Axcelis Technologies, Inc. Stock

Officer. Please go ahead.

Thank you, operator. This is David Ryzhik, Senior Vice President and interim Chief Financial Officer, and with me today is Russell Low, President and CEO. If you have not seen a copy of our press release issued earlier today, 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. 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 provisions. 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 annual report on Form 10-K 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. Given the pending merger with Veeco, we will not be addressing questions related to the transaction. During this call, we will be discussing various non-GAAP financial measures. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than revenue. Please refer to our press release and accompanying materials for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures. Now, I'll turn the call over to President and CEO, Russell Low.

Thank you, David. Good morning, everyone, and thank you for joining us for our third quarter 2026 earnings call. Before I get into our quarterly results today, I'd like to share a brief leadership update. As we announced on October 27th, we're pleased to welcome Jeroen Delsman as Executive Vice President and Chief Financial Officer beginning November 12th. Jeroen brings deep financial expertise, extensive global industrial and semiconductor industry experience, a strategic mindset, and proven leadership ability to the role. He has a demonstrated track record of leading organizations through phases of growth and transformation, building strong teams, and translating strategy into measurable results. I look forward to partnering with him as we pursue our growth opportunities and build an even stronger company through our next chapter. I'd also like to thank David for his contributions and leadership while serving as interim CFO. Following Jeroen's arrival, David will transition to his new role as Senior Vice President, Corporate Development and Investor Relations, reporting directly to me.

His deep knowledge of Axcelis, our markets, and our business will be especially valuable as we continue to advance our strategic priorities. Turning to our performance in the quarter, we continued to build momentum in the third quarter as the demand backdrop strengthened further. We reported revenue of $238 million and earnings per diluted share of $1.26, which exceeded our expectations due to higher revenue and lower operating expenses, more than offsetting lower gross margins due to foreign exchange headwinds. These results reflect sequential improvement in systems delivered combined with another quarterly record in CS&I revenue. As expected, systems growth in the quarter was driven by an improvement in power and memory markets, partially offset by a relatively small sequential decline in General Mature following a strong second quarter. CS&I continues to exhibit strong momentum supported by a growing installed base, higher customer utilization of our tools in the field, and the continued growth in our service contract and upgrade offerings. CS&I continues to represent an important driver of our long-term growth and profitability across market cycles.

System bookings grew significantly quarter-over-quarter with our book-to-bill coming in at 1.5. This further supports our view that the end markets we serve are strengthening and that we are entering 2027 with positive momentum. Turning to our systems revenue by segment, sales to mature node applications accounted for approximately 78% of system shipments, with memory and advanced logic making up the balance of our sales. Now let me review our trends by end market. Beginning with power, sales from silicon carbide applications grew notably on a sequential basis. This reflects broad-based improvements in demand, including customer pull-ins in Europe and Asia. Combined with high utilization rates and increased customer engagement, this reinforces our view of a strengthening demand environment.

We're also seeing an expanding range of applications driving silicon carbide adoption beyond traditional automotive, industrial, and solar markets. AI-driven power requirements and data center investments are emerging as additional demand drivers. At the same time, declining wafer costs are improving the economics of silicon carbide across a broader range of applications, including consumer and commercial products. As a result of the investments we've made over the past few years in our technology, we are now well positioned to capitalize on these dynamics and the increasing adoption of more advanced device architectures and customers' transition to 200-millimeter silicon carbide wafers. Our wafer handling technology enables demanding high-temperature implant applications while ongoing improvements in cost of ownership deliver value to customers and expand opportunities for our CS&I business. We're also beginning to see the benefits of our early investments in the precision and process control capabilities required to enable low-cost superjunction adoption. This is translating into growing commercial traction with multiple Tier 1 customers selecting our Purion XE family equipped with advanced channeling technology.

In our other power markets, third quarter sales declined modestly following a strong second quarter, but remained elevated compared to the prior-year run rate. Demand continues to benefit from improving utilization across automotive, industrial, consumer, and data center applications. In silicon IGBTs specifically, we're also seeing growing interest in our new proton implant solution with multiple orders for the Purion VXE LT+. Proton implantation is increasingly important in high-performance silicon IGBTs, helping improve power efficiency and device reliability. We're also seeing growing interest in our solutions for power management ICs or PMICs supported in part by increasing data center demand. In General Mature, sales declined modestly on a sequential basis, but remained consistent with levels seen throughout 2026. More importantly, bookings showed strong growth on a sequential basis, following several years of softer demand supported by rising utilization rates and renewed customer investment.

North America was a particularly strong contributor, reflecting increased customer investment, including capacity expansion plans associated with AI-related demand. General Mature continues to represent a large market opportunity for Axcelis, given the high implant intensity of these applications and our ability to address a wide range of customer requirements with our broad portfolio of high-energy, high-current, and medium-current platforms. Our recently introduced Purion H6 high-current system further strengthens our competitive position in this market, and we are seeing increased customer interest as investment activity recovers. Turning to our advanced logic market, we shipped the follow-on system we highlighted last quarter for a materials modification application supporting 2-nanometer production. We continue to work closely with leading customers on advanced node technology roadmaps, where 2 nanometers and future process technologies are creating additional opportunities for material modification applications. In memory, the industry demand environment remains robust, supported by accelerating investments in DRAM and HBM capacity to address growing AI-related requirements. We're seeing momentum in the engagements with our memory customers in Korea, as well as with our customers outside of Korea.

In fact, building on our strong presence in Korea, we recently celebrated the groundbreaking of a new manufacturing facility in Pyeongtaek, representing a $35 million investment in our global production capabilities. We're especially pleased to mark the occasion alongside representatives from our major Korean customers, underscoring the strong relationships we have built in the region and our long-term commitment to supporting their growth. The approximately 200,000-square-foot facility will consolidate and expand our Korean manufacturing operations and enhance our ability to respond quickly and with more flexibility to meet customer requirements. Production is expected to begin in the second half of 2028. This investment represents an important step in expanding our global operations infrastructure to support our customers' long-term growth plans. Now, let me wrap up my thoughts and provide our perspective as we exit 2026 and move into 2027. While the broader demand environment is clearly improving, we are particularly pleased to see our strategy to continue to invest through the recent digestion period beginning to yield results.

Our next-generation technologies, including our Purion H6 high-current implanter for General Mature and new high-energy proton implant solution for silicon IGBTs, our advanced channeling technology for silicon carbide, and several other technologies are gaining traction as customers' investment recovers. In addition, we have seen increased interest in our highest energy solution, the Purion XE Max, and we also recently expanded our engagement with a leading European research institution with the placement of a medium-current system to complement our existing high-current system already installed, expanding our portfolio there. As we look ahead, we are increasingly encouraged by the broadening recovery across our end markets and expect growth in 2027 across memory, power, and General Mature. This outlook is supported by continued investment in DRAM and HBM capacity, recovering conditions in silicon carbide, and growing activity across General Mature applications. Higher customer utilization, increased bookings, and expanding investment plans further reinforce our confidence in the demand environment. At the same time, our CS&I business continues to provide a growing foundation for revenue and profitability. We also look forward to completing our pending combination with Veeco Instruments and the potential to create a stronger company with expanded capabilities, broader growth opportunities, and long-term value for our shareholders.

The parties continue to work constructively towards obtaining the required regulatory clearance in China. Given the upcoming expiration of our current HSR clearance, we also plan to promptly make a new HSR submission. We now expect the merger to close by the end of the first quarter of 2027. Finally, I want to thank our employees, customers, partners, and shareholders for all their continued support and confidence in Axcelis. With that, let me turn the call over to David for a closer look at our financial results and outlook.

Thank you, Russell, and good morning, everyone. Let me now start with the financial details of the third quarter before turning to our outlook for the fourth quarter. Third quarter revenue was $238 million, consisting of system revenue of $145 million and CS&I revenue of $93 million. Beginning with our third quarter results, we are no longer separately disclosing the services component of revenue and gross margin. Services represents a small percentage of our broader CS&I business and, on a stand-alone basis, is not representative of the overall performance of CS&I. Accordingly, we believe presenting these amounts within our consolidated results provides a more meaningful view of our business. Now, turning to our revenue by geography, revenue in China remained flat from Q2 at 46%.

Korea was our second-largest revenue-generating region at 18% of our total revenues. In our other regions, the United States was 13%, Europe 12%, Taiwan was 2%, and Japan was 1%. The remaining 8% of revenue came from the rest of the world. Bookings were $222 million, the highest quarterly bookings since the fourth quarter of 2023. As a result, our backlog exiting the quarter increased to $531 million. Now, let me share some additional detail on our results. Gross margin was 41.2%, below our outlook of 43%, primarily due to the sharp strengthening of the Korean won relative to the U.S. dollar.

Given our growing presence in Korea, this presented a headwind to our gross margin. This was partially offset by a corresponding increase in FX gain in other income. Third quarter operating expenses were $58.5 million, below our outlook of $62 million, primarily due to lower-than-expected fringe costs, as well as slower-than-expected onboarding of new hires. Putting it all together, our operating margin was 16.6%. Third quarter adjusted EBITDA was $44 million and adjusted EBITDA margin was 18.5%. Other income was $7 million, higher on a sequential basis due primarily to the aforementioned foreign exchange gains. Our tax rate was 16%. In the quarter, we benefited from the reversal of tax positions resulting from an audit closed in the period.

However, these discrete audit-related items have been excluded from our non-GAAP effective tax rate. And finally, third quarter earnings per diluted share was $1.26, exceeding our outlook of $1.11. Free cash flow for the third quarter was $38 million, and we exited the third quarter with a strong balance sheet consisting of $615 million of cash, cash equivalents, and marketable securities on hand. This includes $143 million of long-term securities. With that, let me discuss our fourth quarter outlook. We expect revenue of approximately $275 million. We anticipate the increase to be primarily driven by sequential improvement in our power and General Mature markets.

As we look beyond the fourth quarter, we currently anticipate revenue in the first quarter of 2027 to be relatively consistent with fourth quarter levels. This is despite the seasonally lower CS&I revenue we typically experience in the first quarter. We expect fourth quarter gross margins of approximately 42.5%. We expect operating expenses of approximately $65 million. The sequential increase primarily reflects annual merit increases, continued investment in R&D, higher fringe costs, and an increase in variable compensation associated with an improvement in our business. Adjusted EBITDA in the fourth quarter is expected to be approximately $56 million. We anticipate a tax rate of approximately 15%.

And finally, we estimate net earnings per diluted share of approximately $1.50. In summary, we're exiting 2026 with strong momentum, positioning ourselves for another year of growth in 2027. At the same time, we remain focused on investing in the key growth opportunities ahead of us while maintaining discipline on cost. Taken together, these priorities, along with our robust balance sheet, provide a strong foundation as we prepare to merge with Veeco and position us to deliver attractive long-term growth, profitability, and value creation for our shareholders. Before I turn it over to Q&A, I'd like to add that it has been a pleasure to lead our talented finance organization in an interim capacity. I look forward to continuing my engagement with investors and analysts, while also leading the integration planning and execution for our pending merger with Veeco and our broader corporate development efforts. I also look forward to working with Jeroen and introducing him to the investment community after he joins.

It's an exciting time at the company, and I believe we have the right strategy and talented team to capitalize on the opportunities ahead. With that, operator, we are ready to take questions.

[Operator Instructions]

Our first question comes from the line of Christian Schwab of Craig-Hallam.

Did we just get an exact percentage on memory? I'm just trying to figure out how memory business did last quarter, Q2 to Q3.

Yes. Yes, Christian, it was about 20% of our total system sales.

Yes, and I think we did actually have 1 NAND system in the quarter, but the majority of all of our memory revenue is DRAM.

Great. And then the makeup, I guess, maybe you said it, but I don't have it written down. Just on the extremely strong bookings that you had in the quarter, can you give greater clarity of specific applications or geographies that that's heading to?

Sure. Yes, sure. So I would say that it was a broad-based recovery in bookings. So we're seeing continued strength in our bookings across all of our market segments and also across each of our regions as well. So I think that the biggest uptick was in General Mature, and we're seeing that obviously in China. It's always been a strong market for us, but we're also now seeing that in Europe and also in the U.S., which is very encouraging. So that's an example of what's happening in General Mature. Power, I think power is also broad-based by geography as well. The customers in different geographies are slightly focused on different items.

So some are looking at 6-inch to 8-inch transitions, they're looking from planar to trench transitions, while others are just ramping what they have. But it is broad-based at this stage geographically and across end markets.

Great. And then, and just lastly, do you guys have some type of expectation for calendar '27 yet for the combined company or by market or is it a little bit early and we'll hear from you in January? Okay.

Yes. Yes, Christian, a little early. You'll hear more from us on our Q4 call, but we talked about Q1 revenue being relatively similar to Q4, and that's despite CS&I being seasonally lower. So you can use that Q1 as a starting point. And as Russell said in his prepared remarks, really we do expect now memory, power, and General Mature to all grow next year. How much, I think is a little too early to tell, but we do see a growth year next year. And CS&I as well, I think continued growth there as well will continue.

Great. Fantastic. No other questions. Thank you.

Thanks, Christian.

One moment for our next question. Our next question comes from the line of Jed Dorsheimer of William Blair.

I guess my first question is a follow-up to Christian's. It sounds like silicon carbide is kind of returning back to growth as utilization is absorbed. Is there anything, I know that there's the shift between planar or trench plays into your benefit, but is there anything with moving to higher voltage, such as a 2.3 or 3.3 kilovolt for a solid-state transformer that requires additional tools? Does that require additional high-energy implant? Any color around that would be useful, and then I have a couple follow-ups.

Yes, sure, Jed. Thanks. It's Russell. So we have seen 4 consecutive quarters of bookings rising in power, and we are now seeing that coming through into revenue. So power is definitely recovering on the macro scale. Although I would say that year over year, we're still slightly down on 2025. Just going to give you that color there. But we are seeing strengthening in power.

Talking about silicon carbide specifically, as you know, obviously the killer application is EV vehicles, and we are seeing outside of the U.S., there's still a healthy number of EV vehicles being sold. Those EV vehicles are getting more and more silicon carbide content, not only because they're taking on the traction conversion, but they're also taking on additional applications as well, such as the onboard charger, DC-DC. And I expect that to accelerate as the suppliers to the car manufacturers start to basically produce modules where you have a module which is a 3-in-1, for example, where you get traction inverter, you get onboard charger and DC-DC all in 1 module. That module is cheaper, it's smaller, it's lighter, and from a manufacturing point of view, it's a lot less complex to build around. So we're definitely seeing EVs doing very well.

The next kind of piece we're still seeing doing well is solar and wind turbines and all the battery backup systems, that's working out well. The 800-volt stuff is actually very interesting. So I think we've talked before about 800 volts, I think it was developed for the car industry initially so you could have really super charging, and I kind of consider the 800-volt architecture in an EV being basically EV 2.0. It cuts the charge time by a factor of 2, which is now getting really close to that kind of like that chasm that people want to cross regarding kind of concerns about charging rates and distance. And then that 800-volt technology is equally now making its way into data centers. You're seeing that silicon carbide has a real role to play in data centers, but it's going to be sitting between the grid and the rack. So it's going to take the grid voltages, the kilovolts, bring it down to the 100 volts. I think we're seeing some opportunities there. Obviously, it's not as big as the EV market, but it's certainly growing very quickly, so it's a very interesting area to be watching.

That's helpful color, thanks. I guess for my follow-up two-part question, one, did you mention the share of China in the bookings? And then two, just in memory, did you, for DRAM specifically, is that all high bandwidth or is it traditional or are you not able to tell on that? And in that buildout, are there any examples where, you know, you're the lead in terms or you second source there? Thanks.

Okay, I'll let David quickly look up what the percentage of China bookings were in Q3. I think that was your first question, right, Jed? So do you have that? Okay, I'll give you a couple more seconds. So I'll start answering the second one. So I think the second question was the buildout of memory and how much of that was high bandwidth memory, and then what do we think essentially could be our opportunities in memory, is that correct? That is correct.

Okay, so basically, I'm kind of thinking about high bandwidth memory. The vast majority of our revenue is high bandwidth memory. We did have 1 NAND tool. I don't consider it a trend. There really is not a lot going on in NAND right now for implants. Obviously, when they start doing more wafer starts, that's interesting. But right now, they're focused on mostly more layers, so it's all about DRAM and HBM. As you know, some companies have been talking about not having sufficient capacity all the way through to '28 and onwards, and the pricing has gone up in this supply-demand crunch. We've historically done well in Korea. I actually think we'll start to do really quite well outside of Korea as well. So I think we're now getting more share of the whole DRAM market. And then when I kind of look about what are the opportunities, I think if you look at the really big—in fact, just the top 3 or so, they're looking to add up above 1 million wafer starts a month over the next 4 to 5 years. So that's a huge amount of capacity that's being presented to the public.

These are like mega fabs. Some of these fabs are like 600,000 wafer starts a month on their own, that's just 1 customer. So then you say, okay, what is the opportunity? I think historically we've said it's about $150 million to $200 million of implant equipment required to do 100,000 wafer starts per month. So now you're kind of seeing the size of this market opportunity in the next 4 to 5 years. And then I think your final part was also, okay, how much do you think you might get of that? I think we do well in Korea, and we'll continue to do well in Korea. And we're obviously always looking to get additional market share. I think we're beginning to see outside of Korea our memory business start to actually show strength. So we're actually pretty upbeat about memory.

