Axcelis Technologies, Inc. Aktie

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.

Greetings, and welcome to the Axcelis and Veeco Merger Announcement Conference Call. [Operator Instructions]. Please note that this conference is being recorded. A copy of the investor presentation accompanying this call is available on the Investor Relations pages of both companies' websites as well as the company's joint transaction website, www.www.AxcelisVeeco.com.

I would now like to hand the conference over to David Ryzhik, Axcelis Senior Vice President of Investor Relations and Corporate Strategy. Please go ahead.

Thank you, operator, and welcome, everyone. Statements made during this call may include forward-looking statements within the meaning of the federal securities laws, which are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Such risks and uncertainties include, but are not limited to, those associated with the proposed transaction between Axcelis and Veeco including the risk that the transaction may not be completed on the anticipated terms or at all, the failure to obtain necessary regulatory or shareholder approvals, integration risk risks associated with post-closing capital allocation by the combined company and other factors that are detailed in the company's respective filings with the SEC.

We will also discuss certain forward-looking non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. Please refer to the safe harbor disclaimer and non-GAAP financial measures discussion in the accompanying investor presentation. The investor presentation, the press release and the recording of this call will be available on both companies' websites as well as the company's joint transaction website, www.AxcelisVeeco.com.

We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Now turning to Slide 4. Participating on today's call are Axcelis' President and Chief Executive Officer, Dr. Russell Low; and EVP and Chief Financial Officer, Jamie Coogan; and Veeco's President and Chief Executive Officer, Dr. Bill Miller; and SVP and Chief Financial Officer, John Kiernan. With that, I'll turn the call over to Russell.

Thank you, David. Good morning, and thank you for joining us today on short notice. Jamie and I are thrilled to be joined by Bill and John to speak to you about the transformational combination with Axcelis and Veeco.

As industry peers, we know each other well, those of us on the Axcelis team have long admired betas track record of innovation and ability to deliver breakthrough products for customers. I bring that to companies together, we are building a leading semiconductor equipment company with the capabilities, resources and financial foundation to drive sustainable value creation for shareholders and deliver meaningful benefits to all our stakeholders.

This is a uniquely compelling combination of a few important ways. First, Axcelis and Veeco together will offer a broader and more diverse product portfolio serving the global supply chain with solutions that span a wide range of semiconductor manufacturing needs. For example, our implant solutions and because annealing solutions are in patent steps in the semiconductor manufacturing process. Optimizing the synergies between these two steps provide significant opportunities to enhance semiconductor device performance and yield.

Second, will expand our total addressable market opportunity with greater exposure to secular tailwinds. Third, we'll be able to leverage technical capabilities and expertise to increase R&D scale and accelerate innovation for customers.

And lastly, but importantly, the transaction is expected to be accretive to non-GAAP earnings per share within the first year post closing, and the combined company will have an even stronger financial profile and cash position giving us the financial flexibility to capitalize on value to enhance the organic growth opportunities as well as return capital to shareholders.

I want to take a bit of time to talk about the compelling fit between the two companies from a strategic perspective on what we look like together. We believe this combination will establish a new leader with even brighter prospects for growth and value creation that either company on a stand-alone basis could achieve.

Many of you are familiar with the Axcelis story and our industry-leading position through the design, manufacture and complete life cycle support of Ion Implantation systems. I also know firsthand the powerful capabilities and talented team that Veeco brings having spent almost 5 years there prior to joining Axcelis. Their Laser Annealing, Ion Beam, Wet Processing, Lithography and MOCVD technologies are highly complementary to ours.

As I mentioned, our products used in adjacent process steps in semiconductor production with Veeco's annealing products, which almost always follow Ion Implantation to repair crystal damage and activate the implied dopants. These two steps are implantation and anneal a fundamental and essential within the semiconductor manufacturing process.

In advanced packaging, Veeco also specializes in Wet Processing and Lithography critical technologies, which continue to grow to meet evolving customer needs for AI applications. We believe this is truly a great fit that the combination of our two companies doesn't just work on paper. We're also confident about the upside value potential this combination because of the people. Both companies have talented specialized teams focused on innovation and customer service. Together, this team will be fueled by more than $230 million in combined pro forma R&D investment to develop next-generation products and capabilities to meet evolving customer high-value needs.

By joining together, we established the fourth largest U.S. Wafer Fabrication Equipment Supplier by revenue, delivering meaningful scale and resources to better compete throughout the global semiconductor equipment value chain. Our highly complementary and diversified technologies, solutions and geographic footprint will allow us to capitalize on expanded addressable market.

Combined company also have a resilient operating profile and balance sheet, which is a deliberate result of the all-stock transaction structure. Jamie will touch more on the combined company financial profile later in the call. We also expect to deliver significant benefits for employees, customers and partners as a stronger organization with additional opportunities and capabilities. We'll now dive into each of these areas in more detail, and I'll turn it over to Bill to begin with the combined market opportunities we see.

Thank you, Russell, and thank you to our investors and analysts for joining us today. I've known Russell and the Axcelis team for many years. As we've discussed, bringing the companies together, the opportunity to drive innovation and excellence for our customers has only become more compelling.

Before I go further, I want to acknowledge the Veeco team for their hard work, which has allowed us to take this next transformative step. Solving complex challenges for our customers is what we do, as Russell outlined, and this merger better enables us all to deliver for our combined customer base with next-gen innovative solutions.

One of the most attractive components of this transaction is how we'll unlock new product technology and market opportunities for the combined company. By bringing our companies together, we expect to benefit from an expansion of our addressable markets to more than $5 billion. Leveraging Axcelis and Veeco's core competencies in respective technology portfolios, we're positioned to capitalize on sizable and growing end markets with significant secular tailwinds, including growth in artificial intelligence and the corresponding demand for Power Solutions.

