So They're certainly getting better. I think getting back to pre pandemic levels is going to be difficult in some areas. While there's others where we have more opportunity to change suppliers for example and some of the commodity level things, There's a little more opportunity to get the cost out. But we are I guess the good news right now Tom is we are starting to see favorable Costs coming in on material, which should start hitting us in the back end of the year in Q3, Q4, which is why we feel comfortable Taking the margins back up on a full year basis to about 44%.

Speaker 2

And as you know, that suggests we've got to get 300 to 400 basis points better on margins in the last two quarters. And based on mix and based on what we're seeing with Current supply chain cost and using up some of the high cost inventory that we've had, which has been the other problem, We feel comfortable getting back and getting our full year gross margin. So I guess a quick summary is Some things are probably never going to go back to where they were, but there's opportunity through supply chain rationalization to Get cost back down and maybe even better on some pieces of that.

Speaker 3

Okay. And then following up on that, when you Look at your logistics center that you're opening this summer, will there be a material impact on the model as far as increased cost structure goes Before that and ultimately do you expect that to decrease the cost going forward or just It's more just to increase the efficiency of making sure things get where they go on time.

Speaker 2

Yes. So I mean, We have the cost of that in the model. So when we talk about the full year gross margins and full year operating expense at Approximately 20.5% that's in there Tom. But the reality of it is we have a lot of Random buildings all over the place where we're storing material right now, which has lease cost with it. So when we initially open, We're going to have some duplication, but over about a 6 month period to maybe as far as 9 months, These other locations, the leases run out.

Speaker 2

So the net impact of it is going to be favorable, both from an efficiency point of view and From the ability to have everything in one location. So we're going to have a lot of robotics and very sophisticated material handling in And again, we're going to exit several buildings that are scattered around the Beverly campus and We're on the communities right now once this thing is up and running.

Speaker 3

Sounds like it'd be a good place for an Analyst Meeting.

Speaker 2

Hey, well, we can give you a ride.

Speaker 3

Last question for Mary. When you look at The non mature markets and non power markets, memory and high end logic, can you just talk a little bit about how you're positioned to take advantage of

Speaker 4

the recovery in the

Speaker 3

industry when that happens over the When that happens over the next couple of years?

Speaker 1

Sure. So, as I mentioned in the script, we're working very closely with our memory customers right now To qualify, both new Purion tools and additional recipes, obviously things are slow right now. But as things do improve, we expect To be able to leverage the work that we're doing right now to actually increase our business at our existing customers and make Some additional headway even with some customers where we haven't been particularly strong in the past. In terms of advanced logic, We've talked about this at length. We continue to work with all the major advanced logic customers To find opportunities, particularly where Purion is differentiated, where we can bring them bring that differentiation to improve their cost Ownership in their device performance, that is ongoing.

Speaker 1

And we also have talked about how we have recently placed A Purion Dragon into an advanced logic customer, that is going it's an evaluation system that is going extremely well, And we expect that to result in more business and we've also recently closed on an evaluation for Purion H For Advanced Logic and we expect that to grow into additional business in the future as well. So nothing really has changed Tom in terms of what we're We're focused on just meeting our customers' requirements, not only in terms of their installed base, but also in terms of They're emerging technology and manufacturing challenges.

Speaker 4

And Tom, one other thing Just to note is, so the things Mary is talking about are the things that will drive us to that $1,300,000,000 model. So as memory recovers, As we continue to make deeper penetrations into advanced logic, that combined with continued growth in mature markets And power are what drive us to the $1,300,000,000 model.

Speaker 3

Great. Thanks, Doug. Thank you, 3. Appreciate it.

Speaker 2

Yes. Thanks, Don.

Speaker 4

Thank you.

Operator

Thank you so much. And your next question comes from the line of Craig Ellis of B. Riley Securities. Your line is now open.

Speaker 5

Yes. Thanks for taking the questions this morning. And Mary, I just want to start by congratulating you On the transition, you've had a remarkable career and really transitioning at a spectacular place in terms of where Axcelis is over that arc. So with that said, let me just start with the first question. So as I was talking with investors Through the quarter, but especially through March April, there was a lot of concern about some of the things that we're seeing in the automotive market.

Speaker 5

And it seems like a lot of your Prepared commentary really addressed the company's momentum, but can you just talk about whether you did see any order movement As you went through March April or even very early May to date and any signals That may be coming out of automotive related to potentially slowing EV uptake or anything else.