Yes, Jed, and just to answer your question earlier on China, so on an overall revenue perspective, Q3, China was 46%, and you can think about bookings, system bookings, as being close to that number, mid-40s.

Okay, thanks, guys. I appreciate it. I'll jump back in the queue.

One moment for our next question. Our next question comes from the line of Craig Ellis of B. Riley Securities.

Given the 50% increase in bookings quarter-on-quarter, I'll start there with a different line of inquiry than those before. And the question is this. Russell, can you talk about the linearity of bookings through the third quarter? What did you see by end markets? And can you characterize the strength of bookings fourth quarter to date versus what you saw through the third quarter and exiting the third quarter? Thank you.

I think looking at the Q3 bookings, as you saw, the book-to-bill went to a healthy 1.5, which was good. We did talk about across the market segments that deliver the most revenue for us, General Mature, power, and memory, that was a pretty good spread, although we did say there was a particular uptick in General Mature. So the largest gain in bookings was seen in General Mature, which, you know, we've kind of talked about the lifecycle of a recovery. It goes from you start to see utilization rates go up, you start to see CS&I spending in spares go up, then you start talking to customers about forecasts, then the POs come, then the calls to pull in come, and then the revenue comes. I think General Mature, we're seeing the bookings coming in, so we're confident that we continue with that strengthening into the end of the year and into 2027.

We've obviously talked about power, and we mentioned that that was actually slightly further ahead. We had 4 consecutive quarters of improved bookings in power, and now we're seeing that come through in the revenue. And obviously, we're saying that memory, we believe, will continue to stay strong. We're expecting to see higher memory revenue in 2027, and we're watching very, very carefully the availability of greenfield cleanroom space, because clearly, today our customers are often four-wall constrained. So as that capacity starts to come onboard, that's when we start to see more of our opportunities going into memory.

Okay. So the sine waves there as you're walking through just the sequence of events that go from engagement to orders to revenue. Sounds like what you're saying, Russell, is that the momentum on the order side, fourth quarter to date, is continuing or strengthening from what you saw in the third quarter. Is that right, before I move on to the follow-up question?

Yes, that's actually a fair point, Craig. So, yes, sorry, I missed your first part of the question. But, yes, I'd say that it is a trend. We actually believe we will continue to see growth into late '27, and the bookings will reflect that.

Right. Okay. Thank you. And then a question and a clarification. The question is, stellar quarter from CS&I, $93 million, I think by far the best you've ever done. The question is, as customers sometimes add capacity or respond to higher utilization with CS&I before their major equipment orders and installations, can you characterize how you'd expect the general arc of CS&I to trend through the year and next year? And then the clarification is, what did you bake in on the FX side to fourth quarter's gross margin guidance? Thank you.

Yes. So on the CS&I question, I think at this point, when we look at 2027—well, first of all, for 2026, certainly CS&I has grown faster than what we expect for systems, certainly. For 2027, it could be reversed where systems grows faster than CS&I, just coming from a lower base. That's number 1, but we still do expect CS&I to grow next year as utilization rates are strong. And even if there are new fabs, I mean, that's still an opportunity for more spares, more consumables, upgrades, et cetera. So we're in a pretty good position on the CS&I side.

As far as FX, as what's dialed into Q4, we don't expect the kind of headwind that we saw from the FX on the Korean won side in Q3. It was a pretty sharp move in the Korean won. And as you know, Craig, we've been increasing our presence in Korea over the past several years. But we don't expect that kind of impact in Q4.

Got it. Thanks, David. Thanks, Russell. Good luck, guys.

Thanks, Craig.

One moment for our next question. Our next question comes from the line of Duksan Jang of Bank of America Securities.

Just going back to the memory point you brought up earlier, obviously the market's very strong, you said you have very good presence in Korea. But then last quarter, I think you also mentioned some wins at the North American customer. So if you could have any more details around that, that'd be helpful. Thank you.

Yes, we're not going to comment on any particular customer, but as Russell said, we're seeing strength in Korea and seeing strength outside of Korea. And it's not just a rising tide, Duksan, we are investing in technology. We're delivering solutions. We're engaging with customers, and that's ultimately what matters to customers most. And so we feel pretty good about our position and the investments we've made, and we think that's going to translate into wins.

Got it. And then for next year, you also said that, obviously, memory continues to remain strong, along with the other markets. But then CS&I comes down as a percentage of mix. So how should we think about the margin profile, as, obviously, CS&I tended to be accretive, and then memory more dilutive?

Yes, so there are a number of things at work for next year. So there's mix. So mix within systems can vary, right? So memory, as you know, has a lower than corporate margin on the system side. Although, we still really like the memory business because it has a nice CS&I attachment over the long term, that's a profitable business. So that's generally speaking lower than power and General Mature. There's also mix between system and CS&I as we discussed. And then there's a mix within CS&I. So a little too early to predict and determine the mix for next year. I think at least we do expect a higher mix of overall systems versus CS&I next year.

We do expect overall volume to be higher, so that helps us on the gross margin, generally from factory absorption. We're also focused on a number of different initiatives company-specific that we can work on to drive more gross margins. So improving the cost of our systems, improving manufacturing efficiency, and by the way, the more you innovate, the more value you can drive for customers. So we are focused on a number of initiatives plus higher volume. At this point, we would expect on a year-over-year basis gross margins would be higher than in 2026, but we'll provide a little bit more color on our next call.

Great. Congrats on the results.

Thanks.

One moment for our next caller. Our next question comes from the line of Denis Pyatchanin of Needham & Company.

Maybe we could start with some sort of outlook for 2027, whether qualitative or quantitative. Maybe you can tell us about your visibility into next year. How far does it go, and perhaps discuss some of the key drivers for revenue between DRAM, General Mature, and then the 2 power segments, please? Thank you.

Sure, so I think about the major revenue contributors in the near term for us. It's power, it's memory, it's General Mature, and it's obviously CS&I. So we talked about the strength in CS&I. We expect that to continue to grow. We kind of said it wasn't expected to grow at the same rate as systems. So let's now look at memory, power, and General Mature. So think about memory, the story for us right now is all about DRAM, and we're not expecting NAND to play a significant role for us next year, and we're expecting a year-over-year improvement in DRAM. I think we should point out that 2026 is actually looking like a good year for DRAM. And so, you can say, well, it's a year-over-year gain versus 2025, but 2025 was a relatively quiet year. But 1 quarter of revenue, the first quarter of revenue in '26 was more than the entire year revenue of DRAM in 2025.

So that can give you an indication that 2026 is strong. We do expect that to continue to strengthen into 2027. But I would say keep an eye on the fabs. So there's a lot of fabs being built. They're being pulled forward very, very aggressively. And that's going to be the key to a lot of the DRAM going into new fabs. Obviously, there's still some fabs being filled up, but that's kind of the story on memory. Regarding power, we're actually still seeing silicon carbide and silicon doing well.

We talked a little bit about the opportunities in IGBTs with proton implantation. That's a good opportunity for us in high energy. But we're also seeing a lot of opportunities in silicon carbide, and for all the reasons I was talking to Jed about a moment ago about the opportunities in 800 volts, the next generation of electric cars. General Mature has always been a very broad category, right? It can be many, many things. But it's all of those chips in every one of the units you see around you, they're in your phone, they're in your fridge, they're everywhere. And we're seeing that particularly ramp up. So we're expecting to see basically continued strength in memory and CS&I and continued recovery in General Mature and power.

Yes, Dennis, I'd also add that it's not just a rising tide, but as we've said, we've invested in a number of products. We're seeing increased interest in our new high-current H6 for General Mature, channeling products for silicon carbide, and a number of other areas that we've invested in, we are seeing increased customer engagement. So that's also a factor in our view for next year.

I'm actually really pleased, and it was obviously a strategy, to continue to invest in new products and services during the recent digestion period so that we could work with our customers to develop these new technologies, and now as they ramp, we are seeing the benefits of that strategy play out.

I appreciate the detailed answer. For my second one, maybe we can discuss an otherwise hot topic for this quarter, which is semi equipment companies are being impacted by component shortages. Maybe you can discuss if you're seeing any pressure in terms of components, any particular ones that may be hard to come by for you, and any impact you may see on revenue or gross margins because of this.

Yes, Dennis, like other companies, we are seeing tightness in the supply chain. But for our fourth quarter, we are not constrained. And, you know, I give credit to our operations team. I think it's a world-class operations team. We've been through this before. And we invested in inventory ahead of time, as you know. And so that's helping us now. And so we'll see about 2027, we're monitoring the supply chain very closely, but for Q4, we are not constrained.

Thank you. That's it for me.

Thanks, Dennis.

Our next question comes from the line of David Duley of Steelhead Securities.

I guess in your prepared presentation on slide #6 in the General Mature bucket, you noted North American activity strengthening, including AI-related capacity expansion. And it seems like in the current quarter, the General Mature area was responsible for a big spike in the orders. So I'm just kind of wondering what exactly are the applications that are driving North American General Mature bookings? Is it like trailing-edge foundry and logic, or maybe just help us understand specifically why we're seeing the spike in orders in this area?

Yes, so thanks, Dave. It's Russell. So I think what you're seeing is that data centers were driving advanced compute, the GPUs, the memory, the super fast stuff. But now as they're starting to build out these data centers for AI, you're seeing that all of the supporting structures are needed as well. A lot of that is basically relatively mature from a device performance standpoint, silicon devices. I would say, just as a caveat, the technology being used in the ion implanters to support these applications is anything but mature, but I think we're kind of seeing this spillover.

So you're seeing lots of—well, we've always said before General Mature is a very broad category, but lots of devices that are being used, I would say, to support the growth in data centers. You're kind of seeing the spillover of all the other parts that go next to the GPUs and the CPUs. That's kind of how I'm looking at it, Dave. It's basically a spillover, but plus they also have gone through that digestion anyway when they were already getting tight in supply. So all the other applications were going to be demanding extra supply, but then on top of that, you've got the data center demand. So it's kind of a recovery with extra demand.

Yes, a lot of the GPUs and CPUs are built on advanced nodes, where perhaps the companion chips and a lot of the other things that you're exposed to are built on 7, 10, and 28 nanometers. And so basically, you're seeing a spillover in demand from the data center into the General Mature bucket, right?

Yes, well put.

And do you expect this to be a sustainable trend throughout '27 and '28, or is it more just a 1-time event?

I think we're going to see it being a sustained growth. I think we had a digestion period anyway, just without data centers. We were in a digestion period, and we were coming out through that anyway, whether it be for automotive or consumer, we were starting to see that recover anyway, just kind of seeing days and months of inventory on hand, and then this is obviously additive. But I do think you're going to see—I think the genie in the bottle for AI is out, and I think now all of these additional devices, whether it's your phone, whether it's your fridge, are all going to be interacting with these data centers. So the communications components, the local stuff, I think that's all going to benefit from having these very large data centers running AI.

Yes, and then on top of that, you think about robotics, Dave, over the longer term, that's going to drive General Mature as well.

Okay, and my second question is on the memory segment. You've outlined how there's really only 3 major memory guys, but how the top 3 are adding like 1 million wafer starts per month. I suspect that's a much higher number than they've added in the last couple of years. Maybe you could help us with understanding, as far as the industry goes, how much more capacity is being added in '27 and '28 versus '26. And since you've highlighted how much the industry is going to add, you probably know what your memory segment is going to do. Could you take a stab at the growth rate of that segment for 2027? Thanks.

Yes, so we're not going to give a concrete number for memory for next year. And I'll let Russell weigh in on maybe the bigger picture dynamics. But we do expect memory to grow next year.

Yes, I think what you've seen in the last couple of years, '25 and '26, are people rejiggering fabs. We actually have seen some like NAND flash or otherwise getting converted into DRAM. We've seen some of the lower performing devices get outsourced or given to other companies, which is another kind of trickle down to some of the foundries, they get some of the non-leading edge from some of the big guys.

But ultimately, as we look at memory, it's been more about trying to get the best out of what you have. It's kind of been four-wall constrained, maybe there's a couple of extensions added to some fabs. But what you're seeing now, if you kind of read about this, these are mega plants being built, and they are huge, right? And they're just waiting for that investment to basically come online. So I'd say that's kind of moving, building tools between buildings, trying to increase the productivity, driving the uptime, all those wonderful things, to now there really is a brand-new big mega fab to be filled up. And I think you're going to start to see those mega fabs opening their doors to new equipment starting in 2027, but they're going to be in phases, right? It's going to be a number of wafer starts added every 6 months as they build out these kind of what I consider mega fabs.

Maybe let me ask it a different way then. Is the amount of cleanroom space coming online in 2027 in the memory space much greater than it was in 2026, because of what you just highlighted, right? In 2026, they were jiggering fabs around to try to get more output out of the current footprint, but in '27, the footprint is going to expand dramatically. So would you expect the growth rate to accelerate in '27 versus '26 in the memory space?

So we've definitely said that 2027, we believe, will be an up year for us in memory. And quite honestly, we're expecting this year to be our best ever year on DRAM. So there's kind of a data point. Prior, in I think it's 2023, we managed to achieve $90 million in DRAM. This year, we're going to surpass that, and we're expecting to surpass that again next year.

The reason I cautioned about the capacity coming online, it comes online in phases, right? It might come online in 30,000 wafer start chunks, and it might happen every 6 months, they add another one, another one, another one. They're going to be building this thing out in phases. They're not going to wait for the entire factory to be complete and then fill it all at the same time. There really is so little supply out there, they're trying to bring it online as quickly as possible. So they're building the cleanrooms first, they're trying to get the machines in there, but they're going to be bringing it on, go to the next phase, bring it on. So I think you're going to see, I guess I don't know if it's going to be linear or not, but I think you're going to see a relatively consistent addition of capacity every 6 months by some of these customers.

Final question for me is, could you just talk about the competitive environment? And, you know, you've done really well in the silicon carbide space and always had a strong position in memory. What is the competitive environment versus Applied? And are they trying to come into some of your markets? Or maybe just describe what's going on in the dynamics.

So we have multiple competitors, and we always have done, right? We've got competitors in the U.S., competitors in Japan, Taiwan. China is now developing their own domestic supply for ion implanters. And I think we're always going to do what we've always done, right? We're going to work really closely with our customers, and we're going to try and resolve their most valuable problems in a really differentiated, valuable way, right? So that's where all the innovation comes from. So we talked about all these new products we're developing. Those have been developed with customers, and that's where we're gaining revenue is by working with these customers on these new solutions that really add value.

So I think, Dave, what's going to happen is we're going to continue to be a full-portfolio, full-service supplier to our customers, and we're going to continue to be investing heavily in R&D such that we can solve their problems and come out with new technologies, and that will help grow gross margin and market share. So that's what we'll be doing.

Thank you.

Thanks, Dave.

Thanks.

I am showing no further questions at this time. I would now like to turn it back to David Ryzhik for closing remarks.

Thank you. Thank you, everyone, for joining us today and your interest in Axcelis. Operator, you can close the call.

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

This live transcript is auto-generated without human intervention or review.

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the second quarter of 2026. My name is Grace, 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 and Interim Chief Financial Officer. Please proceed.

Thank you, operator. This is David Ryzhik, Senior Vice President and Interim Chief Financial Officer. And with me today is Russell Low, President and CEO. If you have not seen a copy of our press release issued earlier today, 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. 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'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 annual report on Form 10-K 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. Given the pending merger with Veeco, we will not be addressing questions related to the transaction.

During this call, we will be discussing various non-GAAP financial measures. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than revenue and other income. Please refer to our press release and accompanying materials for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures.

Now I'll turn the call over to President and CEO, Russell Low.

Thank you, David. Good morning, everyone, and thank you for joining us on our second quarter 2026 earnings call. In the second quarter, we delivered revenue of $215 million and earnings per diluted share of $1.06, both above our expectations. Our results reflect strong operational execution as we capitalize on favorable demand trends in several of our key markets.

In the quarter, sequential growth in systems revenue was driven by improvement in our power and general mature markets, partially offset by the expected moderation in memory due to timing of available fab space. Importantly, customer investment plans in memory remain robust, and we continue to make progress executing our strategy to expand our position within this market.

CS&I delivered a strong quarter and continues to be an important driver of our overall performance. Revenue growth in the business has been supported by a growing installed base, increased customer utilization and a continued expansion of our aftermarket products and service offerings. As we shared, CS&I has been a deliberate multiyear strategic focus for us to drive growth and stability through market cycles. We are pleased to see these efforts gain traction, and we look forward to continuing to build this momentum.

Bookings in the quarter grew slightly, driven by general mature and power, and book-to-bill has neared 1 over the past 3 quarters, suggesting greater stability in the end markets we serve.

Turning to Slide 5. Sales to mature node applications accounted for approximately 84% of system shipments with memory and advanced logic making up the balance of our sales.