Turning now to Slide 9. Similarly, the combined company will have an expanded product portfolio supported by robust aftermarket services to serve global customers. We will combine Axcelis strength across the full spectrum of Ion Implantation applications with our leadership positions spanning Laser Annealing, Ion Beam Deposition, Wet Processing and MOCVD solutions. Together, we will be able to leverage both companies' technical competencies to accelerate next-generation innovation for our customers and unlock new market opportunities.

From a geographical perspective, this transaction will diversify our respective regional exposure across key geographies. For example, Axcelis can leverage the strong combined sales channels in semi and compound semi to pull each product into respective markets and drive increased penetration with Tier 1 foundry logic memory and IDM customers. The diversified geographic presence and expanded operational footprint allows us to leverage Axcelis' strength in China and Korea, Veeco strength in Taiwan, and Axcelis and Veeco's complementary presence in Japan.

On the next 2 slides, you'll see how our complementary portfolio of solutions fit together in the semiconductor and compound semiconductor equipment markets. In the front-end semi manufacturing process, the adjacency of Axcelis' Ion Implantation products with our Deposition and Annealing products in our customer Semiconductor manufacturing process invites innovation and unlocks new opportunities, particularly as we work on future road maps with customers.

Starting with deposition, Veeco brings differentiated technologies that broaden our portfolio and strengthen the way we support customers through increasingly complex manufacturing steps. Because Ion Beam Deposition technology has enabled the adoption of low defect density EUV mask blanks and has helped enable advanced node semiconductor manufacturing.

More recently, Veeco has developed an application for of our IBD EUV system for high transparency pellicles. The IBD EUV system delivers an EUV transmission rate better than previous pellicle deposition technology and improves yield through low defect density, making it a critical enabler for high-volume manufacturing of EUV pellicles at the 2-nanometer node and beyond.

Additionally, Veeco has an Ion Beam Deposition product, which is an evaluation phase for low resistivity materials. Innovation in material properties is increased requirement and advanced nodes where there is a premium for a higher performance compute and lower power loss, which these films enable.

At the next step, Axcelis' Ion Implanters deliver ions of high purity at the right dose, energy and angle to modify the electrical or physical characteristics of material. Enabling the precise formation of transistors. Axcelis' products cover the industry's widest energy range from 200 eV to 15 MeV for all device applications.

Next, in Annealing, Veeco has capabilities that deliver the performance and precision customers need to advance their most demanding technology road map to keep pace with next-generation device requirements. Veeco's low thermal budget Laser Annealing technology enables our customers to precisely anneal the dopants while not impacting other thermally sensitive regions of the device. Our LSA is well established and our complementary NSA 500 is in evaluation to further extend our leadership in this segment.

Finally, in Advanced Packaging, Veeco has developed solutions for both Wet Processing and Lithography playing an important role in flux cleaning for both high-bandwidth memory and Chip-on-Wafer-on-Substrate type architectures. Our solutions are optimized for performance at the required cost of ownership, and we're further extending this technology to Panel-level Packaging. Our Lithography solutions have been optimized for steps like bumping and copper pillar with features like warped wafer handling.

For compound semiconductor customers, the combination provides Power Solutions across epitaxial and implant products. Together, Axcelis and Veeco bring complementary strengths in compound semiconductors, Axcelis' leadership in power device applications, combined with Veeco's expertise and depth in epitaxy and deposition creates a stronger platform to serve high-growth markets like silicon carbide and gallium nitride.

Veeco is focused on 300-millimeter GaN on silicon which we expect to be an important inflection point in the near future. Our Propel 300 as a leadership position in this developing opportunity. Our silicon carbide Epi complements Axcelis' industry-leading implant products potentially enabling high-quality Epi to end customers.

As you can see, this combination creates a new leader, supported by highly complementary businesses and an expanded portfolio of products and solutions to better address our customers' needs.

At closing, the combined company will have strengthened its global footprint, allowing us to better meet our customers' needs in the places where they operate, providing a competitive advantage. We'll have a more robust supply chain, supporting differentiated next-generation technologies for customers with accelerated lead times. We expect to leverage the proximity of our East Coast Ion Beam centers of excellence to develop new products and technology, accelerating customer road maps. I'll now turn it back over to Russell.

Thanks, Bill. Turning now to the breakdown of the value creation opportunities we see given our respective core competencies. We believe each company can open new doors to the other and unlock cross-selling synergies. Our combined technical depth will enable us to optimize technology advancements. So the cross-selling opportunity is something I'm really excited to pursue because we are able to serve our customers even better and grow our business at the same time.

For example, from a technology perspective, we have deep ion sourcing component expertise which can be harnessed to enhance Veeco's Ion Beam Deposition capabilities and vice versa. From a market perspective, we are strong in certain carbide, while Veeco is an exciting opportunity in MOCVD for GaN-on-Silicon. This combined presence allows us to be a comprehensive solution provider for key wide-band gap materials which are becoming more and more relevant given today's increased demand for power efficiency.

In addition, Veeco's MOCVD business also has an opportunity in micro LED as well as Indium Phosphide for optical communication products, which is emerging in the data center. Moreover, our strengths in memory and mature foundry logic are complemented very well by Veeco's strength in Advanced Logic and Advanced Packaging, which stretches across Annealing, Ion Beam Deposition and Wet Processing solutions.

