Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the first quarter of 2022. My name is Sylvana I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facility question-and-answer session towards the end of this conference. [Operator Instructions]. I would now like to turn the presentation over to your host for today's call. Mary Puma, President and CEO of Axcelis Technologies. Please proceed, ma'am.

Thank you, Sylvia. With me today is Kevin Brewer, Executive Vice President and CFO, and Doug Lawson, Executive Vice President of Corporate Marketing and Strategy. We are all participating in this call remotely, so I would like to apologize in advance for any technical difficulties. If you've not seen a copy of our press release issued yesterday, it is available on our website. Playback service will also be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits, and other results are forward-looking statements under the SEC Safe Harbor provision. These forward-looking statements are based on management's current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form, 10-K annual report and other sec filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements. Good morning and thank you for joining us for our first-quarter earnings call. 2022 has begun exactly as 2021 ended for both Axcelis and the industry, with significant demand for chips in the capital equipment required to produce them. Turning to Axcelis, specifically, the adoption of the full Purion product family has been strong and continues to gain momentum across the large and growing customer base. Customer satisfaction remains our top priority. Today, despite the challenging supply chain and logistics environment, solid execution by the full Axcelis team has allowed us to keep up with this high level of customer demand, need shipments, and maintain high levels of customer satisfaction. I would like to thank our dedicated employees once again for delivering these results under these challenging conditions. As a result of this demand and…

Thank you, Mary, and good morning. Axcelis delivered exceptional first-quarter financial results, beating company guidance and consensus estimates across the board. Favorable mix, higher tool sales, and strong execution drove solid top and bottom-line results in Q1. Throughout the quarter, our purchasing and engineering teams worked closely with suppliers to mitigate supply chain disruption while our manufacturing team filled the gap and performed at a very high level. Pandemic-related shutdowns, nagging chip shortages, and logistics issues are continuing, and we're working hard strategically and tactically to tackle these issues. As Mary mentioned, 2022 is on track to be another great year for Axcelis, and we now expect full-year revenue to be greater than $850 million. End markets are strong and visibility remains good. Like others in the industry, we are dealing with similar supply chain disruption and higher costs, and I've included these anticipated challenges into our Q2 guidance and full-year forecast, but the situation is changing almost daily. As noted in our last call, we began production at the new Axcelis Asia operations center in South Korea, and we have now shipped multiple systems from the AOC as we continue to ramp production levels. This factory edge flexibility and manufacturing capacity to support our $1 billion revenue model. Moving now to our first quarter financial results. Q1 revenue finished at $203.6 million, well above our guidance compared to $205.7 million in Q4. Q1 system sales were $151.8 million compared to $147.3 million in Q4. Q1 CS&I revenue finished at $51.8 million, compared to $58.4 million in Q4. We expect Q2 CS&I revenue to be around $51 million and recommend modeling the remainder of 2022 at $55 million per quarter. Q1 sales chart, top 10 customers accounted for 69.8% of our total sales, compared to 71.9% in Q4. Two customers…

Thank you, Kevin. We are pleased with our first-quarter results and excited about the opportunity to achieve revenues greater than $850 million in 2022 a year earlier than previously expected. Axcelis has a competitive Purion product line, a broad and diverse customer base, a strong balance sheet, and a dedicated team of employees. We are well-positioned for significant sustainable growth. The implant market is increasing thanks to strength in the overall semi conductor industry, but also due to a rapidly expanding mature process technology segment. The capabilities of Purion product extensions like the Purion Power Series, combined with the implant intensive nature of the image sensor and power device segments, uniquely position Axcelis to benefit from the electrification of the automotive industry. We are experiencing what is the most exciting times in the history of the semiconductor industry. And we are confident that we are making all the right investments to achieve leadership in ion implantation. Axcelis is working through current supply chain and logistics related headwinds and they are committed to maintaining high customer satisfaction levels during these challenging times. With that, I'd like to open it up for questions. Sylvia.

[Operator Instructions] The first question comes from Patrick Ho from Stifel.

[Operator Instructions] Patrick Ho from Stifel, you're on the line, please go ahead. If your line is muted, please unmute yourself. Patrick, if your line is muted, can you please unmute? [Operator Instructions] Patrick Ho from Stifel.

Can you hear me?

We can hear now, please go ahead.

Yes, we can.

Great [Indiscernible]. Congrats again and thanks for taking my question. Maybe first off for you Kevin, in terms of the supply chain issues, the locked-out, this is something that's obviously affecting everyone. As we look at the June quarter, can you qualify what the biggest issues are. Is it parts procurement? Is it labor availability? Is it the COVID lock downs? Maybe from a gross margin perspective, how much of that is impacting at least the June quarter in terms of these called supply chain issues?