Now on Slide 6, let me review our trends by end market. Within our power market, revenue for silicon carbide applications declined sequentially, consistent with our expectations as quarterly revenue can fluctuate based on shipment timings. However, bookings improved on a sequential basis and through the first half of the year exceeded the average levels we experienced over the past 2 years. In addition, we continue to expand our customer base, securing orders for 2 new customers in China during the quarter.

We are also seeing next-generation technology development create opportunities for our high-energy implant capabilities. During the quarter, we secured orders from multiple customers for high-energy channeling applications using advanced superjunction architectures, further validating the value of our differentiated implant technology.

From an end market perspective, long-term demand fundamentals for silicon carbide remain highly attractive. We continue to expect increasing penetration in electric vehicles, broader adoption in AI data center power infrastructure and expanding use across a wide range of commercial industrial applications that require greater power efficiency, particularly at higher voltages. In our other power market, second quarter sales grew sequentially, and we continue to view silicon power as a foundational part of the broader power semiconductor market, serving applications across automotive, industrial, commercial and data center end markets.

During the quarter, we completed a successful evaluation of our Purion XEmax at a leading foundry for use in power management IC production. The evaluation demonstrated the system's ability to address increasing customer requirements for high-energy implant applications, leveraging its dual LINAC architecture and patented Boost Technology to deliver implant energies up to 15 MeV with industry-leading beam purity.

In general mature, sales improved sequentially during the quarter. While we have not yet seen a pickup in order rates, we are encouraged by improving end market trends. Following a period of capacity digestion that began in 2024, customers in China continue to add capacity, and we are beginning to see signs of improving activity outside of China as well, supporting higher tool utilization rates. Our customers are benefiting from demand for AI-related data center applications manufactured on 28 nanometers and above process technologies, including optical connectivity, microcontrollers and analog ICs.

General mature remains an important market for Axcelis given its high implant intensity and our broad portfolio spanning high-energy, high-current and medium-current systems. We're also seeing growing customer interest in our recently introduced Purion H6 High Current platform across general mature applications.

Turning to advanced logic on Slide 7. As we noted on our last call, we shipped a system early in the second quarter for materials-modification applications supporting 2-nanometer production, and we also shipped a follow-on system in the third quarter for this application. We continue to work closely with this customer in support of its next-generation technology road map.

In memory, despite the anticipated sequential decline from a strong first quarter, customer engagement remains robust. As a reminder, memory sales can be lumpy from quarter-to-quarter depending on customer fab space availability. We continue to anticipate strong year-over-year growth in 2026 with momentum extending into 2027 as customers accelerate cleanroom investments to support growing demand for DRAM and high-bandwidth memory applications driven by AI.

We're also seeing our memory customer portfolio expand, highlighted by a recent order for multiple high-current systems in the current quarter, reinforcing the strength and competitiveness of our offerings. Reflecting this momentum, we continue to make progress with a leading North American memory manufacturer we referenced last quarter. Following the successful completion of our system evaluation last quarter, we received additional orders during the period to support new fab investments.

On Slide 8, let me wrap up my thoughts and provide our perspective on the second half of 2026. I am pleased with the momentum we are seeing so far in 2026. Our team has executed well, delivering solid results while capitalizing on the attractive secular growth opportunities across our end markets.

In addition to a strong memory outlook for 2026, we are seeing improved demand in our power market. We're also encouraged by improving customer engagement and utilization trends in our general mature market, while our CS&I revenue continues to build a growing base of revenue and profitability. As a result, we now expect second half 2026 revenue to be stronger than our initial expectations and expect to deliver year-over-year revenue growth in 2026 compared to our prior outlook for revenue to be relatively flat with 2025.

Looking ahead, we believe the favorable demand trends we are seeing today are likely to continue into 2027 with memory investments expected to remain strong as customers expand fab capacity, continued improvement in our silicon carbide market and encouraging underlying trends across general mature applications. We anticipate another year of revenue growth in 2027.

Before I turn the call over to David, I'd like to provide a brief update on the pending merger with Veeco. We continue to make progress on the remaining requirements for the Veeco merger, including with the State Administration for Market Regulation in China. We continue to expect the transaction to close in the second half of 2026. We remain very excited about the pending combination and the opportunity to build on the momentum and create a stronger company with enhanced capabilities, broader growth opportunities and meaningful long-term value creation potential. I want to thank our customers, employees, partners and shareholders for their continued support in Axcelis.

With that, let me turn the call over to David for a closer look at our results and outlook.

Thank you, Russell, and good morning, everyone. I'll first start with the financial details of the second quarter before turning to our outlook for the third quarter.

Starting on Slide 9. Second quarter revenue was $215 million, consisting of system revenue of $132 million and CS&I revenue of $83 million, both exceeded our forecast. By geography, revenue in China increased sequentially to 46%, up from 40% in the prior quarter. Korea was our second largest revenue-generating region and 26% of our total revenues. In our other regions, Europe was 11%, the United States, 6%; Taiwan was 2% and Japan was 1%. The remaining 8% of revenue came from the rest of the world.

Bookings were $131 million, slightly higher sequentially, continuing the trend of improving order activity with a book-to-bill ratio of approximately 1x. We exited the quarter with total backlog of $452 million.

Turning to Slide 10. I'd like to share some additional detail on our results. Gross margin was 42.7%, slightly below our outlook of 43%, primarily due to mix within our CS&I business as well as higher-than-anticipated services costs, which can fluctuate from period to period. Second quarter operating expenses were $60 million, slightly above our outlook of $59 million, primarily due to higher variable compensation associated with stronger performance and, to a lesser extent, higher fringe costs. Tying it all together, our operating margin was 14.7%.

Second quarter adjusted EBITDA was $36 million, and adjusted EBITDA margin was 16.7%. Other income was $5 million, higher on a sequential basis due primarily to foreign exchange gains. Our tax rate was 11%, below our forecast of 15% due to the windfall benefit associated with our equity compensation. And finally, second quarter earnings per diluted share was $1.06.

Turning to Slide 11. Free cash flow for the second quarter was $15 million. This includes approximately $6 million of cash transaction expenses associated with the pending Veeco merger. We exited the second quarter with a strong balance sheet, consisting of $577 million of cash, cash equivalents and marketable securities on hand. This includes $175 million of long-term securities.

With that, let me discuss our third quarter outlook on Slide 12. We expect revenue of approximately $230 million. Revenue is expected to benefit from a higher contribution from power and memory, partially offset by lower revenue from the general mature market. We expect gross margins of approximately 43%. We expect operating expenses of approximately $62 million. Adjusted EBITDA is expected to be approximately $41 million. We anticipate a tax rate of approximately 15%. And finally, we estimate net earnings per diluted share of approximately $1.11.

Looking beyond the third quarter, we currently expect revenue to increase sequentially in the fourth quarter, supported by the business trends we are seeing across our markets that Russell touched on earlier. As a result, we now anticipate full year 2026 revenue growth of approximately mid-single digits year-over-year compared to our prior expectation of flat revenue. We also anticipate gross margin to improve slightly in the fourth quarter relative to third quarter levels. At the same time, we remain committed to investing in the business, particularly in technology innovation and other long-term growth initiatives. As a result, we expect fourth quarter operating expenses to be slightly higher than third quarter levels.

In summary, we're executing on our strategy and remain focused on disciplined cost management while continuing to make targeted investments to capture attractive growth opportunities. We're encouraged by the trends we're seeing across the business and remain focused on delivering strong results and value creation for our shareholders.

With that, operator, we're ready to take your questions.

[Operator Instructions] Our first question comes from the line of Craig Ellis with Riley (sic) [ B. Riley ] Securities.

Congratulations on the nice execution, team. Russell, I wanted to start off with a question on memory, understanding how the tenor of interaction with your more established customers and your newer customers has changed over the last 3 months. And as we look at near-term dynamics, which I think were indicated with memory up in the third quarter, are we at a point where we should expect memory system sales to grow sequentially? Or are we still in a period where there can be 2 steps forward and 1 step back?

Craig, thanks for the question. So I think we're going to see memory being slightly lumpy this year. Again, until the new cleanroom space comes online, I think the customers are mostly focused on solving bottleneck issues in their existing fabs. So it's a little bit lumpy.

One thing I would say, though, is '26 is a significant improvement over 2025, although [ it's off ] a low baseline, we are seeing significant DRAM memory revenue this year. And then like we said, once those cleanrooms start to come online, we expect to see the momentum continue into 2027.

Yes, Craig, if you think about -- Craig, just to add, if you think about the second half for memory, probably at this point, probably looks similar to the first half. And then for the full year basis, obviously, strong growth into -- growth rate into '27, probably at a lower growth rate than the one in '26 because we're coming off a very low base, but we definitely see that momentum in memory.

Yes. And next year, we get NAND capacity help, not just DRAM. And then the follow-up question is on the CS&I business. So congratulations on the real nice quarter there. My question is really what drove the magnitude of sequential strength? Is it really just in this environment, customers are looking at CS&I as one of the quickest paths to incremental capacity where they need it? Or is it really just the efficacy of better attach rates on Purion tools that are out there in the installed base? Just help us understand what drove the upside and what it might mean for the back half of the year.

So there's a couple of things, Craig. So clearly, we are seeing a pickup in utilization rates. So we're seeing memory has really high utilization rates. We're seeing silicon carbide and silicon power picking up in utilization rates. And we're starting to see the embers of a recovery in general mature. And all those things will happen. Before you start getting orders, typically, you start to see spares and consumables going up. So that's the -- so you definitely get a component of utilization driving.

The second thing is we continue to add installed base as well. But I think the really big part is that as companies are looking to ramp, they're looking to use what they have. So we've developed a lot of really valuable upgrades and a lot of those upgrades are now selling, and they're helping customers who, in some cases, are 4-wall constrained or it gives them a little bit more capacity such that they can continue to ramp their business.

Our next question comes from the line of Charles Shi with Needham & Company.

Congrats on the pretty steady execution and exceeding the guidance and good guidance for the third quarter as well. So maybe the first question, the power -- the pickup in power in general, order rate you mentioned has been exceeding the average level you've seen over the last 2 years. Can you elaborate where the power strength really is from? Because historically, your power is closely tied to, let's say, automotive industry, but is there something different this time? Do you feel like there is more of a data center -- I know that the capacity is probably agnostic for a lot of your customers, but are you able to tell what is driving the power order rate pick-up?

Yes. Charles, it's Russell. Thanks for the question. So when I think about where we are with power, so there's two components to it, silicon carbide and silicon, both are actually doing better. So if you look at our power business, it was in digestion for a while, but now it's into recovery, and we are expecting the second half to be stronger than the first half for power. So that's the good. We're seeing that through orders placed.

So what's driving that? I mean it was in digestion and now it's coming out the other side. I think it's fair to say electric vehicles are still the #1 driver of silicon carbide. And we've talked previously about there's more electric vehicles and there's greater penetration into electric vehicles of silicon carbide, particularly 800-volt systems. When you get to 800-volt systems, you pretty much don't have a choice as to whether or not to use silicon carbide or not. And then there's all the onboard chargers we talked about and the other components and [ DC inverters. ] Electric vehicles are still doing really well.

There is actually a couple of other opportunities as well in growth. And I think we've talked about data centers. And as data centers start to move to 800-volt architectures as well, you're going to see silicon carbide being the material of choice, and that's going to sit between the grid, coming in at like kilovolts, all the way down to the rack where it's be -- coming at 800 volts. So we're seeing that being -- while it's still a small area, it is growing quickly.

And we shouldn't forget that as the cost of silicon carbide devices continues to come down and you see a bit more packaging of devices as well. So they have more value at the subsystem level. You're seeing -- as this is occurring, it's opening up more and more applications. So we shouldn't forget all the industrial applications like transformers and motors and even solar, solar takes up a lot of silicon carbide. So that's what's kind of driving this, and those have always been secular drivers. So that's exciting.

And I'd say it's more than just China as well. It's beyond China that people are adding capacity in power. Although in some regions, they still haven't kind of like gone for higher capacity. They're still working on what I consider next-generation technology. So we have had customers ramping and customers learning. And I'd say that once those device technologies are up in volume and with yield, I think you'll start to see those customers start to ramp as well. And I'm talking about the transition from planar to trench and even to superjunction. And as we said before, as these devices become more complex, the density of implant steps goes up, and it also tilts towards high energy, which is another good tailwind for us.

So we understand the small -- the data center part, probably still very small, but faster growing. But based on what you see today, are you able to tell like how much of your installed base or the silicon carbide capacity in general is going into the data center application versus the electric vehicle? And we just want to get a sense on how to gauge the growth frontier, especially from the data center side.

Yes. So we don't know necessarily what products our customers are creating with the tools. So we -- obviously, that is their business. But I think you can see from many of the customers -- so every one of the power companies is a customer. And when you see their press releases about having a portfolio that goes after data centers, then that will give you an indication of how many devices are available and how compelling they are as a business.

[Operator Instructions] Our next question comes from the line of Jed Dorsheimer with William Blair.

Congrats on a solid quarter. Russell, just more of a technical question for you and kind of a market one as well. Indium phosphide, looks like implants being used for surface passivation for etch repair as well as electrical isolation. And so I'm just curious if you might talk about -- that's a pretty exciting area with a significant undercapacity at the moment. What discussions you might be having in -- and that would be for continuous wave lasers used for optical and kind of electrical-to-optical in data center racks.

Yes. So thanks, Jed, for the question. So I think indium phosphide is a really interesting laser material. And I think the data centers talked about going into optical communications. I think for us, it's a relatively small amount. So while we will kind of continue to monitor this market, I think the implant opportunities are relatively small. I think there's much bigger opportunities in other technologies such as MOCVD.

This concludes our question-and-answer session. I would now like to turn the call over -- hold on just 1 minute. We had two questions come through.

Our next question comes from the line of Duksan Jang of Bank of America Securities.

One question on memory. If I'm not mistaken, I think you said second half memory is going to be similar to first half. So I think that indicates about $120 million of total annual run rate. As we look into the industry, obviously, a lot of people are expecting more cleanroom space to come through really starting next year and into '28. So I'm just curious what kind of upside you just expect in this market? I assume it's going to be a strong acceleration as well.

Yes, Duksan. So a little too early to size memory next year. But our indications at this point is that next year would be another year of growth. Our assumption is that there would be a much lower growth rate percentage-wise than what we're seeing in 2026 because we're coming off a pretty low base in 2025. But engagement with customers is strong. They have ambitious capacity plans.

And I'd also note that we're making progress expanding beyond our traditional, as we say, strong position into other areas within the memory market and other customers. And so that's another factor to consider. So it's a good market. Implant is a critical step there, and we're pretty excited about the opportunity.

Got it. And then are you seeing anything on the NAND side where I think the industry trends have clearly improved there. We might see some capacity additions there. And then as memory grows as a bigger percentage of your sales, I think it's been historically a little bit more dilutive to margins. So anything on the margin front would be helpful.

So I'll take the NAND part of this. So when Dave was talking about the kind of the strength of memory into 2027 and cleanrooms coming on, we really are specifically kind of talking about DRAM. NAND, there's a little bit of activity, but I wouldn't, in any way, call it a trend at this stage. I think anybody who has space is using it for the higher-value DRAM. But I do see a need for more NAND coming. And as we've said in the past, when people do vertical scaling of NAND, that doesn't necessarily support us because it doesn't change the density of implants. But as people add more wafer starts, that's when NAND has a value to our business for selling more implants.

So I would say that as people start allocating space to expand wafers out for NAND, that's when you'll start to see our NAND business start to go up. And historically, NAND has followed DRAM. So we are expecting that to come. But I'd say that there aren't many -- the trend -- there's no trend yet.

Yes. And Duksan, I would just add on the gross margins, as you pointed out, so typically, our memory business comes at a lower-than-corporate average gross margin on the system side. But when we place those systems, that drives quite a bit of CS&I aftermarket, which is higher margin than corporate average. So over the life of the tool, long term, it's still a pretty attractive business for us.

Our next question comes from the line of Craig Ellis with B. Riley Securities.

I wanted to start with a higher-level question, just understanding where the company's capacity positioning was. We're annualizing at about $920 million revenues, it looks like here as we head into the back half of the year. I would expect, given where we've been over the last 5 years, our capacity would be at least 40% higher than that. But can you help calibrate that in?

And secondly, related to memory, a number of years ago, the team did a great job qualifying the Purion Dragon at one memory customer. I would expect that would be part of the solution set that's going out the door. And can you just talk about the demand that you're seeing across different products and where Purion Dragon fits into that mix?

Craig, just on capacity, you're right. We do have capacity to meet higher revenue levels than we are today. And quite frankly, as we absorb a little more and our markets recover, we would expect a little bit of benefit to our gross margin as well as a result from the absorption. Now clearly, mix is going to play an important role, but we do get a little bit of an absorption benefit there with higher volume.

On the mix of systems, Russell can weigh in, but we're not going to get into specific systems that we're shipping to customers, but high-current is an important part of the equation for memory. And so we have a really good and competitive technology there. As you know, we're strong in high-energy, but high-energy is a little bit -- there's a little less content of high-energy in memory. And then there's medium-current as well where we have a competitive solution. So we feel like we're pretty well positioned for memory.