Speaker 1

Yes. Thank you very much, Craig. It's been a pleasure working with you. We have not seen any significant Changes at all, particularly in the mature process technology area related to power devices. I mean there are always minor shifts here and there In some cases, asking for more.

Speaker 1

They're asking for more and they're asking for it more quickly. So I think that that's a very positive sign. Russell and I had dinner last night with a major player, Customer who produces power devices and that was really the gist of the conversation that things are going extremely well. They're looking for additional capacity. There are all sorts of things going on with new fabs that are currently being announced and built.

Speaker 1

So we do not have any data points right now that indicate that there's an issue. And I know people in particular sometimes worry about China, But China is very strong right now, particularly in the power device area. That is definitely a growing area for investment for those customers. So right now everything seems fine. We haven't seen any significant changes.

Speaker 5

That's really helpful color. Thank you. The next question is really related to the new $1,030,000,000 plus Thank you for calendar 23. So thanks for providing that update. The question is this, if I incorporate The Q1 results and 2Q's guide, it could imply flattish sequential trends in the back half And that seems to fit with some of the larger companies that we've heard from this reporting season to date.

Speaker 5

I'm just wondering without providing guidance, could you just provide some qualitative color on how you see the back half of the year?

Speaker 2

Well, I'll take that Craig.

Speaker 5

Thanks, Kevin.

Speaker 2

So I guess I'll start by saying we did say we expect To exceed 1.03, so

Speaker 6

That's not right.

Speaker 2

Doesn't mean there couldn't be more there. But Right now, that's a 12% year over year growth, as we said. Mary just talked about this continued strong demand. I'll also say our book to bill in the quarter came back up to 1.5 and I think last quarter it was 0.99, so it was 1 roughly. So things are still on a positive side for us, correct?

Speaker 2

It doesn't mean there can't be more there, but at this point, this is what we're comfortable with. But with the record backlog that we have Right now, and customers clamoring to want to pull things in, we'll do our best to Try to exceed that 1.03.

Speaker 5

Great. And then I'll just finish up with a question that's related to that, Kevin, but it goes back to some of the Prepared comments on gross margin. So acknowledging that the back half means 300 basis points to 400 basis point rise But with some of the issues working out prior higher cost inventory, it would seem to suggest that more of the Step up would be in the Q4 than the 3rd, just given the underlying cost dynamics that are at play. Is that a reasonable way to look at things?

Speaker 2

Yes. We're going to say incremental improvement. We obviously have to come up quite a bit in Q3. So, But it will be incremental as it comes through in the back half. And again, based on everything I see right now with the mix And the cost profiles we have, we should get very close to that 44%, but considering kind of the hole we dug ourselves starting out, Full year will be good.

Speaker 2

And I think that's the other point I'll make too. I always tell and you know this as well. I always tell people look at Axcelis' Gross margins on a full year basis because so much can move quarter to quarter, but I honestly look at always like a full year. And everything we do with programs to make things better, we're looking at a full year average. So, yes, so I would You're going to have to step it up a little bit in Q3 though to get there, but it will be a little incremental.

Speaker 2

And then Back to your prior question, any revenue growth would probably be the same way. It'd be incremental As the quarters come on, if things grow beyond the number we put out there.

Speaker 5

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

Speaker 1

Thanks, Chris.

Operator

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

Speaker 7

Hey, guys. Congrats on another solid quarter. Mary, as we're looking at China, we've heard from Applied Materials and Ann Lam and others talk about the significant investment that's going on in the mature nodes, a

Speaker 2

lot of that obviously

Speaker 7

power. And kind of a strategic shift to align domestic production with domestic demand, which Yes. Looks to be maybe a 3 to 4 year endeavor at least. So are you guys Very optimistic about that type of market or are you just happy with the strength today and watching it closely?

Speaker 1

So we are very happy with what we're seeing right now in the mature process technology And we've talked many times about how we have leadership in implant in the mature process technology area and we've talked Power devices and we've talked about image sensors and that all holds true. We believe that this strength will continue on into the future. Right now, there are still new fabs being announced. There's a lot of new construction. There's capacity Expansion and we expect that to continue on.

