Axcelis Technologies Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Charles Shi - Needham & Company, LLC - Analyst : Hi, good morning. Maybe the first question, want to get a sense, of your assessment, slightly better second half, for the year, I heard you are guiding, I mean, roughly speaking, flatish into Q2, but what are some of the factors you're seeing that could get your second half slightly higher than the first half? That's the first question. Thank you.

Question: Charles Shi - Needham & Company, LLC - Analyst : Thanks, for, walking us through, a few of the market assumptions, behind the outlook. Maybe another question, maybe this is not a big part of the business. I want, I do want to ask about memory. It sounds like you guys still think, vast majority of the memory revenue in 25 is going to come from DRAM, and over the course of last couple of weeks, we did hear a little bit more positive commentary from some of your peers on NAND 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 no upgrade or maybe there's some hope or maybe at some point you're going to see some upside in NAND I just want to get your thoughts on that. Unidentified Company Representative 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, 25 relative to 24, [albeit] 24 is a low base, thinking specifically about NANDs, we only sell more implanters to memory in general, both DRAM and NAND, when they expand the number of wafers out. So, if they change the technology node and in terms of NAND Put more and more layers on that might be great for death and edge. It's not really helping the number of wafers out. So right now I'd say that, customers in the quiet times, they use that time to 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 plans, but until they start filling those new factories, we won't start to see the benefits of that.

Question: Craig Ellis - B. Riley Securities - Analyst : Yeah, thanks for taking the question and congratulations on 2024's risk margin performance guys. I wanted to start just focused on some of the near term dynamics. So, what are the things that you're seeing in the business that might indicate that 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 2nd quarter 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 GOs or just an easier base coming off of the second half of last year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 11, 2025 / 1:30PM, ACLS.OQ - Q4 2024 Axcelis Technologies Inc Earnings Call

Question: Craig Ellis - B. Riley Securities - Analyst : That's really helpful color guys. And then Jamie, I wanted to follow up with some of the for your color that was provided on the shape of potential revenues to see if you could provide 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 gaining gross margin year on year. Thank you.

Question: Craig Ellis - B. Riley Securities - Analyst : Thanks for the granularity on those guys.

Question: Jed Dorsheimer - William Blair - Analyst : Hi, thanks for taking my question. I guess, first one, if we look at the silicon carbide business and we look at last year, roughly about 60 tools, that you guys did, as you're looking forward, is China still about half of. Or was China roughly half of that. I'm just trying to gauge, as you look into 25, the total exposure. I know you talked about the AK and, around trade, but I'm looking in absolute terms what that exposure may look like and then I have a follow up.

Question: Jed Dorsheimer - William Blair - Analyst : That's helpful. Russell then just two parts follow up if you will, I guess, and maybe for Jamie, what percentage of your backlog is secured by customer deposits and then Russell, just as you mentioned on some of the DRAM and advanced logic, is there a technology trend that you've developed that we should be aware of in medium current and, in high current, that positions Axcelis [us vis a vis] the competition of what we saw with high energy for silicon carbide. Thanks.

Question: Jed Dorsheimer - William Blair - Analyst : Yeah. Your market share in high energy is materially different than medium current and high current and so I'm just wondering if you start focusing on these applications for medium and high current, has there been a recent development in the use of the linear accelerator, for example, or something that's that differentiates, you [visa visa] competition and for those other Applications.

Question: Jed Dorsheimer - William Blair - Analyst : Thank you.

Question: Jack Egan - Charter Equity Research, Inc. - Analyst : 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? Unidentified Company Representative Yeah, no, I mean, honestly it was fairly broad based in the 4th quarter. It was multiple customers across multiple regions where we saw the strength. I think, we did see people taking advantage we've talked a lot about how, as our customers start to slow down, 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 (In audible) Space that they're utilizing and this is, I think the [yin and the yang] to our business at the end of the day. We've increased the number of [Purian] products out into the field very fairly materially over the last few years. The power of that install base is what provides us the opportunity to take advantage of these cycles and get 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, differentiated upgrades that provide efficiencies to our customers and to their fab space. And so, I think that's kind of what we were seeing here in the 4th quarter as well as a little bit of the budgeting as we talked about before, some of our, fab partners and customers were, looking through and working through their budget opportunities for the period. Going into 25. We've got some relative expectations for upgrades throughout the course of the year, although we're not going to, we don't are not currently forecasting the same level of upgrade activity in the first quarter of this year, which is why we, are seeing a little bit of moderation in margin. Upgrades typically provide our highest margin relative to the consolidated average, just given, how valuable they can be to the customer at the end of the day. Yes, I can just kind of follow on from that, this is a very focused strategy. We have been investing heavily in upgrades because it's a great opportunity for us, and the good thing about an upgrade is you get to sell it to the entire industry base. So, 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.

Question: Jack Egan - Charter Equity Research, Inc. - Analyst : Great, that's super helpful thanks guys.