Finally, the combined company will be supported by market services to better serve our customers through access to expanded installed base. This transaction is truly about growth, which we believe will enable us to deliver benefits to all stakeholders. For customers will expand our product offerings, increase R&D scale and capitalize on the core competencies of both companies to drive customer road maps while providing end-to-end support across the full manufacturing process.

Veeco and Axcelis has shared cultures of routine respect, collaboration and a common desire to make a difference, which we will continue to uphold as a combined company. Our next chapter will build on a strong foundation our employees are created, and we are deeply grateful to each of them for helping to make this transaction possible. As we work to bring our two organizations together, we look forward to creating exciting new opportunities for our employees. With that, I'll now turn the call to Jamie to walk us through the transaction terms and financials.

Thanks, Russell. Before I discuss some of the financial benefits, let's review some of the key transaction terms on Slide 16. Our agreement is structured as an all-stock transaction with Veeco shareholders receiving 0.3575 shares of Axcelis common stock for each share of Veeco common stock they own. At close, Axcelis shareholders will own approximately 58% and Veeco shareholders will own approximately 42% of the combined company on a fully diluted basis.

We will also have a governance and leadership structure that leverages the experience of both companies. Russell will serve as CEO, and I will serve as CFO of the combined company. The Board will comprise 11 directors, six from Axcelis and four from Veeco and be chaired by Tom St. Dennis, who currently sits on the Board of both companies. Jorge Titinger, current Chairperson of Axcelis will remain on the board of the combined company. Bill will join the Board of the combined company and serve as Chair of its Technology Committee.

At close, the combined company will be headquartered in Beverly, Massachusetts and to reflect the transformational nature of this transaction, we will assume a new name, ticker symbol and brand. As for timing, we expect to close the transaction in the second half of 2026 and subject to approval by Axcelis and Veeco shareholders, receipt of required regulatory approvals and the satisfaction of other customary closing conditions.

Turning to Slide 17. Let's dive into how this merger will create a combined company with a robust financial profile that will enable us to drive enhanced shareholder value. As Russell touched on earlier, the combined company will have greater scale and financial flexibility to enable further investment in the business, generating more opportunities for growth. Looking at our companies on a 2024 pro forma basis, we generated $1.7 billion in revenue, a strong gross margin profile of 44% and on the bottom line, adjusted EBITDA of $387 million with a 22% adjusted EBITDA margin. These pro forma figures do not reflect the anticipated synergies.

As in any combination like this, we will realize cost savings. We are estimating $35 million of run rate cost synergies within 24 months post closing, primarily from standard public company costs as well as cost of goods sold and operating expense efficiencies. Moreover, this estimate does not include additional savings from our share-based compensation expense. As we noted in the press release, we expect the combination will be accretive to non-GAAP EPS within the first year post close. With over $900 million in combined cash and the expected synergies we will benefit from a strong operating profile and the financial foundation to drive returns.

As we touched on earlier, the all-stock transaction structure will result in a strong combined cash position that enables value creative capital allocation centered around three priorities.

First, and most importantly, we will focus on reinvesting in the business to drive organic growth. Second, we will evaluate opportunities to return capital to shareholders. To that end, we expect to execute a share repurchase program following the closing of the transaction. And finally, we will prudently consider inorganic growth in M&A in the longer term.

Together, these priorities give us the flexibility to invest through cycles, deliver returns to our shareholders and pursue growth opportunities in a disciplined way. With that, we'll open the line for questions.

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Craig Ellis with B. Riley Securities.

Yes. Thank you to on the deal, which seems quite transformative. Russell, I wanted to direct my first question to you, and it's related to the points that you made on Slide 14, which really focused, I think, on the crux of the issues that you all presented, which is the -- really the growth synergies and the revenue synergies and what I was hoping you could do is across the parameters you identify technology, markets and services. Give us some sense of which the bigger top line beneficiaries would be? And to the extent that you could provide any magnitude similar to the way Jamie scoped the cost benefits 2 years out, that would be helpful.

Craig, thanks for the question. So yes, so what really excites us is how complementary Veeco is with Axcelis from a product, technology and market perspective. And you're right, Slide 14 has a pretty good rundown of those combination benefits.

So I think the start them in sort of maybe order. It's hard to know what the magnitude is going to be. We haven't able to be able to tell that yet, but or implantation annealing are adjacent to each other in the fab and both are sold into the same diffusion module in the fab. I mean, together, we have the cross-selling opportunity and the deep technical expertise in both steps which we believe provides an opportunity to drive technology optimization to deliver better solutions for customers. These two technologies are really aligned.

We also have deep Ion Source and Component Expertise. We're talking about plasma physics here. And this can enhance Veeco's Ion Beam Deposition capabilities and vice versa. And we have a lot of overlap in Ion Beam physics. We also have overlap in particle control, which is absolutely critical for advanced logic and electrostatic chucks as well. So there's a lot of overlap here in the technology. But I'd say we're actually really excited about having lots of really smart people working together.

From a market perspective, as you know, Craig, we're strong in silicon carbide. While Vega has an exciting opportunity in MOCVD for GaN. This will be power GaN, and that's where we've had limited exposure to date. I mean we have sold some implant calls for gallium nitride, but it's more of a periphery application rather than the core growing the entire Epi stack. So the combined presence allows us to have a comprehensive solution provided for wide-band gap materials. These are becoming more and more relevant today as the demand for power efficiency increases and the general electrification. So I think this is a really good secular tailwind.