Speaker 1

What I actually expected you to ask me about If we had seen any change in some of the export control regulations, and we have not seen anything there. Things continue to flow for us from a licensing and export control standpoint and we continue to monitor that extremely closely and at this I believe that that situation will continue, that things will continue to be positive. So we're very bullish about China right now.

Speaker 4

Hey, Christian, this is Doug. The other comment I'd like to make is that China represents one of the largest opportunities for electric vehicles. Government incentive programs and so forth have pushed that country to last year was over 30% of new cars sold were EVs. So There's a lot of activity in the supply chain, which is where we play with the silicon carbide devices. So we are very optimistic

Speaker 7

Yes. And every day I read about somebody else getting more Funding from somebody in China to add to their capacity that so extremely strong target market. On that is a great segue, not only in China, but Listening to the large automobile manufacturers and who are getting more and more ambitious goals about the number of shipments that they expect to ship Our cars delivered, if you will. Is the every 3 years doubling of silicon carbide Wafers, what are the puts and takes of that? Were that 3 years from now, we can look at that or 2 years from now and say That was probably too conservative.

Speaker 7

Well,

Speaker 4

we're still that's the data that we've got right now. We'll be relooking at that. There's certainly lots of people have made and tell that in 1 on ones that We're being conservative there, but the numbers vary all over. There's a lot of variables depending on EV adoption rate, depending on The types of devices that are built depending on the yields, depending on the ramp of 200 millimeter versus 150 millimeter. So there's a A lot of variables Christian that go into the equation.

Speaker 4

So we're very comfortable with the doubling every 3 years and we'll revisit that over Probably over the next 6 months.

Speaker 7

That's great. All right, great. No other questions. Thank you.

Speaker 2

Thanks.

Operator

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

Speaker 8

For Quinn and congrats on the continued success. So for my first question, as More power devices and autos shipped to silicon carbide, what do you expect the impact to be on the traditional Silicon power device market over the coming years. Will it still be a growth segment for some time or Do you see an inflection point where that market will decline? Thanks.

Speaker 4

So Quinn, I'll take that one. We expect the market to continue to grow. The OLED oil solid state power applications do continue to grow and There's lots of places where the silicon is doing better than IGBT and a lot of places in carbon and there's lots of places where So there's 3 viable solid technologies that really depend on the application. So Well, we expect to see silicon carbide will probably dominate the auto industry over time, Although there will be applications for silicon in auto. And then silicon carbide will start to make some growth In other areas in energy for example, as costs come down as a result of volume driven by the automotive side.

Speaker 4

And then silicon has a lot just silicon is always going to be a less expensive substrate, lots and lots of silicon. And so That's always going to be a consideration. So we expect growth in both. If you look at the trends that we've got in our presentation, You can see silicon carbide is currently overtaking in terms of the amount of implant tools, but silicon continues to be very, very strong.

Speaker 8

Thanks. Very helpful. And so for my second question, could you provide any color into the CMOS Image Sensor Market, is the ongoing weakness mostly driven by the consumer inventory corrections? And I guess through your conversations with customers, are you seeing any signs of a demand recovery in this segment?

Speaker 4

Yes, let me take the first part of that anyway. The slowdown in image sensors certainly is driven by The consumer market, so primarily by phones. And so as that turns around, we would expect That business as a whole turns around. The thing that's going on right now is we've got The XE Max out there in evaluation, we've got one system that's already in production. The customers are prepping for the turnaround and their more advanced devices for the next phase.

Speaker 4

The other piece That's big for image sensors is all the ADAS stuff and that continues to be strong. When you look at The folks that have announced in the last week or so, auto continues to be strong and image sensors are a piece of that. So we would expect that image sensors turnaround pretty strong as the consumer market turns around, Gwen.

Speaker 8

Thank you. And one more quick one if I may. So how much of the margin improvement in the second half Is a function of a mix shift to high energy versus the alleviation of some cost headwinds? Any additional color there would be helpful.

Speaker 2

Yes. I mean, I'm not really going to break that up, but what I would tell you is that Supply chain has been a constant problem for us for the last year, year and a half. So Assuming that that's a good chunk of it, it's probably not bad. But as you know from our Investor presentation, high energy does carry better margins than high current. So, I think in Q1, When we did the guidance, we talked about a figure mix of high current, for example.