Yes. It's good. In terms of the lock-downs in China right now, the biggest impact to us is probably on the CS&I side of the business, getting materials in and distributed throughout China. There have been shortages coming out as well. There's some particular suppliers we have, Patrick, that have been down waiting for commodity level things out of China. So there is impact on the supply chain side for sure. I think one of the things that probably hit us the hardest since this pandemic has started, in this quarter was suppliers having shortages with chips. We've been working through this issue for several quarters, in many cases were orders, proprietary designs, we were able to kind of work around them with our engineering teams and find alternatives. But this quarter seemed to be more difficult in terms of some of our suppliers getting hit hard. So that's something that's been out there for a while, and it's something that probably was a little bit part of this quarter. So the supply chain is difficult across the board. There's a lot of stuff from chip shortages, the commodity shortages, to logistics issues that have been out there for quite a while, now just getting material moved in and out. We're continuing to work with those. We're very focused with our engineering team helping out. The supply chain people are working hard to mitigate that, and again, we're moving on. In terms of the margin impact, this quarter in Q2, to be honest with you, a lot of it is a big shift in mix from where we were in Q1. As the year runs on, these higher supply chain costs are starting to catch up with us. I think as you know, we've had some pretty good margin improvement…

Great. That's really helpful, Kevin. As my follow-up question, and I'll throw it out to all of you. CS&I business continues to deliver for you guys, it's very accretive to margins, and you're projecting some growth in the second half of the year. What's the biggest driver given that I guess utilization rates are high right now for chip makers, the supply chain is an issue for all parties involved. Is it upgrades, is it spare parts, is that the biggest driver or is it a mix of different products?

Yes. So it's kind of all the above. I mean, certainly we're -- as we continue to ship more pier and product to the field, there's some level of entitlement that goes with that, So there's spare parts that comes with that. And then at some point after the off-warranty, there's the service on the break fix type of things. So that's -- there's no doubt that spare parts from utilization and more tools out there is a big piece of it, but upgrades is another area where we've always continued to focus on and we're having good results driving new upgrades that field, which typically tend to be very good margin you've got to. The bottom line with upgrades is if we can develop them we can probably sell them. Most -- there's not a lot of third-party competition and upgrades. They don't have the technology or the capabilities that design. That's a part of the business that we can control. We have in our engineering teams are continuously working on various upgrades that can improve either yields are throughput, these are all things at the customers like and that's part of the business that we're continuing to work on the grow of that. So it's really upgrades in the spare parts that's driving that. It's not the use tools because trying to find cores today is almost impossible. So the growth is coming in those areas which are two areas that are good for us, Patrick, in terms of the margins.

Great, thanks again and congrats.

Yes. Thank you.

We have no questions at this time. [Operator Instructions]. And our next question comes from Mark Miller, the Benchmark Company

Congrats again on another great quarter. Just trying to think here, tax rate went down last quarter. What are you projecting for taxes for the rest of this year?

Yeah. Mark, I would model is 15% --

15%?

-- for the rest of the year. Yes, 15%. I think we've always kind of told you to paying into 20%, 21%. But with this new deduction for a foreign ship product that we're getting and that's really because we've exhausted NOLs now so we can take advantage of this new deduction. That's going to keep our tax rate down, so I've modeled 15%.

SG&A is gone up somewhat in June quarter and also for the rest of year. Is that driven more by R&D or -- CapEx is going up more than the March quarter, is that being driven by R&D or SG&A?

Yes. It's a little both, but I -- really full-year we're projecting to be 21%, so it's going to come back down in -- even though it's up a little bit in Q2, full-year should be at 21%. And if you look at where our models had us mark on the 850 model that we put out last December, it was 21% to 22% so, we're going to hang on the lower end of that and pick up some savings on the OpEx. So we're we're right on our models we're executed a low on our models, so it's full-year 21%.

Great. Thank you.

Our next question comes from Hans Chung from D.A. Davidson.

Hi, thank you for taking my question. I just wanted to follow-up on the gross margin. You mentioned that there's big shift in the mix. And -- can you elaborate more on all the dynamic here, like what kind of shift, and how should we think about just the going forward, maybe the second half. I know you put out the full-year guidance, but just any color will be helpful.

Yes. So on the mix side of things, each of the product lines carry different margin levels. And we actually there is a chart that's an investor presentation that shows how the contribution level is the standard margin level on high energy, high current, medium current. And you can see that on the bar chart there is a difference that's very noticeable between each of those product lines. So this quarter, the short answer is, is less high-energy waited. And then the other thing is that can impact this quarter-to-quarter two is the mix of CS&I in terms of how much revenue comes from from CS&I. We don't provide a gross margin at CS&I, but it's accretive to the overall bottom-line margins. There's a little more growth on the system side this quarter versus CS&I because it's flat with last quarter and our revenues are coming up, so that puts a little bit of drag. But as I mentioned and as you pointed out, full-year will be 42%. As I mentioned with Patrick, there's quite a bit of drag right now coming out of the supply chain, anywhere from 150 basis points conservatively to probably as high as 200 basis points, so that's really the bigger gross margin start. We always have had fluctuation quarter-to-quarter and it will continue that way based on mix and stuff, which is why we always try to just focus on the full year because it tends to average out from quarter-to-quarter.

Got it. Thank you. That's what I had. Thank you.

This concludes the Q&A portion of the call. I will now turn the call back over to Mary Puma, who will make a few closing comments.

Thank you, Sylvia. Thank you all for joining us today. We hope to see you at our very active upcoming investor event schedule. We will be participating in the 22nd Annual B. Riley Institutional Investor Conference in Los Angeles in May and we are participating in three conferences all in June. The 19th Annual Craig - Hallum Institutional Investor Virtual Conference, the 50th Annual Collin Technology, Media and Telecom Conference in New York City, and the Stifel 2022 Cross-sector Insight Conference in Boston. During Semicon West in July, we will also be participating at the CEO Summit, as well as hosting our own Axcelis Investor Breakfast Seminar. And we will be attending the DA Davidson Big Sky Technology Summit in Montana in August. We thank you for your continued support and please stay healthy.

This concludes the presentation. Thank you for your participation in today's conference. You may now disconnect. Good day.