In addition, we mentioned that Veeco MOCVD business also has an opportunity in micro LED, so displays, display technology, as well as indium phosphide. So indium phosphide is used for optical communication products. And as you know, that's finding an opportunity in data centers for a very rapid data transfer rates. But going a little bit further into markets, we have strengths, as you know, in memory and mature foundry logic and these are really well complemented with Veeco's strength in Advanced Logic and Advanced Packaging, which actually stretches across their annealing, the Ion Beam Deposition, the wet processing solutions and lithography.

So as you know, Advanced Logic as well as Advanced Packaging has been an area where Axcelis has been underrepresented. We believe each company can open new doors for the other and unlock potential cross-selling synergies in the combined company. So in the end, Craig, you need great technology and great relationships. And by combining the company, we really have strengthened our portfolio that we can offer to customers and our intimate knowledge of those customers.

That's great. And then the follow-up is for Jamie. Jamie, when I look at the $35 million in run rate forward to your cost savings, it looks like it equates to about 5% of what would be Veeco COGS and OpEx. And so the question, given that the company will benefit from reduced D&O and public company costs, what are you baking into that cost saving, expense estimate? And what are some of the key dependencies that we need to think about, whether it be nuances like ERP system coordination or other things on the way to capturing that $35 million.

Yes. No, great question, Craig. And John and I have actually had a couple of conversations already as we've gone through this process to sort of start to think about how we attack the cost synergy piece here. I think it's important to remember, right, that this is -- this transaction is not necessarily about the cost cutting. It is about the potential synergistic opportunity between our markets, our technologies, our customers, right, the complementary nature of this transaction is what really excites us.

But to that end, we do see opportunities here in both COGS. I think that's really material spend, right, is the kind of best way to think about that is maybe the largest component potential opportunity on the operating efficiencies. We're going to continue to invest in R&D. We talked about the combined R&D power of the business, $230 million of combined R&D spend on a pro forma basis. So we want to make sure that the technologies are well positioned. The business has the resources it needs to go after the revenue opportunities that Russell and Bill highlighted on the call.

As it relates to some of the longer poles. IT is always going to be one as we think about the systems integration that just takes time to look at processes, do some process reengineering system selection and others. And I think importantly, the collaborative nature in which we're going to work together with the Veeco team as we go through this, is going to help to inform the necessary steps to achieve those synergy numbers.

I would say, again, we're going to put our heads together. We put out an achievable number. We believe we can get the majority of that within the 12-month period with the full right after 24 months. And as John and I worked together, I don't know if John, there's anything you want to add relative to the process we're going to undertake.

Yes. So thank you, Jamie. And I agree with everything that Jamie just laid out here. I think there is opportunity clearly for this type of transaction for the type of synergies that Jamie described. But what we're more excited about is really the opportunity for revenue synergies and to improve our capabilities for our customers. That's really much more exciting about this transaction here. Russell really laid out nicely the opportunities for collaboration between the two companies and the complementary strengths and technology amongst the company, and that's what we're really excited about today.

[Operator Instructions]. Our next question comes from the line of Auguste Richard with Northland Capital Markets.

Congratulations on the transaction. I just had one question. The combination of two companies have always made sense to me why now? And how did you calculate the percentage of ownership in NewCo?

Yes, Gus, great question. I would say we've been talking -- the two companies have been talking to each other for over a long time, actually Russell work at Veeco, so we've known each other for over a decade. So I think the why now is we've always had the same complementary technology and the strategic rationale always made sense.

But clearly, with the dawn of artificial intelligence and the drive for high-performance computing and high-bandwidth memory, as well as now the electrification and the adoption of silicon carbide and GaN, it just -- the why now, the real driver for it is really kind of AI and electrification and the opportunity to grow scale for both companies. And we're really excited about the opportunities it's made a strategic sense for a long time.

Totally agree, Bill. The secular tailwinds are really exciting. So in obviously electrification, we're putting together GaN and silicon carbide and wide-band gap. That's very exciting, having a full portfolio of products we can offer our customers. And then when you think about AI, it's kind of really -- it's high performance compute. It's high bandwidth memory, and it's also Advanced Packaging, and we check a lot of boxes on the combined company. So we actually feel like we can offer our customers full solutions to some of their really demanding problems as a combined company.

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

Congratulations on the deal. And I'm just wondering, you indicated there's several areas that could really be of interest to investors in terms of more exposure data center, Advanced Packaging, power electronics, which one do you think will be most important?

Yes, that's a tough one to handicap. I would say, we have significant opportunities to cross-sell, for example, Axcelis has very strong relationships in silicon carbide and compound semi. Veeco has a strong position just developing in 300-millimeter GaN-on-silicon. Clearly, we can leverage their relationships and their strong customer support to roll out that on a larger scale with GaN as that happens.

And likewise, I think Veeco's strong position in Laser Annealing in the leading edge will provide, hopefully, a positive conduit for Axcelis' Ion Implant in advanced semi. And so the relative magnitude of those.

And I think Russell mentioned it a few minutes ago, the opportunity to take some of the core technologies from Axcelis, whether that's particle knowledge, Electrostatic Chuck Ion Beam physics to the Veeco's Ion Beam Deposition could be a significant game changer in the next 3 to 5 years and really help us accelerate the joint company's road map and really meet the customers' needs for their future requirements.

You just mentioned two technologies that are similar. Your Ion Beam Deposition, Ion Beam Matching, Axcelis' Ion Implant. Do you see any ability to leverage the technology of either of these products into the other?

I would say when you look at the cadre of technical people here in Beverly, [ Massachusetts ] and on Long Island, there's a lot of technical overlap in decades and probably centuries of experience between the two teams. So I think there's a lot of -- I think Russell mentioned a little earlier, you put a lot of break people in the room on a big problem. They're going to figure something out.

