Axcelis Technologies Inc 2026 Q2 Earnings Call

This is David Ryzhik, Senior Vice President and Interim Chief Financial Officer, 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. 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 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. Thank you for joining us on our second quarter 2026 earnings call. In the second quarter, we delivered revenue of $215 million in 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. 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've shared, CS&I has been a deliberate multi-year strategic focus for us to drive growth and stability through market cycles. We are pleased to see these efforts gain traction. 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 three quarters, suggesting greater stability in the end markets we serve. Turning to Slide five, 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 six, 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. Bookings improved on a sequential basis and through the first half of the year exceeded the average levels we experienced over the past two years. In addition, we continue to expand our customer base, securing orders for two 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. 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 our 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. We are beginning to see signs of improving activity outside 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 are also seeing growing customer interest in our recently introduced Purion H6 high current platform across general mature applications. Turning to advanced logic on Slide seven.

As we noted on our last call, we shipped a system early in the second quarter for a materials modification application 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 roadmap. 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 clean room investments to support growing demand for DRAM and high-bandwidth memory applications driven by AI. We are 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 the 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 eight, 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 are 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 would 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 our 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 nine, 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 one times. 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. Finally, second quarter earnings for diluted share was $1.06.