Question: Dave Duley - Steelhead Securities - Analyst : 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. Unidentified Company Representative It should be in the slide presentation. I think we can pull that up. 36% for the quarter and 41% for the full year for so yeah. 6% of year every year.

Question: Dave Duley - Steelhead Securities - Analyst : And now, didn't, you talked about not wanting to break things out on geographic regions. Do you expect silk and carbide to be up in the second half of the year, even though there's digestion in the first half? Unidentified Company Representative Yeah, we're not going to get in that level of granularity just yet, Dave.

Question: Tom Diffely - DA Davidson - Analyst : Yes, good morning, 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.

Question: Tom Diffely - DA Davidson - Analyst : Yeah, so is it safe to assume that both Japan and advanced Logic are more of a 2026, 207 story? Unidentified Company Representative I think so, we haven't, so when we built our $1.6 billion model back in the summer, we did actually have, we want to see secular growth in silicon carbide, we've talked about that, we want to see recovery and memory in general mature. When it came to advanced logic in Japan, we had modest numbers in the model for that in 2027. So, you're going to see again a modest improvement year over year building towards a modest component in our $1.6 billion business. And remember that $1.6 billion we're expecting say $400 of that to be aftermarket. 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.

Question: Tom Diffely - DA Davidson - Analyst : Okay, but does the backlog represent, the next 12 months or is it total backlog going forward? Unidentified Company Representative Some of it goes to the first couple of quarters 2026, yeah. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 11, 2025 / 1:30PM, ACLS.OQ - Q4 2024 Axcelis Technologies Inc Earnings Call

Question: Mark Miller - Benchmark Company - Analyst : Thank you for your question. I just had a question. You're projecting to 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 [SGNA and R&D]. What's going on there? Unidentified Company Representative Yeah, so as it relates, I think the general commentary is our view is to have, 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. And then, throughout the rest of the year we anticipate, 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, sort of compensating that would be the difference would go through the [SG&A] line out. Yeah, Mark. I think it's clear that, we believe investing in our products and services, working close to their customers is one of the best returns we can have. So, we actually kind of the downturn slightly is 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, focused on products and services working with our customers.

Question: Mark Miller - Benchmark Company - Analyst : Okay, so basically for the first quarter, both [SGNA] and [R&D] is flat to slightly up, is that correct? Unidentified Company Representative Yes.

Question: Christian Schwab - Craig-Hallum Capital Group LLC - Analyst : Great, thanks guys. Just in the mix of business if we look at it by in market, call it auto and industrial, is it as simple as, taking silicon carbide and IGBT versus, general mature to get the mix of business between, and market shipments to say auto and industrial. Unidentified Company Representative So, I think yeah, I don't fully follow the question, but I would say, Christian, that basically our general 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.

Question: Christian Schwab - Craig-Hallum Capital Group LLC - Analyst : Great and then follow up to that on your automotive exposure. What percentage of that do you think services the domestic Chinese market versus global players? Unidentified Company Representative Okay, on silicon carbide products we sell, right? I would say our European customers are largely the ones putting those silicon carbide devices into the automotive. It's fair to say that the domestic Chinese manufacturers, even the BYDs as well, we don't believe they're qualified yet to put their devices because of the reliability requirements into their own electric cars. I can think of maybe one company in China that may be ahead of the curve, but ultimately, 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.

Question: Christian Schwab - Craig-Hallum Capital Group LLC - Analyst : Correct, yes, got it. And then we talked about an investment year for customer ramps. I guess I'm kind of confused on what technology investments you're investing for. Is this, for new upgrades to machines and if you could provide greater clarity of what that exactly means, is there transitions in. And what you're providing as far as a box structure, for different applications, current energy, etc. For 400 to 800 gigs, volt changing transition. I'm trying to understand what the investments that you're making to drive future growth. what's changing that you're sustaining the investment? Unidentified Company Representative Yeah, so part of it's a little bit all of the above right at the end of the day. So, part of it is incremental upgrade opportunities that then flow into new product development and technology. So, as we think about, our power customers very broadly. Our team is working through solving some of their critical challenges to improve throughput efficiency, reliability of the devices at the end of the day. And so, we're making investments to ensure that, one, we can go back and upgrade the suite of tools that we have available for those and continue to transition our products, 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 road maps 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. So, if you think about what we've been going through with silicon carbide, started off with a medium current machine, but we knew that as people moved to trenches and super junctions, they needed a high energy. In fact, the energy's actually been creeping up and up and up. So that's an example of where we have to develop the right equipment and that's where we're putting our resources. The other thing is, I mean, we haven't talked much about it, but proton implantation for IGBTs, those energies have gone up significantly, and that takes a lot of innovation to be able to support our customers with a highly productive tool that can achieve the energies. As stated, strategy of driving with the secular growth in silicon carbide, making sure we have 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. Yeah, those are multi-year projects that you know we're committed to.