Did that answer your question, Craig?

Yes.

This concludes the question-and-answer session. I would now like to turn it back to David Ryzhik for closing remarks.

Thank you, operator. Thank you, everyone, for joining the call and your interest in Axcelis. Operator, you can close the call.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the first quarter of 2026. My name is Ripka, and I'll 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 and Interim Chief Financial Officer. Please go ahead.

Thank you, operator. This is David Ryzhik, Senior Vice President and Interim Chief Financial Officer. And with me today is Russell Low, President and CEO. If you have not seen a copy of our press release issued earlier today, 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.

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'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 annual report on Form 10-K 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. Given the pending merger with Veeco, we will not be addressing questions related to the transaction.

During this call, we will be discussing various non-GAAP financial measures. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than revenue and other income. Please refer to our press release and accompanying materials for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures.

Now I'll turn the call over to President and CEO, Russell Low.

Thank you, David. Good afternoon, everyone, and thank you for joining us for our first quarter 2026 earnings call. Before I get into our results today, I'd like to briefly address the change in our finance organization leadership, which we announced in March. Jamie Coogan, who served as our Chief Financial Officer, left the company to pursue an opportunity in the aerospace industry.

I'm grateful to him for his contributions in building a strong finance organization, driving operational discipline and positioning Axcelis well for sustained value creation. I'm confident he'll continue to succeed in his new role. The transition has been very smooth, thanks to David stepping in seamlessly as our interim CFO. David has deep industry experience and strong knowledge of the business and he's been instrumental in advancing our work to complete the pending merger with Veeco. We are grateful to have a leader of David's caliber to serve in this role while we progress our search process for a permanent CFO.

With that, I'll dive into our first quarter performance. We delivered revenue of $199 million and earnings per diluted share of $0.72, slightly above our expectations. This includes a onetime impact associated with a $5 million customer settlement. Absent the settlement, our revenue, gross margin and earnings per share would be even higher in the quarter. In the quarter, while our CS&I revenue moderated on a sequential basis, it came in better than we expected and grew more than 30% on a year-over-year basis. CS&I has been a deliberate multiyear strategic focus for Axcelis, and we are pleased to see momentum build with our expanded installed base, increased utilization rates and continued product innovation. In addition, we saw a strong sequential increase in system shipments to the memory market, which reached the highest level since the fourth quarter of 2023.

We're also encouraged to see a consistent rate of bookings on a sequential basis, marking the second consecutive quarter of year-over-year growth on the trailing 12-month basis. Strength in the quarterly bookings was driven by an increase in memory and silicon carbide demand, offset by softer general mature.

As a reminder, bookings can fluctuate from quarter-to-quarter. Turning to Slide 5. Sales to mature node applications accounted for majority of system shipments, particularly in power and general mature. We also saw a notable uptick in sales to the memory market as anticipated.

Now on Slide 6, let me review our trends by end market. In our power business, while shipments of silicon carbide moderated on a sequential basis, we are beginning to see encouraging demand signals, reflecting strong bookings and increased engagement with customers and their capacity plans and technology road maps.

At SEMICON China in March, silicon carbide was a prominent area of focus, particularly around super junction development and high energy implant requirements. We also had more robust customer discussions around channeling capabilities and the transition to 200 millimeters, which reinforces our view that technology inflections are progressing.

We've seen improvements in silicon carbide end markets as well. While the rate of growth in global electric vehicle sales has moderated, we are seeing increased penetration of silicon carbide within the EV market as well as greater content per vehicle. Discussions with customers also point to increasing adoption in a wide array of commercial goods such as HVAC refrigerators and washing machines.

In addition, customers are increasingly focused on the emerging opportunity in AI data centers given the unique benefits that compound semiconductors provide for efficient power conversion. In short, we are well positioned to benefit from the higher demand from our customers once capital spending in this market recovers.

In our other power market segment, while demand remained muted, we believe Silicon Power will remain a foundational part of the overall power semiconductor market, especially across auto, industrial, commercial and data center markets. In general mature, customers continue to manage their capacity with stabilizing auto and recovering industrial volumes along with growing demand associated with AI data center applications.

In fact, we saw a continued improvement in spares and consumables in this market, which is a reflection of higher tool utilization rates. At the same time, we are building on our continued progress in the high current market. In the first quarter, we introduced our next duration high current product of Purion H6 and are engaging with multiple customers on this product. In addition, we secured a high current win with a new customer in China.

Turning to Slide 7. In advanced logic, we did not generate system revenue in the first quarter. However, we shipped a system early in the second quarter for material modification application for 2-nanometer production and are actively working with this customer on next-generation technology road map.

Moving to our memory market, both revenue and bookings increased meaningfully in the first quarter driven by strong demand in DRAM and high-bandwidth memory applications as customers ramp up investment in -- capacity investments to support AI-driven demand. We continue to execute well on our strategy to expand our penetration of the memory market.

As you recall from last quarter, we highlighted a new order for our Purion high-current system with a leading North American memory manufacturer. Since then, we've completed our systems evaluation and continued to work with this customer to drive adoption of our technology across technology nodes and regions.

While revenue and bookings can fluctuate from quarter-to-quarter throughout the year, we continue to expect strong growth in memory for full year 2026 with momentum entering into 2027. On Slide 8, let me wrap up my thoughts and provide our perspective on the remainder of 2026. We executed well in the quarter and are especially pleased with the strength of our CS&I business, which delivered-ings another quarter of year-over-year growth.

From a market segment perspective, our memory market is on track for strong growth in 2026, offset by a continued digestion of capacity in general mature and power, albeit with some encouraging signs in silicon carbide. Taking this all together, we continue to expect 2026 revenue to be relatively flat year-over-year with improving trends across multiple markets setting the stage for a return to growth in 2027. We continue to anticipate our pending merger of Veeco to close in the second half of 2026 and we are working closely with the state administration for market regulation in China to obtain regulatory approval, which is the only approval remaining to close the transaction.

We remain excited about the opportunity to bring our 2 companies together, unlock the full potential of the combined organization and drive long-term value creation for all stakeholders. I want to thank our customers, employees, partners and shareholders for their continued support and trust in Axcelis.

With that, let me turn the call over to David for a closer look at our results and outlook.

Thank you, Russell. I'll first start with the financial details of the first quarter before turning to our outlook for the second quarter. Starting on Slide 9. First quarter revenue was $199 million, with system revenue at approximately $126 million and CS&I revenue at $73 million.

As Russell mentioned, this result includes a onetime impact associated with the customer settlement in the quarter, which resulted in a headwind to system revenue of $5 million, gross margins of approximately 70 basis points and EPS of $0.09 per share.

CS&I exceeded our expectations this quarter, driven by service and consumables, along with robust demand for system upgrades. By geography, revenue in China increased sequentially to 40%, up from 32% in the prior quarter. Korea was our second largest revenue-generating region in the first quarter and notably 28% of our total revenues as a result of higher memory sales.

In our other regions, Europe was 16%, the United States 12%, while Taiwan and Japan were both at 1%. We generated 2% of our revenue from the Rest of World in the first quarter. Bookings were roughly flat on a sequential basis at $128 million but marked our second consecutive quarter of firming order rates.

We exited the first quarter with a backlog of $453 million. Now turning to Slide 10. I'd like to share some additional detail on our results. Gross margin was 40.7%, which came in slightly below our outlook of 41%, primarily due to the customer settlement discussed earlier.

First quarter operating expenses were $57.7 million, slightly below our outlook of $59 million. Tying it all together, our operating margin was 11.7%. First quarter adjusted EBITDA was $27.7 million, reflecting an adjusted EBITDA margin of 13.9%. Other income of $2.7 million was lower on a sequential basis as a result of lower interest income as well as foreign exchange-related losses.

The tax rate was 14%, relatively in line with our expectations. And finally, first quarter earnings per diluted share was $0.72. Moving to our cash flow and balance sheet data shown on Slide 11. In the first quarter, free cash flow was $16 million. Our cash flow includes $12 million in cash transaction expenses associated with the pending Veeco merger. We did not repurchase any shares in the first quarter.

We exited the first quarter with a strong balance sheet consisting of $570 million of cash, cash equivalents and marketable securities on hand. This includes $203 million of long-term securities.

With that, let me discuss our second quarter outlook on Slide 12. We expect revenue in the second quarter of approximately $205 million. We expect a higher mix of revenue from general mature, offset by a lower mix of revenue from memory in silicon carbide. We expect gross margins of approximately 43%. The sequential improvement in gross margin is primarily due to more favorable mix in the quarter as well as the absence of nonrecurring items that impacted our first quarter.

We expect operating expenses of approximately $59 million in the second quarter, adjusted EBITDA is expected to be approximately $34 million. And finally, we estimate net earnings per diluted share in the second quarter of approximately $0.90.

We continue to expect full year 2026 revenues to be approximately flat compared to 2025 levels. We expect revenue to be second half weighted driven by an improvement in silicon carbide revenue and a continuation of strength in memory. We continue to anticipate full year gross margins to be in the low- to mid-40% range with some quarterly variation based on mix. We expect operating expenses for the balance of the year to be approximately $60 million per quarter.

And finally, we continue to anticipate our tax rate to be approximately 15% for the full year. In summary, we executed well in the first quarter and remain focused on disciplined cost management while continuing to make targeted investments to capture the attractive growth opportunities ahead of us. This is supported by a strong balance sheet and healthy free cash flow which provide a solid foundation as we navigate an exciting period for the semiconductor industry.

With that, operator, we are ready to take questions.

[Operator Instructions] Our first question comes from the line of Jed Dorsheimer of William Blair.

I was just wondering, Russell, maybe you could -- I know that gallium nitride and indium phosphide are mostly deposition, which makes your merger that much more exciting. But there is some implant associated with containment, et cetera. So I was wondering if you might just spend a minute just talking about that opportunity. And then I have a follow-up.

Jed, so are you talking about the implant opportunity in silicon photonics, particularly in data centers, where you're heading?

Yes. Well, yes, that's where I'm heading. But specifically around Indium phosphide and then gallium nitride on the power side.

Sure. So there's not really many but there are a couple of implants in gallium nitride, but they're not significant. What I would say when you think about data center and optical transmission, we don't partake especially in the laser manufacturing part. But to put the data to encode the laser with the data, that requires a modulation unit. And that modulation unit is a silicon unit, and that does require implantation. I think it's essentially an isolation implant that is doing.

So again, it's not a massive use of implantation, but it's definitely an application in silicon photonics for that particular area.

Got it. So it will mostly be on the Veeco product line post-merger, correct?

Yes. I think that's true. I think they have -- I think you're on their call -- they have the MOCVD and the thin film capability for the optical components.

Our next question comes from the line of Denis Pyatchanin from Needham & Company.

Great. So on the outlook, it sounds like you're seeing some strength in power IC and memory, but general mature remains weaker, it may be getting even weaker. Can you discuss in some more detail of what you're seeing in general mature?

And it seems like this quarter that some IDM business is picking up globally for some of the mature products, but it doesn't seem like you're seeing any of that. Can you talk a little bit more, please, about what you're seeing in general mature?

Yes, Denis, this is David. So I think we would agree that the end markets are picking up. I think auto is stabilizing, industrial recovering, and we're starting to see AI pick up for this general mature segment. When we talk about the Q1 bookings, yes, we did see a little bit softer bookings in general mature. But the key takeaway there is that utilization rates are rising. And so for us, that's a really nice data point.

We still expect 2026 general mature to be down year-over-year. But as we think about the business trending into 2027, we feel a little bit better today than we did 3 months ago in general mature. And on the silicon carbide side, in Russell's prepared remarks, it was quite clear that we are seeing also relative to 3 months ago, I would say, encouraging signals from our customers. Conversations are very constructive.

There's a lot of inbound about technology, engagement, channeling, super junction and then you're starting to hear more and more about Silicon Carbide in the data center. So we think the combination of these things is pretty encouraging, and again, sets the stage for maybe some momentum into 2027.

And from quarter-to-quarter, it can move around but our -- we're taking a bigger picture view that we think that next year looks a little better for these markets.

Great. And then for my follow-up. So on a related note, the book-to-bill for the quarter was up to about 1%, I think, up from 0.8%. Could you share a little more about what you expect to see order wise next quarter?

Is the book-to-bill going to be the same or moving even higher?

Yes, we're not going to guide bookings per quarter, it can fluctuate. But we are encouraged that Q1 was relatively consistent with Q4, which was a big step up from earlier in 2025. So this is a good sign. But we're not going to be forecasting bookings on a quarterly basis.

[Operator Instructions] Our next question comes from the line of David Duley of Steelhead Securities.

I guess I'll ask the question I think I've asked in the last couple of conference calls. If you could elaborate on what you're seeing as far as silicon carbide adoption in other markets, specifically in the data center. I think in the past, you've talked about voltage step-down applications.

I was just wondering if you're getting closer to the rack or if there's other applications that you might be addressing inside the data center as well?

Dave, it's Russell. Thanks for the question. So yes, obviously, data center is an application. I just want to start off with the electric vehicle. I think they're actually very exciting right now. A lot of the cars are going to 800-volt subsystems, which allows them to actually charge so much quicker as well. So you've seen that trend in those using silicon carbide.

And the first application will be the traction inverter and you're seeing more and more of the silicon carbide cars now taking sort of -- sorry, of the electric vehicles is now taking silicon carbide but we're also seeing more and more silicon carbide per EV. So you have the traction inverter which is typically the first device they take, then you start to see the DC-to-DC step-down also the onboard charging and of recent times, we've seen the AC system, the compressor having silicon carbide.

So we're really seeing this next generation of cars much greater range and much faster charge time. So I think those are -- that's a really good trend. And although it may be a little bit soft now the long-term trends that's going to continue to grow.

So that's kind of the electric vehicles. Like I mentioned before I get on to data centers, this has actually -- it surprised me when we're in China, we were talking about these being white goods. That really was surprising. But yes, for many of these high-end systems that are running about a kilowatt, they needed to achieve their certification for power efficiency in multiple markets.

And then the data center because it was interesting. So maybe 3 to 6 months ago, we'd be talking about is it going to be gallium nitride? Is it going to be silicon carbide? I think at this stage, it's becoming clear that it's both.

As the rack transitions to 800 volts, I think what you're going to see is gallium nitride inside the rack. That's a great sweet spot for gallium nitride. But if you drop down from the grid, which is 13 kilovolts or more, that's going to be a great application of silicon carbide.

So as it drops from the grid down towards the rack, you're going to see silicon carbide taking that opportunity as it really is a good application of that material.

And as a follow-up or just an extension of that question, do you think this -- the 800-volt rollout in the data centers which I guess kind of starts in the middle of this year really gets going next year, is that when you might see more of a pickup in your silicon carbide implant business for that market? Or when will this start to hit in a more significant way, I guess, is the best way to ask it?

Yes, Dave, that's a good question. It's still low volume relative to EVs. But I would say our conversations with customers, they're talking a little bit more about it. And so we're paying attention.

And this could be an application that over time could grow, whether it's the transformers or other parts of the data center power architecture. So I think TBD, Dave, how big this could be. I'd say our customers are definitely paying a lot more attention to that.

Our next question comes from the line of Duksan Jang of Bank of America Securities.

One on the full year '26 guide. I think you said you want to -- you're maintaining that flattish year-over-year guide. I'm just curious because clearly, memory sentiment and the wafer starts are likely much better than 90 days ago. And then at the same time, I think you said your bookings for the general mature and the power business are still doing pretty well. So I'm curious why not raise that full year guide?

Yes. So we feel comfortable with flat year-over-year. Absolutely memory, we expect to be a strong year for us in 2026, offset by a digestion in power and general mature. So we're seeing encouraging signs. We like what we saw in the bookings in Q1. One quarter is not a trend. But I think that some of that momentum is probably going to carry into 2027. For this year, based on our backlog, based on the scheduled shipments that we have, we still feel that those markets are going to be down this year. And so net-net, you're going to get -- we expect about flat but with a nice setup into 2027.

Got it. And then a follow-up more specifically on the memory side. So I think at one point, you said memory is going to be up year-over-year. And clearly, the trends are looking that way. How should we think about the full-year trajectory when, obviously, it tends to be a little bit lumpy on a quarterly basis, but we had a pretty strong start to the year.

And I think also the NAND activities have begun to pick up. So any color on the full year memory would be helpful.

Yes. That's right. From quarter-to-quarter, it could be lumpy. It just depends on when customers are taking them, when we're shipping to customers and fab availability space. So for example, in Q2, memory is going to be a little softer sequentially. But we think for the full year, it's -- we expect pretty strong growth in memory. And that's all DRAM. Our expectation embedded in our 2026 expectation is not much NAND. So that's something that we're paying attention to. As you know, Duksan, a lot of the NAND manufacturers are focused on vertical scaling. And so that doesn't require a lot of incremental implants. But once the industry starts to add wafers, that's when we would start to see a pickup.

Got it. And then if I may, just one quick one. Within memory, I'm sorry for being too specific, maybe, but I think the industry is trending shifting away a little bit from HBM and diversifying more into other types of memory.