Speaker 2

So That is part of that. The other thing that's in there as well is on the freight side of things. We are seeing improvements with freight As the supply chain has continued to recover, it's allowed us to And I'll be doing overnight shipments or air shipments and getting back into containers and getting stuff brought in at much lower Cost methods and then even container shipments from coming from Asia, for example. They're probably I don't think the fact that they were pre pandemic, but they were up 4 or 5x, they're probably up 2x right now. So there's a lot of pieces coming starting to come through.

Speaker 2

And the last thing really was, we had mentioned on the last call too that We had quite a bit of higher priced inventory. So that's burning through and starting to be replaced with So I'm not giving you a percentage. Those are

Speaker 8

all Yes. No worries. I appreciate the color.

Speaker 2

Yes, no problem. Thanks.

Operator

Thank you so much. And your next question comes from the line of David Duley. Your line is now open.

Speaker 9

Good morning. Thanks for taking my question. Mary, I just wanted to echo Craig's comments, congrats on a great run and we're all very happy shareholders. First question from me is, Kevin, I guess the math works out. You're kind of guiding the first half gross margins at 41.5%.

Speaker 9

To get to 44%, you're going to have to average 40 6.5% in the back half of the year. That's just the way the math works out. Now my question there is, would that be the starting point for gross margins In calendar 2024, is there any reason to think that we would have a dip back down in gross margins?

Speaker 2

Well, I mean we have our $1,300,000,000 model out there. And If you look at kind of the pieces of gross margin, we always say CS and I is very accretive, right? So as we grow to $1,300,000,000 CS and I We'll not grow as fast, systems will grow faster, which in reality if those margins aren't as good as CS and I that puts a So I don't think I'm prepared to say anything, Dave, beyond that. We have a $1,300,000,000 model Yes, so just at least 45% gross margins. As you We've made a lot of improvements on gross margins over the years.

Speaker 2

It continues to be, as I always say, an area where we're laser focused on. I think you know, I've got deep hands into the business too when it comes to margin. So I'm constantly looking for ways With the team to find how we can make things better. So if we can do better, we'll do better. But for now, We're trying to get back to that 44%.

Speaker 2

And it's hard for me to say even in Q1, right? I don't know what the mix is going to do necessarily, right? So That's why, we say look at the full year, don't hold me quarter to quarter, but we'll on a full year basis, we're going to get you to where we say we're going to guess.

Speaker 3

Okay. And then kind of as

Speaker 9

a follow on to an earlier question, either on the 12% revenue growth that you have this year or The 39% revenue growth you had last year, how much of that comes from units increasing and how much of that comes from ASP increases?

Speaker 2

Well, it's mostly all units. We haven't I mean, as you know, we have I guess if you're asking, I mean, the product extensions have Higher ASPs, which helps our margins, but we're it's not like we're all getting a lot we're not getting Price increases on products we've been selling, for example, right? So it's really it's units. We're shipping more Cessna, we're shipping more CS and I. Yes, that's a simple answer.

Speaker 4

Okay. Yes. I mean we announced that we had shipped the 500th Purion system earlier in the year and so System shipments have certainly increased dramatically.

Speaker 3

Yes. Okay. And then as

Speaker 9

far as the Backlog goes actually not the backlog. There was a big increase in deferred revenue both sequentially and I think year over year it's up like 2.5 times. What's the reason behind that?

Speaker 2

The simple answer is We are getting a lot of prepayments. And we've got $445,000,000 of cash at the end of the quarter With short term investments included, we have a what I will call a meaningful Amount of prepayments. So probably the biggest thing moving that, Dave, is the fact that That prepayment balance continues to increase on system. And the other piece of it is, as you know, we're shipping more Tools and there is a piece of the revenue that gets hung up until the install is complete. So that's growing.

Speaker 2

But I would say the most significant reason why we popped over the last few quarters is it's coming through on a prepays

Speaker 9

And just so I understand the accounting of this to prepay,

Speaker 2

are they giving you the full cost of

Speaker 9

the system? Is it deposits Are customers trying to secure future capacity? Just the nature of these payments?

Speaker 2

Yes. So we're With certain customers, we're requiring money down. It's typically not the full payment, But in some cases, it could be the value of the material that goes in the tool. And if I look at the cost of my tools, 85% of its material, the rest is labor and all the other stuff. So we want to make sure that if somebody decides they Don't want the order.