Yes. I think that's absolutely right. And I am being felid like to think it was actually a science. A lot of it is an art and having smart people with lots of different experience, bring all of that experience to bear on difficult problems, I think that's going to be a really great opportunity to collaborate.

Congratulations on the deal.

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

Congrats both of you for the combined transaction. I guess first question is while -- if I look at the technology overlap as you've outlined, it makes a lot of sense. But there is -- and maybe I've got this wrong. But if I look at -- I'm just wondering how you might address the cultural difference between tools that are lower volume, maybe higher precision versus more of a batch approach and kind of marrying those two and whether or not this signals a shift in technological strategic shift that would be more Veeco or more Axcelis or down the middle of the fairway there? And then I have a follow-up.

Jed, Bill Miller here. I haven't talked to you -- it's been a while. So as you remember, at that time, Veeco's MOCVD was largely batch tools, kind of high-volume batch systems. And over the last decade or so, our MOCVD equipment has really morphed from back size to single wafer a 200-millimeter now single wafer 300-millimeter GaN-on-silicon. So we're actually similarly in our MOCVD business, specifically moving towards moving substantially towards single wafer our Laser Annealing tools are single wafer and our in beam deposition tools are single wafer. So I would say it marries very nicely with the automation and common technical bits that clearly, I would say both companies are on a single wafer.

Right. And I think your way for processing is your wafer processing is also similar. So this is very much a single wafer culture, if you like, Jed, to use your word coming together.

Got it. Well, that makes a ton of sense. And then last question. In terms of focus area, particularly around compound semis, I'm just wondering how you're thinking about there's so much activity around reshoring. Most of the reshoring is going to be leading edge, not trailing edge power. But it seems to me that the combination of the two businesses might have a larger impact of -- or be able to capture greater opportunity in some of that reshoring for AI. I'm curious your thoughts there or if a lot of the foundry and compound will be focused on the Asian markets?

Well, so I think as you know, Jed, we are equipment suppliers. So we will be supplying to our customers and in all the various geographies One of the things I think you're going to see is as we become more -- each company is becoming more aware of security and went to recur, you're going to kind of build in some kind of inefficiency into the system. So in some respects, this is actually an additional tailwind where you're going to have multiple companies in each country that are deemed to be secure. And as a consequence, we will absolutely want to work with all of those people.

Yes. We're being a U.S. provider right into the U.S. market really does position us well for the potential expansion, both in the trailing as well as the leading-edge nodes. And I'd imagine, Jed, there will be some expansion on the trailing edge as well as to ensure that we've got the full complementary suite of semiconductors necessary for call it, national security reasons. And that trend is likely going to continue, not just in the U.S. but also probably in other regions of the [ geography ].

I talked about bifurcation were the kind of a Western world is heading towards more advanced devices like trench or super junction. They're going from smaller wafers, 6-inch to 8-inch, and now you've been talking about 12-inch. I think you're going to see a bifurcation where there's going to be the more advanced customers will be working to do the smallest possible device and the largest possible wafer and then you're going to get a little -- a large amount of trailing edge technology, which is probably going to be planar type device. I'm talking about silicon carbon specifically on the smaller wafers and they'd be kind of like in volume.

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

Mr. Duley, your line is live.

I'm sorry. It seems that we have a technical error there. I'll pause a moment to allow for any other questions. [Operator Instructions].

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

I just had a quick question on what you see on the regulatory approval plan just given both companies have a sizable China exposure. And from Axcelis' point of view, you're also entering more of the leading-edge space as opposed to your prior more mature node exposure. So any color on that would be helpful.

I'll leave that one off and then let other people chime in. But yes, this transaction is expected to close in the second half of '26, so obviously subject to approval by shareholders of both companies. Received the required recency approvals, which you are talking about and the satisfaction of other customary closing conditions. We are well advised, and we would not have agreed to a transaction we did not think we could compete -- complete. There really is no overlap between the two companies, and we're both U.S. based. As a result, we see no reason this deal get held up in the regulatory process.

And this merger allows the combined company to be more efficient compared to the larger players in that market while also providing our customers, which is really important, the enhanced technologies and capabilities, which can accelerate their road maps.

Yes. We think that's a really important point, Duksan this actually allows us to compete significantly more effectively as a combined business against the larger players in the space provides our customers alternatives, a stronger alternative and enhances the technology development stack through the combined research development and technical know-how of our teams. So we think that on a regulatory basis, that those are all really positive indicators for us as we move forward.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Dr. Low for any final comments.

Thank you all. We hope you appreciate this transformational moment for Axcelis and Veeco as we set out to create an industry-leading semiconductor equipment company, we look forward to bringing together our highly complementary technologies, portfolios, end markets and teams to deliver diversified solutions to support customers through semiconductor production process while delivering returns to our shareholders.

I want to thank the team that both Axcelis and Veeco for their hard work and dedication to serving customers with excellence. I can't wait to see what we can accomplish together. Operator, you can now conclude the call. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the second quarter 2025. My name is Sean Ammer, and I will be your coordinator for today. [Operator Instructions] Please be advised that today's conference is being recorded. 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 Form 10-K annual report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements. 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 second quarter 2025 earnings call. Beginning on Slide 4, we delivered solid results in the second quarter with revenue of $195 million and non-GAAP earnings per diluted share of $1.13, both exceeding our outlook. We generated slightly better-than-expected Systems and CS&I revenue, delivered strong gross margins while maintaining disciplined cost control. Bookings in the second quarter were $96 million, down slightly on a sequential basis and reflecting a book-to-bill of 0.8x. While customers continue to digest capacity, we are encouraged that first half bookings reflect a slight improvement compared to the second half of 2024. Consistent with our prior commentary, bookings can fluctuate from quarter-to-quarter. With that, let me add some additional color on the trends we are seeing by market category.