And I assume the wafer consumption ratio is not as high on those, for example, like the LPDDRs. So obviously, I think that will be a positive trend for you. Have you seen any signs that the demand signals are stronger because of that?

I don't think we've seen any meaningful change based on any mix shift in memory. So customers are still really trying to build out HBM capacity in DRAM for AI.

Yes. And when I think about HBM, it's essentially DRAM stacked. So the implant intensity doesn't change much between DRAM and HBM. And NAND is not different. It's a slightly different mix of high current and medium current. But I'd say the NAND and even node to node to node as well, it's not changing significantly. I'd say the implant intensity is relatively stable.

I'm showing no further questions at this time. I would now like to turn it back to David Ryzhik for closing remarks.

Thank you, operator. I just wanted to thank everybody for joining the call and your interest in Axcelis. You can close the call.

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

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company results for the fourth quarter and full year 2025. My name is Victor, and I'll 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. Please proceed.

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. If you have not seen a copy of our press release issued earlier today, 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. 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'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 annual report on Form 10-K 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. Given the pending merger with Veeco, we will not be addressing questions related to the transaction.

Please note that today's call is neither an offering of securities nor a solicitation of a proxy vote in connection with our previously announced transaction with Veeco. During this call, we will be discussing various non-GAAP financial measures. Please refer to our press release and accompanying materials for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures.

Now I'll turn the call over to President and CEO, Russell Low.

Thank you, David, and good afternoon, everyone, and thank you for joining us for the fourth quarter and full year 2025 earnings call.

Beginning on Slide 4, we generated solid results in the fourth quarter with revenue of $238 million and non-GAAP earnings per diluted share of $1.49, both exceeding our outlook. Our better-than-expected results were primarily driven by stronger CS&I aftermarket revenue in the quarter, which had a favorable mix impact on our gross margins. Bookings in the fourth quarter improved significantly on a sequential basis, primarily led by power, general mature and memory, specifically DRAM.

Before I provide more details on the trends we are seeing by market segment, I'd like to provide a brief update on our pending merger with Veeco. We continue to make meaningful progress towards securing all the approvals required to close the merger. We are pleased that shareholders of both companies voted in favor of the transaction at our special meetings on February 6. We have also received regulatory clearance in several important jurisdictions and are actively engaged with the regulatory authorities in China for the final approval needed to complete the merger. We continue to expect closing in the second half of 2026.

In the meantime, we are working closely with Veeco on integration planning to help ensure the combined organization is fully aligned and ready to hit the ground running on day 1. As we collaborate more deeply with our Veeco counterparts, we are increasingly impressed by the clear alignment in our cultures, values and our shared commitment to innovation and customer satisfaction. The integration planning process has reinforced our confidence in the potential of this merger and in our plans to come together as one company to unlock even greater value for all of our stakeholders.

Turning to Slide 5. In the quarter, as well as the full year, sales to mature-node applications accounted for the majority of our system shipments, in particular, power and general mature.

Now on Slide 6, let me review our trends by end market. Within our power business, shipments to silicon carbide moderated slightly on a sequential basis. Consistent with our commentary over the past several quarters, customers continue to take a disciplined approach to capacity investments following the significant build-out a few years ago with many customers now prioritizing the technology transitions.

As an example, a key driver of our CS&I strength in the quarter was driven by system upgrades for a number of our silicon carbide tools at a customer location where a customer converted their tools from 150 millimeter to 200 millimeter and chose to do this with our recently introduced Purion Power Series+ platform while staying within the same footprint.

We also continue to see select customers in China expanding their silicon carbide device capacity and capabilities, while customers in other regions are focused on the next-generation technology investments such as trench and superjunction. We are seeing growing interest for our newly developed high-energy channeling capabilities, which are essential and necessary for superjunction development.

Broadly speaking, while near-term ion implant demand for silicon carbide applications is anticipated to remain muted as customers absorb their capacity, we expect strong long-term demand through the cycles, driven by clear secular trends such as the growing penetration rate of silicon carbide into electric vehicles, particularly as we see more 800-volt models released, growing content of silicon carbide within EVs, the growing overall volume of EVs on a global basis and the growing adoption of silicon carbide outside of the automotive sector such as solid-state transformers, circuit breakers, solar battery inverters, HVAC systems, industrial motor drives, aerospace and defense, just to name a few applications.

Adding this all up, we remain excited about the long-term demand profile for silicon carbide, and we believe we are well positioned in ion implant for this application. In our other power market segment, ship system revenue also moderated slightly on a sequential basis, primarily due to a muted demand trends in silicon IGBTs.

In general mature, revenue improved sequentially as customers made select investments, particularly in our high current tools. Overall, customers continue to manage capacity investments amid stabilizing auto industrial demand. However, we noticed a continued improvement in implant tool utilization rates across multiple customers in the fourth quarter. While we are not yet seeing signs of a cycle recovery in CapEx spending for general mature process technologies, we are encouraged with the improved utilization rates.

Turning to Slide 7. In advanced logic, we generated revenue on a follow-on order from an existing customer and we continue to work closely with customers on next-generation technology needs, including implant for backside power contacts as well as other material modification implant applications.

Moving to our memory market. Demand improved sequentially for DRAM and HBM applications, and we expect this momentum to extend into 2026 as customers expand capacity to address growing demand for AI-related applications.

I'm also pleased to say that we secured an order for a high current system from a leading North American memory manufacturer, which is an important customer win that broadens our presence beyond our strong position in Korea. Interestingly, we received this new order prior to the completion of an existing system evaluation, which we view as an endorsement of our technology.

In NAND, customers remain focused on higher layer counts, which does not drive incremental ion implantation demand. As a result, we continue to expect demand for NAND applications to remain muted in the near term. That said, recent improvements in NAND bit demand and pricing are encouraging, and we believe we are well positioned once our customers resume wafer capacity additions, which we expect is a matter of when, not if.

On Slide 8, let me wrap up my thoughts on 2025. I am pleased with our team's focused execution given the changing macro environment throughout the year. We navigated the cyclical digestion period across our markets exceptionally well and focused aggressively on product development and customer engagement.

Early this month, we announced the introduction of the Purion H6, our next-generation high current ion implanter. The Purion H6 incorporates a series of notable technology advancements across the beam line, source, particle control and dosimetry subsystems. The system delivers industry-leading dose repeatability as well as significant advancements in purity, precision and productivity, supporting high current applications across advanced logic, memory and mature process technology nodes. As devices scale and architectures become more challenging, customers are demanding tighter implant control, lower contamination, higher uptime and lower overall cost of ownership requirements that Purion H6 was engineered specifically to meet.

In the fourth quarter, we delivered our strongest quarter of high current shipments in 2 years and the introduction of Purion H6 builds on that momentum. We also delivered double-digit year-over-year growth in our CS&I aftermarket business, supported by our growing installed base and a deliberate strategic focus on upgrades and services both of which reached record levels in 2025.

Despite overall revenue declining in 2025, our non-GAAP gross margins grew by 30 basis points. In combination with disciplined cost control, we delivered strong profitability and cash flow in 2025.

Now on Slide 9, let me discuss our initial perspectives on 2026. We expect our memory business, led by DRAM to grow as customers invest in capacity to meet accelerating AI-driven demand. In the power and general mature markets, while utilization trends are improving, customers are continuing to manage existing capacity following a strong investment cycle over the past several years. As a result, we expect this to result in slightly lower year-over-year revenue in these end markets.

However, over the long term, we anticipate power and general mature to be a key beneficiary of electrification and the increasing demand for efficient power generation delivery and use. Importantly, while the rapid growth of AI large language models has been a strong catalyst for advanced compute and memory demand, we expect the power semiconductor market to also benefit from the growing need for power associated with AI. And this includes silicon, silicon carbide and gallium nitride applications, distributing power all the way from the grid to the core.

Moreover, we also anticipate the emergence of physical AI such as robotics, autonomous vehicles and many other devices on the edge to become yet another sector driver of power devices as well as general mature technologies such as MCUs, image sensors, analog and others.

And finally, in advanced logic, we anticipate relatively similar revenue levels in 2025. We are making progress in our long-term strategy to penetrate this market, but it will take time before our evaluations translate into meaningful volume as we engage with customers on next-generation logic architectures.

Taken together, we currently anticipate overall revenue to be relatively flat compared to 2025 levels.

With that, let me turn the call over to Jamie for a closer look at our results and outlook. Jamie?

Thank you, Russell, and good afternoon, everyone. I'll first start with some additional detail on our fourth quarter and full year results before turning to our outlook for Q1.

Starting on Slide 10. Fourth quarter revenue was $238 million, with systems revenue at $156 million and CS&I revenue reaching another quarterly record of $82 million, both above our expectations for the quarter. Our better-than-expected CS&I revenue was primarily driven by strong demand for upgrades as customers look to optimize their technology within the same footprint. In addition, the quarter also benefited from some pull-in activity given improving utilization rates. We are pleased with our execution in CS&I and our aftermarket offerings are resonating with customers.

For the full year, CS&I revenue grew 14% on a year-over-year basis, led by strong growth in upgrades and services revenue. A key driver here is the deliberate strategic initiatives we've undertaken over the past few years to drive better adoption of upgrades and service contracts.

Moving to consolidated revenue. From a geographic perspective, China decreased sequentially to 32% of total revenue, down from 46% in the prior quarter, which was consistent with our expectations as customers continue to digest the robust investments they've made in mature node capacity over the past few years.

Turning to the other regions. We saw revenue in Europe at 15%, the U.S. at 14%, Korea at 13%, Japan at 9%, Taiwan at 3% and the rest of the world at 13%. For the full year 2025, our revenue from China was 42% of total revenue, while U.S. came in at 16% and Korea at 13%, Europe at 11%, Taiwan and Japan at 5% and the rest of the world at 7%.

As Russell mentioned, bookings increased notably on a sequential basis to $128 million, and we exited the fourth quarter with a backlog of $457 million.

Now turning to Slide 11. I'd like to share some additional detail on our GAAP and non-GAAP results. GAAP gross margin was 47% in the quarter. And on a non-GAAP basis, gross margin was 47.3%, above our outlook of 43%, primarily due to a higher mix of CS&I as well as a more favorable mix of upgrades within CS&I.

GAAP operating expenses totaled $76 million. And on a non-GAAP basis, operating expenses were $62 million, above our outlook of $56 million, primarily due to higher variable compensation expenses associated with the better-than-expected fourth quarter performance.

Our non-GAAP results exclude transaction-related expenses associated with the pending Veeco merger, along with other typical non-GAAP adjustments such as share-based compensation and restructuring charges. In this context, the fourth quarter reflects an expense from a onetime voluntary retirement program, and we recorded a portion of that expense in the period.

As a result, our GAAP operating margin was 15.2%, while our non-GAAP operating margin was 21.1%. Moreover, in the fourth quarter, we delivered adjusted EBITDA of $55 million, reflecting an adjusted EBITDA margin of 22.9%.

We generated approximately $4 million in other income with the sequential increase primarily due to foreign currency. Our tax rate was approximately 14% in the fourth quarter, both on a GAAP and non-GAAP basis. Our weighted average diluted share count in the quarter was 31.1 million shares. This all translates into GAAP diluted earnings per share of $1.10, which was higher than our outlook of $0.76. Non-GAAP diluted earnings per share was $1.49, also exceeding our outlook of $1.12. The higher-than-expected non-GAAP diluted earnings per share was primarily due to better-than-expected revenue and a favorable mix.

For the full year, we delivered GAAP gross margin of 44.9% and non-GAAP gross margin of 45.2%, a 30 basis point increase year-over-year despite the lower revenue. This was due to favorable mix and a continued focus on cost control. For the full year, adjusted EBITDA was $177 million, reflecting an adjusted EBITDA margin of 21.1%. We generated approximately $19 million in other income this year, and our tax rate was approximately 13% for the full year on a GAAP and a non-GAAP basis. This all translates into GAAP diluted earnings per share of $3.80 or a non-GAAP diluted earnings per share of $4.88.

Moving to our cash flow and balance sheet data shown on Slide 12. In the fourth quarter, free cash flow was negative $9 million, driven by the timing of our sales, which were skewed more to the month of December. In turn, this increased our days sales outstanding. In addition, our cash flow was negatively impacted by approximately $5 million in cash transaction expenses associated with the pending Veeco merger. For the full year 2025, however, we generated robust free cash flow of $107 million. And despite the decline in our revenue, this reflects strong cash generation of our business.

Turning to share repurchases. In the fourth quarter, we repurchased approximately $25 million in shares and have $110 million remaining under the share repurchase program previously authorized by the Axcelis Board of Directors. For the full year, we repurchased approximately $121 million of shares. We exited the fourth quarter with a strong balance sheet, consisting of $557 million of cash, cash equivalents and marketable securities on hand. It's important to note that this includes $182 million of long-term securities.

With that, let me discuss our first quarter outlook on Slide 13. All measures will be non-GAAP with the exception of revenue. We expect revenue in the first quarter of approximately $195 million. The sequential decline is expected to be across both systems and CS&I. In systems, we have seen a few pushouts due to the timing of available cleanroom space. And in CS&I, there's some seasonality at play, which typically results in higher volume in the fourth quarter given customers like to manage their budgets into year-end.

In addition, as Russell noted, we saw a large customer upgrade in the fourth quarter that we do not expect to recur in the first quarter.

And finally, a portion of the CS&I upside we saw in the fourth quarter was pulled forward from the first quarter. We expect non-GAAP gross margins of approximately 41%. The sequential decline is primarily due to less favorable mix and lower volume relative to the fourth quarter. More specifically, we anticipate a higher volume of sales into the memory market, which typically carry lower gross margins due to the nature of the systems they are buying. In addition, we anticipate a sequential decline in CS&I revenue, combined with a lower mix of upgrades, which typically carry higher gross margins.

And finally, to a lesser extent, we anticipate a modest incremental impact from tariffs as a greater mix of our inventory includes the tariff impact and older inventory is cycled out. We expect non-GAAP operating expenses of approximately $59 million in the first quarter. Adjusted EBITDA in the first quarter is expected to be approximately $26 million. And finally, we estimate non-GAAP diluted earnings per share in the first quarter of approximately $0.71.

As Russell indicated, we anticipate full year 2026 revenue to be approximately flat compared to 2025 levels. We expect revenue to be second half weighted. We anticipate growth in our memory market to offset a decline in our power and general mature markets. We currently estimate full year 2026 non-GAAP gross margins of approximately low to mid-40%. The year-over-year decline is primarily due to the anticipated stronger mix of memory business in 2026 relative to our other markets.

In addition, as I referenced earlier, we anticipate a modest year-over-year impact from tariffs, which we estimate at less than 100 basis points. As we think about operating expenses for the year, we expect to continue to balance investments in product innovation to drive organic growth in our business while remaining disciplined on cost.

As a result, we expect quarterly non-GAAP operating expenses for the balance of the year to remain relatively similar to anticipated first quarter levels. And finally, we anticipate our tax rate to be approximately 15% for the full year.

In summary, we're pleased with how we performed in 2025 despite a softer demand backdrop in our power and general mature markets. While systems revenue declined on a year-over-year basis, we delivered strong growth in our CS&I business. We grew our gross margins, and we delivered robust free cash flow while opportunistically increasing our pace of share buyback. We enter 2026 in a solid financial position and are excited to close our pending merger with Veeco, which we believe will enable us to unlock the full potential of the combined company and drive long-term value creation for our shareholders.

With that, let me hand the call back to Russell for closing remarks. Russell?

Thank you, Jamie. As we look ahead, we remain focused on disciplined execution and advancing our technology road maps that differentiate Axcelis across our end markets. The progress we made in 2025 from product innovations to acceleration in our CS&I business to operational excellence positions us well as we enter an important year for the company.

With respect to our pending merger with Veeco, we anticipate significant long-term opportunities as a combined company. Together, we expect to be even better positioned to capitalize on the secular tailwinds driven by AI and electrification and expect to leverage the complementary strengths across our portfolios and our people to deliver greater value for all stakeholders. I want to thank our customers, employees, partners and shareholders for their continued support and trust in Axcelis.

With that, operator, we are ready to take questions.

[Operator Instructions]

Our first question will come from the line of Jed Dorsheimer from William Blair.

Congrats on Q4. I guess a question for me is just in the memory market, congratulations on getting the high current into the U.S. memory manufacturer. I'm wondering if you might be able to provide a bit more color is to whether or not this was more of a second sourcing opportunity? Or I just look at the Q4 to Q1 transition, and I know you said that memory is going to be stronger. Do you anticipate that, that new customer is ramping up on that capacity expansion? Or how to think about that? And then I have a follow-up question.

Jed, it's Russell. So when I think about memory, obviously, I'm talking about DRAM specifically, and the demand is going up and up, pretty much driven by AI. What we're seeing right now is that basically, it is cleanroom space limited. So we're seeing many, many customers trying to slide an extra couple of tools in to increase their capacity, but you won't really see large numbers of tools until you actually open up the new fabs that are coming through.