Speaker 2

We're not left hanging with materials. So it's a sizable chunk of money in some cases. And again, this is not with our customers. This is with maybe customers where we don't have a strong relationship. There may be newer customers Maybe in particular region, where we want to ask for that.

Speaker 2

And we haven't had Any problems with people kind of phoning up and putting money down.

Speaker 9

All right. Thank you. Okay.

Speaker 2

Thank you, Dave.

Operator

Thanks, Dave. Thank you so much. Your next question comes from the line of Mark Miller from The Benchmark Company. Your line is now open.

Speaker 6

Let me also add my congratulations on the continued exceptional performance and Mary, good luck with your new position. I just wanted to follow through. You mentioned you closed the Purion H eval during the quarter. Do you expect to close any other evals by the end of the year? And do you expect these evals to lead to additional orders?

Speaker 1

So we have 6 evals out in the field right now. And if you take a look at where they are And the types of equipment, I think about half of them, Mark, will close in 2023. And then the other three We'll bleed into 2024 and a lot of that is just based on the timing of when they were shipped and also the development that we're doing with The customers out in the field, you know that, basically eValve can either close Prior to a 12 month period, which is the exception rather than the rule and then they can bleed even a little bit over a year depending on the work that we're doing with The answer is yes. We expect the eVal to turn into additional business. We have a Purion M right now under evaluation for DRAM application at a customer that has multiple Purion types and we do expect that to turn into additional business.

Speaker 1

We have an See, Max out as a customer right now, it's a new customer and that should also turn into new business. 2 Purion Hs are out there, one is a new And one is a new high current customer. They have other types of Purion. And then the Purion XE that's out in the field is Also for a general mature type of application, but it's a new high energy penetration that customer has other types of Purion Tools. And then finally, the Dragon, the Purion Dragon, which I mentioned earlier, is out for evaluation at For Advanced Logic and that's at a customer that has multiple types of Purion.

Speaker 1

So some of these customers are new, but most of them are actually customers that are just adding additional types of Purion products to their portfolio, all of them are I mean, we really wouldn't put The evaluation unit out there, if we didn't expect it to be successful and to turn into future repeat business.

Speaker 6

Thank you for all the color. Your taxes came down and tax rate came down this quarter. What should we think about for taxes for the remainder of the year?

Speaker 2

I'm glad you asked that Mark because I'm going to get asked by a lot of people. What I would tell you is I continue to model things at 15%, but I'm going to help you out Q2 and tell you that I'm modeling it 13% to 14%. So, but I always kind of leave it at 15%. The biggest reason why we're not paying the corporate tax rate of what is it, 21, 22, 21, I guess, is because A lot of our shipments go offshore, so does that FIDD deduction. I think we pay 13% on shipments that go offshore.

Speaker 2

So that's why I always kind of build at 15%. But there's R and D tax credits coming in. There's things with stock comp expense and that impacted From quarter to quarter, so use 13 or 14 in Q2, Probably going to need to get to the numbers and I'll just as the year goes on as I feel comfortable, Maybe I'll take it down, but I'll tell you personally in my models, I just leave it at 15% in the Q3, Q4 right now.

Speaker 6

Thank you.

Speaker 4

Yes.

Speaker 1

Thanks, Mark.

Operator

Thank you so much. And sir, ma'am, you have no question at this time. This is the Q and A portion of the call. I will now turn the call back over to Mary Puma, who will make a few closing remarks.

Speaker 1

Thank you, Leeway. So I'd like to thank you all for joining us today. We have a busy investor calendar in the coming months. In May, we will be at the B. Riley 23rd Annual Institutional Investor Conference in Los Angeles and the Craig Hallum 20th Annual Institutional Investor Conference in Minneapolis.

Speaker 1

We will attend 4 conferences in June, the TD Cowen's 51st Annual TDT Conference in New York City, the Stifel Cross Sector Insight Conference in Boston, The Needham Virtual Automotive Tech Conference and the William Blair 43rd Annual Growth Stock Conference in Chicago. In July, we will be attending the CEO Summit in San Francisco and conducting additional investor meetings at Semicon West. We hope to see you at one of these events. Thank you.

Operator

Thank you, presenters. And this concludes the presentation. Thank you for your participation in today's conference. You may now disconnect.

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Earnings Conference Call
Axcelis Technologies Q1 2023
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