Turning to Slide 5. In the quarter, sales to mature node applications comprised almost the entirety 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 of silicon carbide applications were relatively flat on a quarter-over-quarter basis. While the overall silicon carbide industry continues to digest the capacity that has been put in place over the past 2 years, we see pockets of investment across a number of different customers. In China, we see continued firm demand for both 150-millimeter and 200-millimeter applications.

Customers are investing to meet growing demand for silicon carbide in the fast-growing China EV industry as well as other applications. Outside of China, customers are using this slower period to increase R&D engagement and invest in technology transitions. In the quarter, we shipped a Purion XE High Energy tool to a customer that is investing in 200-millimeter super junction technology, and we continue to be in active discussions and engagements with other customers on their trench and super junction technology road maps.

As we've noted in the past, Axcelis is the market and technology leader in high-energy ion implantation, which is required for deeper and more precise implants and a critical enabling technology for customers transitioning to these next-generation architectures. In addition to the need for high energy implants, we're excited about the long-term demand drivers for silicon carbide, which is underpinned by declining device prices along with the world's need for greater energy efficiency. This creates the following tailwinds for silicon carbide demand. First, in the EV industry, we anticipate the penetration rates into EVs to continue to grow. And this includes not just battery electric vehicles, but hybrid vehicles as well, where we are already seeing signs of adoption. Second, we anticipate the silicon carbide content per vehicle to grow as well.

Third, we see growing requirements for higher voltage silicon carbide applications such as faster charge times, driving investment in development of trench and super junction designs. And as I noted, we are a technology enabler with our market-leading high-energy portfolio. Fourth, while overall demand for EVs in the U.S. has decelerated on a global basis, EV sales continue to grow at a robust pace with IEA forecasting 25% year-over-year growth in 2025. As a result, with the penetration rate of EVs as a percentage of overall auto sales continuing to grow, the combination of all these factors creates a multiplier effect on silicon carbide demand, and that's just within the EV industry.

Finally, with device prices declining, we also expect growing adoption outside of the auto industry, including renewable energy, industrial motor drives, railway applications, data center power supplies and many others. In fact, one important proof point of this is the recent public announcements from leading power device makers over the past several months, which signals increased attention and collaboration on delivering higher voltage power solutions for next-generation AI data centers. We believe silicon carbide will play a key role here. We also believe the combination of these volume, content and technology drivers translates into attractive long-term market opportunity for Axcelis. From a near-term perspective, as we think about this business over the next few quarters, we see continued pockets of demand, and we expect a modest improvement in revenue in the second half of 2025.

Starting with the second quarter results, we will now refer to the remainder of the power market segment as other power compared to previously referring to this as silicon IGBT. While IGBTs have made up the lion's share of this category, we believe other power is more reflective of other potential power applications such as silicon BCDs, silicon power MOSFETs and GaN power devices. Turning to the results in the second quarter, ship system revenue from our other power applications grew sequentially, primarily due to growth in China across multiple customers. In our general mature segment, revenue declined slightly on a sequential basis as customers continue to manage their capacity investments given the current demand environment in auto, industrial and consumer electronics.

We continue to see pockets of improved tool utilization, which is an encouraging sign. However, we would need to see this continued coupled with improved end demand in order for this to translate into resumption of capacity investments. Market dynamics aside, we are working closely with customers on their capacity and technology road maps. Case in point, we secured a meaningful order for high energy and high current tools from a customer in China that is investing in 28-nanometer applications. This is a nice reference win for us and can open up additional opportunities down the road. Turning to Slide 7. In advanced logic, we continue to engage closely with customers on their evaluation units, and we are pleased to say that in the second quarter, we received a follow-on order from one of these customers. This is consistent with our strategy of penetrating this opportunity by working collaboratively with customers through their evaluation units during their R&D process.

Advanced logic remains an underpenetrated market for Axcelis, and we are actively targeting next-generation implant applications at the M+1, M+2 and M+3 nodes. This includes important applications for implant such as the backside power distribution network integration, where we believe we have potential solutions based on improved device performance and yield and the ability for customers to control the energy purity of implanted ions. Moving to memory, shipped system revenue declined on a sequential basis, consistent with commentary on our prior call that memory spending would remain muted for the balance of the year. Compared to 2024, which saw a sharp reduction in volume, we continue to expect modest growth in this end market on a year-over-year basis. Despite the pause on implant investments across DRAM and NAND, we are executing on our strategy of penetrating new and existing opportunities with customers on their next-generation robots and fab plans.

To that end, we secured an order for a high current system for a DRAM application with the potential for additional follow-on orders based on this customer's investment plans. In NAND, customers remain focused on scaling to higher layer counts, which requires deposition and etch chamber-based upgrades and not incremental ion implantation capacity. As a result, we expect demand for NAND applications to remain muted over the balance of the year. On Slide 8, let me wrap up my thoughts prior to handing the call over to Jamie. Despite the macroeconomic uncertainty and widely known cyclical digestion we are seeing in 2025, we are executing very well with what we can control. This includes the following: first, a relentless focus on innovation and deep engagement with current and new customers across their technology road maps. In fact, during these quieter times, customers increased their focus on R&D to drive better cost performance and yields. And simply put, we see ourselves as an extension of the R&D teams.