So I think you've seen them in the press. Each one of the really large DRAM manufacturers have plans to open new factories in the near term. So I think what you'll see is that, that's -- we'll see DRAM significantly up in 2026 compared to 2025, although somewhat of a lower base in '25. But we're looking to see that momentum continue into 2027 as the -- basically the bottleneck, which is cleanroom space starts to dissipate and there'll be more tools coming out. And that will be across all the DRAM manufacturers.

That's helpful. And then just on this CS&I and specifically the silicon carbide, if you look at your base that's out there, what percentage has converted from the 150 mm to 200 mm already? And where I'm going with this is just to try and understand sort of that conversion premium in the CS&I business that you saw in Q4, what's left out there to kind of run through or capture?

That's a great question, Jed. So I guess the question is, what is the market potential for a 6-inch to 8-inch transition in terms of upgrades?

Yes. Yes.

So I would say that only a very small part of our installed base has gone up to 200-millimeter. It's still very much in that transition phase and kind of the leaders are trying to get there. And I'd say the leaders typically outside of China are trying to get there first. I think that's where they're going to have the biggest cost advantage.

So I think there's ample opportunity to continue to provide these really high-value upgrades into fill them. I think I should just clarify that, yes, there was a large customer going from 6-inch to 8-inch, but they also upgraded the system as well to our Purion Power Plus Series, which was kind of an upgrade on top of an upgrade. So that really did reduce the cost of ownership. And like Jamie said in his prepared remarks, that was within the same footprint of the tool. So this really is a field upgradable system that gives -- continues to give value.

Next question comes from the line of Denis Pyatchanin from Needham.

So regarding the strong bookings that you guys are seeing, can you tell us maybe a little bit more about which 2 or 3 segments are driving this growth?

I'd say that it's actually -- so if you look at our revenue history and where those segments have been, I'd say that our bookings have pretty much matched our prior. So it's nothing unusual. And while we're seeing a bump up in memory, I just want to mention that memory typically books and ships in the same quarter. So you don't typically see a lot of memory in our backlog. There's a little bit there depending on where the quarter ends. But ultimately, it's still general mature and power are the main parts of our bookings.

Understood. And given the outlook for approximately flat revenue year-over-year for 2026 versus 2025, and given the strength that we're seeing in DRAM from both HBM and DDR5, can we assume that both general mature and both segments within power are showing some weakness throughout the year?

So I think we've kind of said that general mature is slightly down but we are seeing the utilization rates coming up. So obviously, our customers are seeing hopefully a rebound in revenue but that's because they're now getting to utilize the tools they already have. Once those tools are up to high utilization rates, that's when they'll start to buy more tools. So certainly a very positive sign is just that we are further down the supply chain. So I would say that we're slightly down year-over-year with raising utilization rates.

Regarding power, I'd say power is slightly down, although it's still a large part of our revenue and is still doing, I'd say, relatively well. And when I look at power, I think about the long-term secular trends, electrification, for example, all the way from generating efficient energy, transporting efficient energy and using less of it, I really do think that there's a great opportunity in the long-term secular trends for power.

So while they're taking a bit of a pause, and I say sort of slight down, you're seeing the slack being picked up by memory. And like I said before, memory, right now, the bottleneck is the cleanroom space.

Understood and...

Go ahead, Denis.

I was just going to say, is there any way you could provide a little bit more color on like whether power SiC or other power is looking a little bit stronger over the next few quarters or even throughout 2026?

Yes. I would say our current view is it's like what we're really talking about is a handful of systems, Denis, right, in probably both of those segments, right, lower than the year-over-year prior year. And as we look out, what we're trying to just be cautious on is calling the timing of a recovery, right? We're seeing those encouraging signs, as Russell said, in utilization rates. That's helping to contribute to some of the incremental CS&I volume that we are seeing as well.

So we are getting some beneficial financial performance from those improved utilization rates. And similar to our approach last year with calling a memory recovery, we wanted to kind of see it in the data before we kind of -- we're willing to put that out there. What I'd suggest is we're seeing those encouraging signs, but we're not yet seeing those -- the order rates pick up at that rate just yet for us to call that a slight recovery in the cycle for those markets.

Our next question will come from the line of Christian Schwab from Craig-Hallum.

I just want to get back to memory for a second. So your largest customer in Korea is taking some capacity off of NAND for DRAM for high-bandwidth memory plus we really need a substantial increase of wafer starts in DRAM specifically, not NAND, given layer count increases in order to get supply and demand more in balance.

So are you suggesting that you think others in the space are talking about a super memory CapEx cycle since you really only have one competitor and are leading supplier to the largest. Are you suggesting that you don't have the orders in hand for the second half of '26 yet? Or are you suggesting that '27 should be a fantastic year?

So a couple of things there, Christian. So I think what we're saying is that typically, we build to forecast, which is why we often get the PO, i.e., the booking in the same quarter, the tool shifts. So just to kind of clarify where we are with 2026. We believe that we're going to have significant improvements in our DRAM business in 2026, and that's based upon staying very close to our customers and understanding what their needs are.

However, I think it's also clear that while they're kind of begging and borrowing space, they have made public announcements of really significant increases in their capacity. So if you think about the Yongin cluster, for example, with SK hynix, it's going to be 4 mega fabs of 200,000 wafer starts a week and that's where they've been investing a lot of money for quite some time. So they've got the CapEx going into building the fabs and then they'll be looking in, I think, early 2027, for example, for taking systems to then start ramping up that factory.

And I think you've seen in the public disclosures multiple companies saying they're looking to build more capacity. But right now, that's what you're seeing with DRAM is that the prices are spiking because the supply is very constrained.

Right, right. Can you -- on the capital intensity, can you remind us how much ion implant equipment is needed for every 100,000 wafer starts?

Yes, sure. So I think NAND and DRAM are slightly -- are mostly similar in terms of the requirements, but the mix with inside that number would vary between high energy, high current and medium current. So if I go with DRAM, for example, typically, it's about $150 million to $200 million worth of capital for implants for every 100,000 wafer starts that are bought online. And that, I would say, is there's a little bit of high energy in there. There's -- but a large amount of that is high current.

So when we talk about growth in memory, we have a very good position in high energy and we're looking to get -- to build upon our good position in high current as well. So that's why we've been positive about high current.

Important note, Christian, is that all this commentary really is around DRAM at this point in time, right? And our expectations are for NAND to continue to be relatively muted as we go through '26. That could free up as we go into '27, depending on how those NAND -- what those NAND producers need to increase their capacity. So...

Our next question will come from the line of Craig Ellis from B. Riley Securities.

Guys, I was hoping to get a better understanding of what you're seeing in the mature foundry business with some insight geographically. We're hearing from companies that they're seeing foundry utilization approaching 90% in China in the 80% area in Southeast Asia, I suspect it's much lower than that in mature in the U.S. and Europe. But as you're engaged with your many customers in mature, can you help us understand where we're getting closer to levels where they need to really start adding more capacity versus areas where there may be less very near-term pressure?

Craig, it's Russell. So yes, so utilization rates do obviously vary by customer. I'd say that high utilization will then drive to high CapEx or use of CapEx. And you've seen some of our customers state that their CapEx may not be that high this year. I think there's been a couple of very vocal customers about that. So obviously, they've got to fill up what they have and they may be slightly behind where they would like to be and then they'll start spending.

But are you focusing on China? Yes, they certainly want to provide more chips for domestic use. So this is very much about the self-sufficiency. So they're going to -- and I believe they're quite a long way behind their goal. So they're going to continue to buy equipment and ramp up factories. And since these are quite demanding technologies, it may take them a while to get the cost down as they kind of get the yields up and ramp up the factory.

But yes, you're seeing that in China, there are certainly still high utilization rates and also a demand for additional growth. The other thing is, I think we said this many times before, I mean, our Chinese customers behave like any of our other customers. They absolutely want the best technology. They want world-class service and support. And we've got great relationships in China. We spent over $100 million last year on R&D, and that goes to innovation and our Chinese customers are looking for innovation as much as anybody else. They're looking to do basically they need cutting-edge technology to give them the benefit in their own businesses that they're looking for to survive.

Russell, that's really helpful. And just sticking with the China theme versus the 32% of revenues in the fourth quarter or if we want to baseline off of the 42% for 2025. And I know the company is not giving full year guidance, but can you help us understand where you feel the demand intensity would be from that region in 2026, given in part that we've heard a number of companies suggest trends could be flattish rather than down year-on-year. I know you have over 20 customers, but as you look at what's possible in China, what does it look like for 2026?

Yes. We see it to be relatively flat to down slightly, right? And I kind of maybe stress the word slightly there, Craig, to some extent. When we start to think about the ASPs and the number of units we ship, right, you're not talking about massive number of, I'll call it, quantity-wise down. We do expect China to continue to remain a really durable part of the overall market and business for us as they build out that capacity.

As Russell said, they're still really far away from their self-sufficiency goals and targets and the conversations that the team is having over there with those customers continue to sort of stress the expansion that they continue to plan with more fabs coming online in order to meet those self-sufficiency goals and targets. So we're prepared to continue to support that ramp in the market. And as they work through that, we call this digestion of capacity, we really have seen that more as a mixed bag outside of China, more so than really inside of China.

Very helpful. And if I could sneak in one more. Jamie, with regard to the 41% gross margin guide for the first quarter, clearly, CS&I less of a tailwind than that spectacular fourth quarter gross margin number. But are there any one-offs impacting gross margin is coming in a little bit lower than I would have otherwise expected?

Yes. No, it's a good question. And sort of we dissected the sort of the dip we're anticipating here. I think that, again, the strength of that margin in Q4, right, was driven by really record levels of CS&I volume that we saw in the period as well as the mix within the upgrades, right, upgrades being a larger mix of CS&I load.

So on a normalized basis, right, I would say that, that margin decrease is not as material as it might otherwise look from Q4 to Q1. Within that, we do see a higher mix of memory systems making up the systems volume in the period as well as sort of the moderation of CS&I and expectation for moderation of CS&I volume given that there's some seasonality that happens from Q4 to Q1 as our customers will use up some of their budgets to buy incremental CS&I in the period.

And then I don't want to overstress this, but we are seeing a Q1. There's a little bit of a tariff impact in Q1, just given the way our inventory flows out from -- we procure inventory last year, which gets used in Q1 of this year. That is now at a slightly higher cost. We anticipate that to be a little less than 100 basis points for the full year, but the impact in Q1 is higher and we expect that to moderate over the course of the year as we sort of catch up with our sort of Q4 COGS levels.

Our next question will come from the line of Jack Egan from Charter Equity Research.

So the first is on power and general mature. I just kind of want to make sure I understand your guidance correctly. So because based on -- if you look at a lot of the commentary from the big analog and power companies in -- just from this quarter, it seems spending will come down pretty materially across the Board.

But then as you mentioned, there are some tailwinds like the higher utilization and some onetime upgrades to larger wafers or in other areas and then some build-outs by newer Chinese customers and I. So I mean, does that kind of encapsulate the situation where I think you said it's going to be down slightly year-over-year, and it's mainly capacity investments being down and then offset a bit by some of those other idiosyncratic factors.

Jack, it's Russell. So I think the question was we're saying it's kind of like flat to slightly down, you're saying what are the factors in there. And I think it's -- I think China is still looking to add capacity, but they're adding it carefully, I'd say. They've got to absorb the got and make sure they ramp up effectively with costs in control. And I think you're finding some of the non-Chinese people are also -- the utilization rates are definitely going up. And it matters which customer you're talking about, the utilization rates are going up. And since we're a little bit further down the supply chain, they need to get their utilization rates up before they start thinking about new tools.

So I think that's kind of like we'll see a lot of customers this year start to recover their capacity. And then that's what we'll then see hopefully as an opportunity going into 2027.

Okay. Sure. That's helpful. And then as you've said earlier for memory, those orders come in with a really short lead time, but something that we're seeing like at the memory companies is that their customers are kind of becoming more willing to sign these unusually long LTAs just given the severity of the shortage. And so I was just kind of curious on is any of that trickling down to Axcelis, just maybe in kind of your customer discussions with customers, have they indicated that maybe we'll give you longer lead times? Or is it largely the same as it has been for Axcelis in recent quarters?

Yes, Jack. So whenever I hear about long-term contracts being signed, it always makes me a bit worried because I've kind of seen these happen before. And I think somebody in the newspapers [indiscernible] as kind of the demand for RAM is so, so high. And you're absolutely right, you're seeing people buying up large amounts of RAM in long-term contracts. So yes, the price is spiking up. I think that you're definitely seeing that. But I also -- we're talking about RAM, right?

I think it's important we do maybe just like a process check on how our customers order with us just to clarify. Sorry you talked about short order cycles it's PO placement, Jack. But what we do get from our customers in this space is we get a long-range forecast that can cover sort of multi-quarters. So we're getting multi-quarter forecast. Our historic experience has been that those forecasts are very sound, right, in terms of what the needs and requirements are. And sometimes we actually will see requirements go above what is in that initial forecast as they are able to free up incremental capacity in space.

That activity is occurring, continues to occur with these customers. This is why when we talk about our confidence of memory recovery, right, it's founded in those discussions that we're having relative to our customers' needs for the period. What follows short behind that is I'll call it, the legal framework for which we enter into the purchase order. That is just the timing of that purchase order can be a week, a month and maybe if we're lucky, a quarter ahead of time.

Yes. That's exactly what I'm sorry. I think [indiscernible] last week, that's the jet lag kicking in. And I think [indiscernible] talking to our customers about what they see going on. And yes, Jamie is absolutely right. We work on forecast. The forecast, as you can imagine, are quite positive. But -- and we're making sure that we're ready for that demand.

Yes. It would be interesting to see, Jack, is that as they free up their constraints, how quickly they can free up their constraints if those buying patterns accelerate, right? But as of right now, that's why we're forecasting an acceleration of memory into '27 as we'll see higher volumes here and then we'll see acceleration into '27. We're going to watch pretty closely our customers' expansion as we move through the course of the year as they try to pull in some incremental fab space.

So we want to position, leverage the balance sheet and position ourselves to take advantage of incremental opportunities for '26 if they're able to free up some incremental space.

Next question will come from the line of Duksan Jang from Bank of America Securities.

I have a question on the Q1 guide of $195 million sales. So I think that's about a $20 million delta from your -- what you alluded to last quarter. I know you talked about some pull-ins. But at the same time, I think you said memory has gotten much stronger in your bookings, which is more of general mature and power, that has also improved a lot. So I'm curious what the puts and takes are into that $195 million guide? How much is pull-in versus how much is real end demand?

Yes. So it's actually a combo factor. And Duksan, thanks for asking the question. I think it's important to get it clear. So we did see some incremental volume in the fourth quarter for CS&I that probably would have floated into Q1 had it not come into -- not overly material, but enough to sort of move our expectations for Q1 relative to that.

On top of that, we saw some pushout of systems from Q1 into later in the year, given fab readiness for our customers and not necessarily focused on any one specific market. We just have these things happen. So as we look ahead, timing, right, of system delivery is always one that we manage very closely with our customers. Again, we don't want our systems sitting in parking lots or warehouses, we want the fabs to be ready. We want our installation teams to follow closely thereby. So what we really saw was some pushout of systems, coupled with some modest pull-in activity on the CS&I front.

Got it. That sort of leads into my second question, which is on your 2026 outlook of being flattish. When you say it's going to be second half weighted this year, is that mostly coming from memory? Or is it also more broad-based? And what's giving you really the confidence into that visibility?

So I think...go ahead for it Jamie.

Go ahead, Russell.

No, it is really...

Yes. Both of those things are occurring, right here for us. At the end of the day, we're seeing some incremental memory volume at a higher rate than we expected coming in the back half of the year. So that when we talk about those encouraging signs relative to memory and some of our ability to seeing the recovery occur, it is that memory volume coming in that we anticipate going higher. We are also anticipating just based on the timing of customer needs, we're seeing systems volume weighted towards the back half of the year. And then we are forecasting sort of similarly a little bit of CS&I uptick over the course of the year as we introduce upgrades and upgrade activity that can occur as customers take those things on.

Next question will come from the line of David Duley from Steelhead Securities.

I guess, first off, if I listen to you carefully about your memory business, it sounds like you're going to have higher growth in memory in 2027 than you're going to have in 2026, driven by the cleanroom space constraint. But in 2026, do you think this business can get to like 12% or 15% of revenue? I'm just kind of curious how much growth you think there will be in '26?

Yes. So we're not giving a specific number, Dave, just yet on that. But I would say, again, we're coming off a fairly low base in 2025, and we do expect the volumetrically to see an increase here to kind of keep the revenues, call it, flattish as we see some downward trajectory in the power and general mature space overall. We do anticipate acceleration of memory activity as we move into 2027. And obviously, the growth rate from '25 to '26 to '27 is all going to predicate on the volume that we're able to deliver within 2026. But as of right now, I would say the growth rate in '26 is a healthy number.

And do you think 2027, since that's probably going to be the higher growth year and the higher dollar amount of memory systems shipped, do you think you can get back to your historical range? I think that was 18% to 20% a long time ago when there was a memory cycle?

Sorry, let me -- okay. So Dave, I think if you go back to historic records, it's probably better to do it in absolute dollars than it is market share because I think as a company, we've progressed significantly. I mean, when I joined 10 years ago, we were selling tools to Korea, right? And I think since then, you've seen us getting into silicon carbide power, silicon power, got a nice business in general mature, image sensors. So I think it's more about the absolute numbers.