Second, our engagement with customers does not end at the system level, but also CS&I, our customer solutions and innovations business is foundational to the customer experience. This includes spares and consumables, service upgrades and used tools. Through the first half of 2025, our CS&I revenue made up approximately 30% of total revenue and is up slightly on a year-over-year basis despite lower systems volumes during this period. And this is a reflection of the strength of our installed base, which provides a resilient revenue stream through the cycles. Moreover, given that our CS&I gross margins are materially higher than the corporate average, this business makes up a meaningful percentage of our profitability, and I'm pleased with our execution in driving more service contracts and high-value upgrades for customers that are seeking our latest generation technology within their existing footprint.

And third, we are prudently managing our cost structure while ensuring we have the resources necessary to invest in growth. This is reflected in our first half 2025 adjusted EBITDA margin of approximately 20%. Taken together, these actions are allowing us to deliver strong profitability despite a cyclically soft demand environment while positioning us to capture the long-term growth opportunities that we believe lie ahead. 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 start with some additional details on our second quarter before turning to our outlook for Q3. Starting on Slide 9. Second quarter revenue was $195 million with system revenue at $134 million and CS&I revenue at $61 million, both slightly above our expectations for the quarter. From a geographic perspective, consistent with our commentary on our prior earnings call, China increased sequentially to 65% of total shipped system sales, up from 37% in the prior quarter. We continue to anticipate our customers in China to digest the robust investments they've made into mature node capacity over the past few years. As a result, we anticipate second half revenue in China to be relatively similar to the first half. Turning to other regions. We saw shipped system sales to the U.S. at 19%, while Korea declined to 8%, consistent with our expectation of muted demand from memory for the balance of the year following the first quarter.

In addition, we've added the geographic split on total revenue, reflecting both systems and CS&I. Using this measure, revenue from China totaled 55%, U.S. was 18% and Korea was 13%. Starting in the third quarter, we will transition to reporting geographic split of total revenue only, which is consistent with our peers and a better reflection of the overall company exposure we have. Please see the appendix of our earnings slide presentation for a quarterly breakdown of geographic revenue mix starting in the first quarter of 2024. As Russell mentioned, bookings declined slightly on a sequential basis to $96 million, and we exited the second quarter with backlog of $582 million.

Turning to Slide 10. Now let me share some additional details on our GAAP and non-GAAP results. We delivered strong GAAP gross margins of 44.9% in the quarter, exceeding our outlook of 41.7%. Our non-GAAP gross margins were 45.2% compared to our outlook of 42%. Our better-than-expected margins were primarily due to higher CS&I revenue, another quarter of better-than-expected warranty and installation costs and favorable systems mix. In addition, our gross margins are benefiting from the cost savings and efficiencies actions we've taken over the past years, and we will continue to explore ways to optimize our cost structure. GAAP operating expenses totaled $58.4 million, and on a non-GAAP basis, operating expenses were $53.6 million, relatively in line with our outlook of $54 million. As a result, GAAP operating profit was $29 million, reflecting a 14.9% operating margin.

Our non-GAAP operating margin was 17.7%, leading to an adjusted EBITDA in the second quarter of $38.9 million, reflecting a 20% margin. We generated approximately $6 million in other income with the sequential increase primarily due to foreign currency gains. Our tax rate was approximately 10% in the second quarter on a GAAP basis and approximately 11% on a non-GAAP basis. The lower-than-expected tax rate was primarily attributable to our foreign-derived intangible income deduction and federal research and development credits. For the balance of the year, we estimate our non-GAAP tax rate to be approximately 15%. Our weighted average diluted share count in the quarter was 31.9 million shares, and this all translates into GAAP diluted earnings per share of $0.98, which exceeded our outlook of $0.57.

Non-GAAP diluted earnings per share was $1.13, exceeding our outlook of $0.73. The higher-than-expected EPS was primarily due to the better-than-expected revenue and gross margin. And in addition, our non-GAAP EPS benefited by about $0.05 due to a better-than-expected tax rate. Moving to our cash flow and balance sheet data shown on Slide 11. We generated $38 million of free cash flow in the second quarter as a result of better-than-expected profitability as well as improved days sales outstanding. Turning to share repurchases. In the second quarter, we repurchased approximately $45 million in shares. And at the end of the second quarter, we had $168 million remaining in share repurchase authorization.

We exited the quarter with a strong balance sheet, consisting of $581 million of cash, cash equivalents and marketable securities on hand which includes $31 million of long-term securities that we've added in the second quarter. Before I turn to our outlook for the third quarter, I'll share some of our current thoughts on tariffs. We continue to monitor the fluid tariff environment, and we believe we are well positioned to respond to any changes through risk mitigation strategies and by leveraging our global supply chain and manufacturing footprint. The outlook I will provide today includes a modest estimated impact from tariffs. With that, let me discuss our third quarter outlook on Slide 12. All measures will be non-GAAP with the exception of revenue. We expect revenue in the third quarter of approximately $200 million. Additionally, our initial view of fourth quarter points to relatively similar levels compared to the third quarter.

We expect non-GAAP gross margins of approximately 43%. The sequential decline is primarily due to our mix of systems revenue for the period as well as a slightly higher volume of systems revenue relative to CS&I. Our current view of the fourth quarter gross margins also points to similar levels with the third quarter. We expect non-GAAP operating expenses of approximately $53 million in the third quarter and expect this to increase slightly on a sequential basis in the fourth quarter. Adjusted EBITDA in the third quarter is expected to be approximately $39 million. And finally, we estimate non-GAAP diluted earnings per share in the third quarter of approximately $1. In summary, and to echo Russell's earlier commentary, despite the cyclical softness in our markets, we are pleased with our ability to generate robust profitability, return capital to shareholders and maintain a strong balance sheet, which positions us to deliver long-term value creation for our shareholders. With that, let me hand the call back to Russell for closing remarks. Russell?