Our last highest memory year, I think, was like -- I want to say, Jamie, it's like $120 million, but that was NAND and DRAM. So you then have to pare it out to what was the highest amount of revenue we ever made within a year on DRAM alone, that will probably get you close to where we would be wanting to get plus some, right? I mean I'm always the optimist and I'm always looking to take on more market share. And I think you've also got to look at the size of the market. And I don't think I've ever seen the DRAM market in such sort of supply before.

So I think as ever, you're going to start to see a large amount of supply come on. And we know how the cycle works, but I think we're looking to get a piece of that action. And like we've said, we're very pleased with the fanning out of our memory into a large North American manufacturer. I think that gives us an even bigger footprint and bigger opportunity going forward.

I think Russell, that's really important is that last DRAM high was $90 million, right? And that was before the introduction of these systems into the North American memory manufacturer. And then as we think about the number of wafer starts, right, that predicated the $90 million build-out, right? I think the projections for that are higher. But again, we're going to -- again, we'll be sort of moderate in our tone here because, again, we need to see those wafer starts occur. We need to see the customers expand their fabs. We need to see the orders and the forecast come in. But all the signs right now are encouraging for that, that '27, we will accelerate out of '26 into '27.

Okay. And then final thing for me is, I think you've already answered, but I just want to make sure, I think you said you had record demand for high current systems or tools in the quarter. Is that just because the memory business is turning on? Or maybe you could elaborate a little bit about that.

So we do have -- so there's a couple of things. Yes, memory business is turning on. But like I say, it's still on a pretty low base in 2025. I'd say that we're actually moving out. So the goal was always, Dave, is to get in on an application that was critical that really had value and then start to fan out within a customer and then also take on new customers where we know our products will have significant value like we did with the North American memory manufacturer.

So we are seeing a broader base in memory, a broader base in general mature and power. And I think that's also a testament to the value that our tools bring to our customers. So we are seeing an uptick in our high current market share.

David, just to add to that, that's the highest we've had in the 2-year time frame, not an all-time record for high current. But so over the -- if we look over the last 2 years, this was a record for high current product.

And this concludes the question-and-answer session. I would now like to turn it back over to David for closing remarks.

Thank you, operator. I want to thank everyone for joining the call and your interest in Axcelis. Operator, you can close the call.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the third quarter 2025. My name is Brittney Morgan, 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. Please proceed.

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. If you have not seen a copy of our press release issued earlier today, 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. 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'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 annual report on Form 10-K 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. Given the pending merger with Veeco, we will not be addressing questions related to the transaction. Please note that today's call is neither an offering of securities nor solicitation of a proxy vote in connection with our previously announced transaction with Veeco.

We urge you to read the joint proxy statement relating to the transaction with Veeco once it becomes available. During this call, we will be discussing various non-GAAP financial measures. Please refer to our press release and accompanying materials for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures. Now I'll turn the call over to President and CEO, Russell Low.

Good morning, and thank you for joining us for our third quarter 2025 earnings call. Beginning on Slide 4, we generated solid results in the third quarter with revenue of $214 million and non-GAAP earnings per diluted share of $1.21 on both exceeding our outlook. We delivered record CS&I revenue as well as slightly better-than-expected system revenue, which drove the better-than-expected profitability.

Bookings in the third quarter declined on a sequential basis, primarily led by a softer power and general mature bookings, which were partially offset by an improvement in memory. While bookings fluctuate from quarter-to-quarter, based on recent encouraging quoting activity and a conversation with customers on their build plans, we anticipate bookings to improve sequentially in the fourth quarter.

Before I provide more detail on the trends we are seeing by market segment, I'd like to touch on our recent transaction announcement. On October 1, we announced that Axcelis and Veeco had agreed to merge to create what we believe will be a leading semiconductor equipment company. We have long admired Veeco's history of innovation and its track record of delivering breakthrough products and this merger is expected to position the combined company as a key beneficiary and critical enabler of secular tailwinds, including AI and electrification.

I want to take this opportunity to recap a few points that we made when we announced this deal and one is a highly compelling opportunity for both companies. Starting a cross-sell synergy, we believe each company can open doors for the other. One such example is with Axcelis's implant and Veeco's laser annealing solutions, which are adjacent steps and reside in the signed diffusion module in the fab.

In addition, our combined technical debt is expected to enable us to optimize technology advancements. An example of this is our plan to leverage our deep iron source and component expertise to enhance Veeco's iron beam deposition capabilities and vice versa. Second, from a market perspective, we are strong in silicon carbide, while Veeco an exciting opportunity in MOCVD for Gatan silicon. We believe this combined presence will allow us to be a comprehensive solution provider to the compound motor market, which is becoming increasingly relevant due to electrification including the growing need for greater power efficiency driven in part by the rise in AI.

In addition, we believe Veeco's MOCVD business has an opportunity in micro LED as well as an Indium phosphide opportunity for optical communication products, which is an emerging data center application. Moreover, we see opportunities stemming from our strengths in memory and mature foundry logic, which we believe are complemented very well by Veeco strength in advanced factory logic and advanced packaging, stretching across annealing, in deposition, wet processing and lithography solutions.

It's also worth noting that the combined company is expected to be better equipped to better serve our customers through access to an expanded installed base, supported by stronger aftermarket services. Finally, the all-stock nature of this transaction is expected to position the combined company to have a resilient operating profile and balance sheet post closing, which we believe allows us to invest in our business to drive organic growth as both return capital to shareholders.

In short, by bringing our 2 companies together, we believe we are building a leading semiconductor equipment company with the capabilities, resources and financial foundation to drive sustainable growth and value creation for shareholders and drive meaningful benefits for all our stakeholders.

With that, let me now turn back to our Q3 results and the trends we're seeing by market category. To Slide 6. In the quarter, sales to mature applications comprise almost the entirety of our size shipments, in particular, power and general mature. Now on Slide 7, let me review our trends by end market. Within our power business, shipments to silicon carbide applications grew nicely on a sequential basis. Consistent with our commentary heading into 2025, customers continue to digest the capacity that we've put in place over the past few years.

However, in China, multiple customers continue to build out capacity and they strive to address growing demand in the local market, while customers outside of China while making selective investments into next-generation technologies such as trend super junction. Moreover, in the quarter, we shipped several tools to multiple customers that have only just begun to develop their silicon carbide capability. We believe this is yet another validation of the long-term secular growth opportunity in silicon carbide and customers recognize the world's need for more efficient power delivery will continue to accelerate.

As the cost of silicon carbon continues to decline, we anticipate its adoption and an expanding array of applications will continue to grow, ultimately requiring more investments in technology and capacity. As we've noticed in the past, Axcelis is a market and technology leader in high energy in plantation, which is becoming increasingly critical for next-generation silicon carbide devices.

In August, we announced a joint development program with GE Aerospace to pursue production worthy high volt silicon carbide devices utilizing our Purion XE MAX system, which is our highest energy and planter delivering up to 15 million electrons in an IND. We are proud to partner with GE Aerospace on the city initiative.

In September, we made multiple new product announcements, including our new PuriumPower+ series at the annual Conference, which was held in Korea. The platform is designed to enable improved device performance and increase productivity for next-generation power voices. While the majority of the platform is targeted to the silicon carbide market, there are also applications for silicon and gallium nitride.

Excess a proven track record of collaborating with customers to develop innovative solutions and this product announcement is no different. We also have received positive customer feedback about our new high-energy channel capability and music our multistep implant chain capability, which reduces the overhead of wafer transfer time during the implant process, enabling our customers to have increased output with less downtime between resides. This capability is on tools who we've already placed in the field with our leading customers. And as I said, we are receiving positive feedback.

Additionally, Axcelis announced the launch of the GST Ovation ES, a high-current multi-wafer iron inflate targets specifically for engineered substrates. Turning back to the near-term demand environment in silicon carbide, we continue to see select areas of capacity and technology investment, and we expect revenue from silicon carbide to fluctuate from quarter-to-quarter with fourth quarter expected to be down slightly on a sequential basis.

In our other power markets segment, Ship System revenue also grew on a sequential basis primarily due to shipments to customers in Japan and Europe. In general mature, revenue declined on a sequential basis as customers continue to manage their capacity investments given the current demand environment in auto, industrial and consumer electronics.

Broadly speaking, we are seeing an improvement in utilization rates. However, this varies by customer and can even vary by fabrication within each customer. In fact, we are seeing some signs of improvement in utilization rates with our image sensor customers as camera content on autos continues to rise and smartphones continue to be a strong long-term demand driver.

Image sensors require high energy ion implantation we are well positioned to address this market as our customers assume capacity build out investments. In the third quarter, we also shipped XEmax evaluation unit for a 300-millimeter power management IC application. This is noteworthy because our XEMax would develop for the image sensor market, and yet we see interest in additional applications where this technology can be deployed, namely power.

Turning to Slide 8. In advanced logic, we continue to actively target next-generation iron implantation applications across multiple customers. In the quarter, we generated revenue from a previously booked system with an existing customer.

Moving to memory. Revenue remained muted in the third quarter. However, we expect a sequential increase in the revenue in the fourth quarter as customers expect capacity to address growing demand for AI-related applications. While it is too early for us to predict 2026, given our conversations with customers on the capacity players, we anticipate our sales to memory market to grow next year, led by increased DRAM and HBM investments.

In NAND, customers remain focused on scaling to higher layer counts, which requires deficit in etch time-based upgrades, but not incremental iron and plant capacity. As a result, we continue to expect demand for NAND applications to remain muted in the near term. However, we are encouraged with some initial signs of improvement in the NAND bit demand and pricing, and we are ready to service market once customers resume capacity additions.

On Slide 9, let me wrap up my thoughts prior to handing the call over to Jamie. We are navigating the current cyclical digestive period across our markets exceptionally well, remaining aggressive in our product development and customer engagement while staying disciplined on cost control.

As referenced earlier, we are seeing interest in new applications for our high solutions while also executing on our strategy to drive greater adoption of our high care portfolio. Meanwhile, our CS&I business continues to benefit from our focused aftermarket strategy and growing installed base - it remains a foundational part of our company's profitability and cash flow profile and integral to the value proposition we offer our customers.

All this up, despite a moderation of demand in our markets in 2025, we have a strong base of profitability and cash flow, which we believe provides a solid platform for Axcelis to execute on our long-term growth opportunities. With that, let me turn the call over to Jamie for a closer look at our results and outlook. Jamie?

Thank you, Russell, and good morning, everyone. I'll first start with some additional detail on our third quarter before turning to our outlook for Q4.

Starting on Slide 10. In third quarter revenue was $214 million, with systems revenue at $144 million and CS&I revenue at a record of $70 million, both above our expectations for the quarter. Our better-than-expected CS&I revenue was driven by strong demand for spares and consumables as well as an improvement in our service revenues.

We are pleased with our execution in CS&I and our aftermarket offerings are resonating with the customers. Case in point, through the first 9 months of 2025, our CS&I revenue is up 9% on a year-over-year basis despite customers moderating their capital equipment investments.

Moving to consolidated sales from a geographic perspective, China decreased sequentially to 46% of total sales, down from 55% in the prior quarter. Consistent with our expectations, our customers in China continue to digest the robust investments they've made in mature node capacity over the past few years. While quarterly revenue by region can fluctuate we anticipate revenue from China will decline sequentially in the fourth quarter.

Turning to other regions. We saw sales to the U.S. at 14%, while Korea declined to 10%. As Russell mentioned, bookings declined on a sequential basis to $52 million, and we exited the third quarter with a backlog of $484 million.

Turning to Slide 11. I'd like to share some additional detail on our GAAP and non-GAAP results. GAAP gross margin was 41.6% in the quarter. And on a non-GAAP basis, gross margin was 41.8%, below our outlook of 43%, primarily due to mix. Within systems revenue, we recognized a number of low-margin system installations in the third quarter that we had forecasted to occur in the fourth.

Within CS&I, as previously noted, we saw increased volumes of consumables and service contract revenue, which typically carry a lower margin. Nevertheless, we find this encouraging as this tends to reflect increased utilization rates with our customers. GAAP operating expenses totaled $63.8 million, and on a non-GAAP basis, operating expenses were $50.4 million, lower than our outlook of $53 million primarily due to lower compensation-related expenses associated with the timing of annual merit increases as well as onetime cost savings measures we executed in the quarter.

Our non-GAAP results excluded transaction-related expenses associated with the pending Veeco merger, along with other typical adjustments such as share-based compensation and restructuring charges. On that note, in the third quarter, we implemented a onetime voluntary retirement program and recorded a portion of the expense associated with that in the period. Given the nature of this program, we expect to record additional program-related expenses in the fourth quarter.

As a result, our GAAP operating margin was 11.7%, while our non-GAAP operating margin was 18.2%. Moreover, in the third quarter, we delivered adjusted EBITDA of $43 million, reflecting an adjusted EBITDA margin of 20.2%. We generated approximately $5 million in other income with the sequential decrease primarily due to foreign currency. And our tax rate was approximately 14% in the third quarter, both on a GAAP and non-GAAP basis.

For the fourth quarter, we estimate our non-GAAP tax rate will be approximately 15%. Our weighted average diluted share count in the quarter was 31.5 million shares and this all translates into GAAP diluted earnings per share of $0.83, which was lower than our outlook of $0.87. However, non-GAAP diluted earnings per share was $1.21, exceeding our outlook of $1. The higher-than-expected non-GAAP diluted EPS was primarily due to better-than-expected revenue along with lower operating expenses, partially offset by product mix.

Moving to our cash flow and balance sheet data as shown on Slide 12, we generated $43 million of free cash flow in the third quarter as a result of better-than-expected profitability and a slight improvement in both days sales and days payable outstanding.

Turning to share repurchases. In the third quarter, we repurchased approximately $32 million in shares and have $135 million remaining under the share repurchase program previously authorized by the Axcelis Board of Directors. We exited the third quarter with a strong balance sheet, consisting of $593 million of cash, cash equivalents and marketable securities on hand. This includes $143 million of long-term securities.

With that, let me discuss our fourth quarter outlook on Slide 13. All measures will be non-GAAP with the exception of revenue. We expect revenue in the fourth quarter of approximately $215 million and looking beyond the fourth quarter, our preliminary view on the first quarter of 2026 suggests revenues to be relatively similar to our anticipated levels in the fourth quarter of 2025.

We expect non-GAAP gross margins of approximately 43%. The sequential improvement is primarily due to a more favorable mix, and we expect nonoperating expenses of approximately $56 million. As a result of onetime cost saving measures in the third quarter not reoccurring, and in addition to a full quarter of annual merit increases kicking in for the period.

Adjusted EBITDA in the fourth quarter is expected to be approximately $41 million. And finally, we estimate non-GAAP diluted earnings per share in the fourth quarter of approximately $1.12. And in summary, we are pleased with our financial execution through the first 9 months of this year, delivering robust year-to-date adjusted EBITDA margins of 20% and strong free cash flow generation of $116 million despite our revenue being down.

With a strong balance sheet, we are exiting 2025 in solid financial position, and we are especially excited about our pending combination with go and the opportunities ahead for the combined company.

With that, let me hand the call back to Russell for closing remarks. Russell?

Thank you, Jamie. We are pleased with our third quarter performance as the team continues to execute with focus and discipline.Our results reflect the strength of our business model, the quality of our technology and the dedication of our global team.

Looking ahead, the pending business combination with Veeco represents an exciting transformational step for both companies. We expect you to broaden our capabilities, expand our market reach and position us to unlock even greater value for customers and shareholders while creating exciting new opportunities for our employees. We want to thank our customers, employees, partners and shareholders their continued support and trust in Axcelis.

With that, operator, we are ready to take your questions.

[Operator Instructions]

Our first question comes from the line of Jed Dorsheimer with William Blair.

Congrats on the quarter, and I was wondering if you might be able to describe the dynamics a bit more in the other power category. And in particular, what customers are seeing in terms of -- in silicon and what I'm trying to get at in silicon carbides, your differentiation with high energy is very clear and distinct I'm curious what the dynamics are that you're seeing in other power and maybe also in general mature that are driving that business? And then I have a follow-up.

Jed, it's Russell. So yes, so kind of broaden that slightly. So regarding power overall, we are seeing the second half of '25 has been slightly better than the first half of '25. We've talked about different customers from different locations kind of being in different phases. We have kind of Chinese customers for silicon carbide specifically adding capacity versus the non-Chinese customers, basically doing no transitions.

When you look at Northern Silicon carbide power, so basically silicon power, so that obviously is the largest TAM regarding power in total, right, for us. And I'd say it's kind of ebbing and flowing. We do a nice job in out for a number of customers with that power. And remember that some of those applications really are quite -- so they might have a thin wafer application, which is silicon on glass or silicon on silicon or some of the applications.

So they're very specific and quite advanced products and in some of those, there might even be a proton implant on the back side, right? So I'd say that they are still what I would consider highly differentiated products on the silicon power in addition to we've had a very differentiated portfolio and continue to push our portfolio with our latest power series in silicon carbide.

Got it. That's helpful. And then just an update on tariff impacts overall in the business and what you're seeing there would be helpful, too.

Yes. So as for 2025, we continue to manage through the tariff environment. As we think about the optimization of our global manufacturing footprint to help support us in that effort. We are fortunate to have the operations overseas but we're not immune, right, at all to the tariff and tariff-related costs as they do come in. The -- as we look to 2026, it could have a little bit more of an impact in '26 as we move ahead. as sort of some of those tariff costs start to move out of inventory and into the P&L, but the team is working now on working to mitigate the potential impact of that.

And as we pull our models together for that period, we're going to -- we'll work to try to quantify that a little bit more materially for you guys. I think overall, we've done a nice job in 2025. But again, these are dynamic times for sure Jed as the way things continue to sort of ebb and flow with the administration and the decisions that are made around tariffs.

I'll jump back in the queue, but nice job managing through the difficult markets.

Our next question comes from the line of Craig Ellis with B. Riley Securities.

Congratulations on the execution in the quarter, particularly the record CS&I revenues. That's really quite notable that you're now $71 million. I wanted to follow up on something that's been fairly topical with earnings quarter-to-date, and it's the broader arc of China demand and acknowledging that that Axcelis has uniquely broadened, I think, uniquely served customer base there. How should we think about the potential for China to be either a stable market in 2026, a growing market when where there would be just more digestion at play? And any color on timing for which that might occur. I know revenues as a percent of total or now 46%. So arguably, it's happened year-on-year and quarter-on-quarter but any color on that would be helpful.

Craig, it's Russell. Thanks for the question. So it's a little too early to say too much about 2026. And clearly, 2025 has been a year of digestion. We believe that China demand in 2026 will depend upon the the end demand environment as well as how much progress they make on chips self-sufficiency targets. And right now, we believe they're still below those targets.

Clearly, China for China and being able to supply domestic chips is a really big initiative for China, and I think they have to continue to invest to achieve this capacity. And I think the markets that we have the most visibility would be general mature and power, and that's kind of where we're seeing this continued kind of desire to grow.

One thing I'd also say, Craig, is so geopolitics aside, our Chinese customers are acting like any of our other customers. They really do what the best technology. They want the highest quality support -- and they're actively engaging with us on our road map. So we are very engaged with our Chinese customers. We are aligning our road map so that we can support their long-term growth -- and we see opportunities in China.

That's really helpful, Russell. And then the follow-up question is related to the tantalizing comments that that in 2026, we may be seeing indications for a better memory environment. I was hoping you could go into more detail in terms of what you're seeing in DRAM versus NAND to the extent that it's discernible. I know equipment complexed either line either type of line, but just more color on what you're hearing from memory customers. And in the past, you've had 50% share with Korean manufacturers. Is that a realistic expectation as memory starts to reaccelerate?

Okay. So when we talk with our customers, right now, it's clear that the demand is coming from, say, DRAM and HBM, I think when you kind of read the news some of the suppliers of those products are basically sold out for 2026. You do see the high utilization. You do see the upgrade flow. I think the next stages are to bring on new greenfield capacity, right? So you're going to see that happening. So that's kind of one of the things we expect to see.

NAND is really -- we still NAND is very quiet. I think NAND has been quiet for us for a long time. And obviously, we care about wafer starts for NAND, not whether you build to and to sky scrapers, which certainly, as I mentioned, helps the depot depos. So I do think it's exciting that memory could actually be turning a cycle. It's a bright spot for us. And I do think that we will continue to do well when that happens.

Our next question comes from the line of Christian Schwab with Craig Hallum Capital Group.

Great. Just a follow-up on the memory, can you remind us in the typical capacity cycle of adding wafer starts kind of a range of revenue outcomes that historically you have seen so we can get an idea of, should we enter an up cycle the range of revenue outcomes that could benefit you in memory?

So just to double check, question. You're talking about how many implanters the capital intensity for 100,000 wafer starts, that kind of number you're looking for?

Yes. So if we -- if there was great field facilities available for expansion, obviously, we all know how the pricing environment is it would make sense for DRAM wafer starts to expand -- does that add $50 potential million of revenue to you on a yearly basis, $100 million. Could you just give us a wide range of potential outcomes?

Yes. So let me -- so Jamie is looking to find the exact number, we'll give you that will be number we believe. So NAND and DRAM has about the same intensity. And obviously, we're thinking in terms of they all need high energy, medium current and high current. There's a mix of those tools for 100,000 wafer start thought it was north of -- it's 45 to 55 total implanters that kind of number.

Perfect. And then as you guys are seeing improved utilization, but spotty in general mature, are you guys optimistic that general mature will see a recovery in 2026? Or is that yet to be determined?

So I think general mature is going to be driven by the macro climate. So you're looking at consumer spending automotive and industrial I think while we're kind of encouraged by memory, we've kind of said in the past, we're kind of bouncing along the bottom and it is too soon to say that the other markets, mainly consumer industrial and automotive have actually turned -- but by customer, you do see pockets of high utilization, but you also see some customers deal with lots of excess capacity. -- where my , just like you guys were monitoring our customers' sort of public commentary on inventory levels and their performance, right? And I think it still continues to be a bit of a mixed bag.

Great. No other questions.

Our next question comes from the line of Jack Egan with Charter Equity Research.

So nice job on the record CSI revenue. For that, were there any kind of unique or onetime benefits in that number? Or I mean, do you think the current level is pretty sustainable for the near future?

Yes. I mean, again, we saw a little bit of uptick from some -- again, the we talked about seeing some improved utilization rates. So we saw a little bit of uptick there. We do always have some customers who do some buying as they sort of do some restock and other related activities. I think what we saw in the period, right, relative to expectations was slightly higher consumables in the period, which sort of contributed to some extent to the lower gross margin in the period. that's generally a positive sign. It's one of the trends we talk about as recovery comes into play.

Upgrades continue to remain strong primarily in the memory market for the period as well. So again, I think these are just -- we keep talking about these little bright spots that we see along the path. And again, I think you can tell from our tone here, we're a little bit more comfortable on the memory side. But we still remain a little bit cautious as we look at the remainder of the business in terms of calling a broad-based recovery just yet. But we do feel a little bit more occurring in about where memory is going.

Got it. Okay. That's helpful. And then on the bookings side, you mentioned that they're expected to grow next quarter. Obviously, there's probably a bit of a normalization after just the lower level in the third quarter, but can you just kind of go over some of the assumptions for growth in the fourth quarter there, maybe like by end market or geography?

I think we're expecting bookings across pretty much all of our customers, right? Not specifically a given market segment. I think there's kind of been a little bit of build up pressure and people will be looking to place place POs. I mean obviously, if you focus in on memory specifically, we've kind of said in the past that we typically build to forecast. So you may get the booking and the shipment in the same quarter. So you're not likely kind of to see those necessarily in the backlog.

Our next question comes from the line of Mark Miller with the Benchmark Company.

And congratulations on the quarter. you're talking about lower silicon carbide in the fourth quarter. Do you see a trend where AVs are going to be utilizing less liking corded next year?

So I think -- so while the second half of '25 was slightly behind the first half of '25 for silicon carbide, I think it's been -- it's remained healthy, and it's kind of the demand has remained. As you kind of talked about it, there's kind of 2 camps. There's the camp moving to kind of more advanced nodes and bigger sizes more quickly and there's those that are adding capacity with the technology they have I think 1 of the things is that as the prices come down significantly within EVs and even hybrids now, we're seeing a lot more penetration of silicon carbide into those drive systems then you're seeing -- you're seeing more and more hybrid and electric vehicles anyway, then the penetration into those with silicon carbide is going up.

And then we're also actually hearing about applications going up. So for example, we're hearing that the compressor for the AC unit on a car is going to be using silicon carbide. So that's certainly a positive and then there's also the new applications, whether it be data center or grid technology. So I think there's still a long way to go on this electrification. And I think as you price coming down more and more and more you're going to see the applications open up.

Yes. And we also think about design cycles for automobiles as well, right? I mean those are a little bit of a multiyear. So cars that are being designed over the last few years now actually have the ability given the price points on silicon carbide to introduce it more meaningfully into the BOM, right, as they're building out those automobiles. -- reading some reports out there that -- again, we talked about penetration of silicon carbide into full EVs being in sort of that sort of mid-single digit, and that's maybe today in the sort of low teens or something like that, Mark. So there is still a lot of room to run in the sort of the automobile market for silicon carbide on penetration into that space.

Okay. Just what's your feeling for EVs next year in China and the United States? Are they going to grow in both areas?

Yes. I think it's hard for us to know. I mean, again, China continues to make some really meaningful progress, right, in the development of their electric vehicles. I think they're doing a nice job in pushing the technology forward. I think the the support the government provides to the consumer there to encourage them, right, to move to those vehicles has actually worked pretty well for them. But it's hard for us to know exactly where this was to come in.

Yes. And the other thing, Mark, so obviously, the Chinese auto market is the largest, I think, like 30 million out of the tire, 90 million cars per year. I think the competition has been so aggressive in China among the electric car manufacturers that they're now seeking overseas market in order to kind of broaden that portfolio and improve their kind of ability to weather that. So I think you're going to see more and more electric cars at better price points start to curate multiple different international markets.

Our next question comes from the line of Dennis Pye Nina Company LLC.

Great. For first question, could you please discuss orders a little bit maybe which segments saw the dip in Q3. I see you guys were down to around $55 million or so and what you're seeing into Q4, perhaps also with regards to your full year bookings expectations for full year '25 versus 2024.

Sorry, Denis, I missed the first part of that question. Can you just maybe reiterate that real quick. I just want to make sure we're answering the right question here. I know it's around bookings. I just want to make sure we answer it the right way for you.

Could you discuss which segments saw the dip in Q3 here and then what you're seeing into Q4 and then maybe full year expectations for 2025 versus 2024.

Yes. So again, I think what we're seeing here is really power general mature continue to be a little bit softer relative to the bookings. I think for the full year, we do anticipate bookings to be lower than what we saw sort of during the -- both the high days of the high booking rate, although we do see encouraging signs, as Russell noted in his prepared remarks, that bookings will be higher in Q4 relative to what we see here in the third quarter time frame. And then beyond that, we don't typically provide commentary on bookings beyond that, just given the visibility and sort of the nature of that process for us.

Got it. And then my follow-up, maybe if you could discuss the CS&I a little bit. So with CS&I being up this much, maybe you can talk about what you're seeing for utilizations or maybe service intensity by geography? Are there some reasons that are particularly strong or particularly weak?

Yes. So we talked about seeing some good upgrade activity and consumable activity in the memory space. That's primarily going to be tied to sort of our Korean memory customers. And we think about that performance. I think we continue to see good business in China relative to CS&I and other related activities. And then as it relates to the other geographies and the other markets, it really is sort of spot customer by customer based on the specific fabs and utilization rates that we're seeing there.

[indiscernible .

Yes, what end markets and what end customers they have. And so we've talked about the sort of verity even within a certain customer for 1 fab to have higher utilization than another and we do see that today, and that translates into CS&I volumes as well. I think the important piece is we continue to push more of our systems right into the field. And so on a period-by-period basis, we're having more available systems for CS&I revenue, which creates that nice, stable sort of floor of revenue for us even in lower utilization and lower system shipment. -- regions and then the generally above average margins we get from that creates a nice little stable profit base for us as we continue to look to invest in the business going forward.

Our next question comes from the line of Duksan Jang with Bank of America Securities.

Congrats on the quarter. I wanted to go back to the bookings question and I know you're not giving too much color beyond specific end markets. But in Q3, you said power in general mature were down, which are 2 of your biggest end markets. And even if Q4 increases Unless it increases materially. I think your backlog coverage is now only down to 3 quarters. So I'm curious what you're seeing in terms of visibility into 2026. I know Q4 and Q1 were guided flattish, but what happens after that?

Okay. So regarding thing kind of say, bookings can fluctuate from quarter-to-quarter. And I think Q3 is no exception. Based on our conversations with our customers across all segments, we're expecting to see increased activity regarding bookings. Regarding memory, which has always been a kind of almost like a turns business where we're kind of seeing some kind of optimism.

We're booking -- we're building to a schedule, if you like. And so we expect we'll get the PO at the same time as we ship the tours. That's kind of where we are right now. I think when you look at that, we've got like 4 to 5 quarters' worth of backlog still at $485 million. That doesn't include any of our CSI base. So do you start putting the improving CS&I on top of that, you've got a really solid financial base to which to build the business up. So I think we still believe we're bouncing along the bottom, but we do see some exciting opportunities.

And as everyone knows that this business can change quickly and often order intake can improve quickly as well.

Yes. And just to add, our backlog is comprised of both short and long-term orders, Duksan, right? So to some extent, that current period deliveries don't necessarily always all come out of backlog either because we are building to sort of our forecast, our customer expectations, as Russell noted, we predominantly see that in the memory space, but that can also happen in other parts of the business as customers' needs and requirements shift and change. We want to make sure that we stand ready to be able to capture incremental opportunities for that.

So operationally, we can operate pretty efficiently with sort of the type of production visibility that we have today. We've been making some investments in inventory given the strength of our balance sheet to be able to pivot pretty quickly to meet customer requirements that might come in, in relatively short time frames. And in some instances, we can see customer needs, book and ship in orders within a period, not just within memory, but in other parts of the business as a result of that.

Got it. And then for China, specifically, you said China, Q3 was down, you expect it to be down again next quarter. But then a lot of the strength especially in power seems to be coming from China auto. So what would be the total revenue drivers into Q4 and Q1? Is it mostly the memory customers? Or is it Western power device customers.

Yes. So I don't -- we're not going to give specifics. I think on markets just as of yet, Duksan, right, to some extent. As we look ahead and see where that comes, we do expect to see some incremental memory opportunities supporting the business as we go forward. I just wanted to remind you, as we entered the year, we anticipated China revenue being down, both for general mature and power. So what's occurring here is not outside of our general expectations to the overall performance of the business given the digestion of capacity that we see there.

I think Russell in his prepared remarks noted that we are still seeing new entrants into the power market. I think there are customers today that see inflection points as they look at sort of the long-term trajectory of power, specifically in silicon carbide, they still see an opportunity for it to enter the market and to be successful in that space.

So like I said, we're ready to support all those customers as we move forward, and we'll have more commentary on that on the future expected performance in our next call.

Our final question comes from the line of David Duley with Steelhead Securities. David?

Okay. I finally figured out the technical difficulties. Congratulations on nice results in a difficult environment. I think you were talking about gross margin -- or systems that were pulled into Q3 from Q4 that impacted gross margins.

I was wondering if you could elaborate a little bit more on that? And do you expect that to continue in Q4?

And my second question is basically adoption of silicon carbide outside of electric vehicles. And if you could perhaps elaborate on which end markets you think will start to contribute in a more significant way.

Yes. So I'll start with the gross margin and the second question off to Russell there. But on the gross margin front, , so there's a couple of things. So systems mix. So shift systems mix within the period can impact margin. We did see a little bit of reshuffling of shipped systems relative to expectations. So that's the sort of product mix -- the specific items we were talking about related to the installation.

So this is really around some deferred revenue that related to systems that had shipped in prior periods or some installations that were at lower margin -- we have forecasted those getting signed off and completed in the fourth quarter time frame. The team in the field work to bring those in and get those closed off here in the third quarter, which led to some of the high -- slightly higher revenue than what we had forecasted in that space, but unfortunately, also carried some of the lower margin, which put a little bit of pressure on gross margin for the period. Those are, I think, a unique event each installation is its own unique event, by the way. So this is not something we will see this from time to time occur.

But as of right now, we're -- this event will not repeat in that way going into the fourth quarter as we think about what the systems revenue will be overall. So between that product mix, the timing of those installation acceptances and then sort of the makeup of the CS&I are the real drivers of margin for the period.

Well, I think your second question was about silicon carbide applications beyond electric vehicles, right? So just start off kind of like calibrate on electric vehicles. So I think David mentioned it, but I think it's kind of low single -- low double digits, like the 10% to 12% of cars having silicon carbide in them outside of, say, Tesla I think part of that is because the design cycle is so long for most car cycles that if you want to design silicon carbon in, it's going to take you 3 or 4 years before it comes into production.

So I think we're going to see a large increase there -- and like I mentioned, I also think you're going to see more and more cars taking silicon carbide, including hybrids and the meeting more and more silicon carbide. So that's kind of what we're seeing and huge competition and the lowering of cost, I think it's going to grow EVs quite significantly. But that aside, we are hearing about the electric grid and having kind of solid-state devices in the electric grid.

We're also hearing about the data centers. But bear in mind, we don't necessarily know what our customers are shipping -- but if you listen to some of the kind of reports, some of our customers have products that are going after the data centers, and there's multiple applications in the data centers. It comes in at the killer volts jumps down all the way through until it hits a couple of volts or whatever actually on the Board. So -- and those data centers are using features amounts of power, right?

And I think the electrification is really going to support the penetration of AI going forward.

That does conclude our question-and-answer session. And thank you for your participation in today's conference. And this does conclude the presentation of our. You may now disconnect. Good day.