Thank you, Jamie. We believe we are well positioned to navigate the current cyclical downturn. Our disciplined focus on cost controls is delivering tangible benefits even in a lower volume environment. At the same time, our strong balance sheet has enabled us to opportunistically repurchase shares and return cash to our shareholders. As we look ahead, we are confident we will emerge from this period even stronger, supported by a clear technology road map and differentiated market position. I want to thank our customers, employees, shareholders and partners for their continued support and trust in Axcelis. With that, operator, we are ready to take your questions.

[Operator Instructions] And our first question comes from Christian Schwab with Craig-Hallum Capital.

Congrats on the great quarter and the great results. As we look to the memory market in 2026, do you have any initial indications of wafer start growth there yet?

Christian, it's Russell. So we kind of really -- we're not forecasting 2026 yet. But I think what we've said is that let's just take DRAM initially. So obviously, HBM has been quite hot. That's been eating away at DRAM capacity. And a lot of the suppliers have been kind of 4-wall constrained. So as you know, node over node, the implant intensity doesn't change much. So we would need wafer starts to increase in order to start shipping more implanters. And I think while it may take a couple of years for new capacity to come on, I think in the end of '25, early '26, you're going to start to see some of this new capacity come online. So obviously, we're not going to be making any predictions yet, but we're excited by that.

Great. And then my second question has to do with the general mature marketplace. Kind of information by the chip manufacturers is kind of scattered as far as outlook and optimism in auto and industrial. But from your perspective, do you see that market improving in the second half of '25? Or do you think that's really a calendar 2026 event?

Yes. So I think -- so we're kind of saying we believe that our revenue for the second half of '25 is going to be slightly up on the revenue for the first half of '25, but it won't be due to general mature. I think we kind of -- we've said that we're actually seeing a slight uptick, and it's because of power. General Mature is -- I think it's in a digestion period at this stage.

Congrats on the great results.

And our next question comes from Craig Ellis with B. Riley Securities.

Congratulations on very strong execution through the income statement and the strong guide. I wanted to follow up to start, Russell, with further inquiry into one of the points you made around silicon carbide customers using the current period for R&D and technology transition. So the question is this, to me, that sounds like customers are acquiring tools for use in R&D lines versus in volume production, which would imply that when they're ready for volume production, there might be a further inflection in demand. Is that the right interpretation and implication from what you were saying there?

Craig, so actually, so just to kind of recap, we think the silicon carbide is going to be slightly stronger in the second half of '25 than the first half. What we begin to see is a bit more of a bifurcation. Within China, obviously, they're looking to get the processes laid down, get the yield up at the cost down, and they're focusing a lot on 6-inch planar. Some are looking at 200-millimeter planar. Outside of China, you're seeing customers drive very quickly to 200 and particularly to advanced devices as well. So they're looking to go from planar to trench and then we've also got customers working on super junction as well. So you've seen this bifurcation in technology and those buys have been specifically focused on these new technologies. So as we've mentioned before, to make trench and super junction devices, you need high-energy implanters. And as the market leader for high energy, this is playing beautifully to our sweet spot, and we're working very close with our customers to develop their processes utilizing these tools.

Great. Really helpful. And then, Jamie, a follow-up on your comments around gross margin and drivers to the robust levels in the quarter. So I think you mentioned CS&I mix, warranty performance, mix and trailing multiyear cost reduction. The question is this, can you talk a little bit more about where you see structural gains in some of those COGS drivers, whether it's warranty or just the ability to perpetuate ongoing cost gains because as systems eventually comes back, we'll lose at least one of the favorable drivers, and I want to better understand how some of the others could help perpetuate the strong performance.

Yes. Thanks, Craig. Good question on the margins. Yes, so mix is, as you noted, systems mix, so mix within our systems and then mix between systems and CS&I will continue to be the primary driver of gross margin for us over the reporting period -- over the sort of performance period. The structural changes that we're making are in sort of we'll call like -- we call them below standard cost type items that's in the warranty installation and sort of other expenses related to that as well as, to some extent, the maximization of our global operations footprint, which we've talked about, which will provide some incremental benefits over time.

When we talk about our long-term margin trajectory and projections, the cost -- we're going to continue to drive cost out to the best of our ability. That is a multiyear path for us to see that sort of change in a much more meaningful and structural way. But what we've done here in 2024 and now you're seeing to some extent through 2025 is that on the lower volumes, we have been able to drive sort of higher margins here in a pretty nice and meaningful way. Looking to the back half of the year, we do see margins come down slightly relative to the expectations, and that really is driven by mix. So we still have those favorable benefits that we're seeing below the line, but the mix is really going to put a little bit of pressure on margins here in the back half of '25.

And our next question comes from Jed Dorsheimer with William Blair.

I'll echo the sentiments. Russell, I'm just -- I was wondering if I could go back to a previous question and just get a little bit more detail. I think it's helpful to understand sort of the Western shift to more advanced structures such as trench where the capital intensity for high energy is greater. I just -- the question is, as you discuss the difference between China and rest of the world, are you implying that -- because high energy is used in planar and trench is the mix that you're selling into China actually high current and medium current skewed? Or is it high energy, but just for planar versus high energy for the more capital-intensive trench and rest of the world? And then I have a follow-up.

Right. So to do standard planar, you don't actually need high energy. So that would be the high current and the medium current, and those will be the tool sets you'd need. As you start to go into higher energy, you're going to need -- I'm saying like you go into like trench and super junctions, that's when you need to start using high energy. And the intensity of high energy goes up, obviously, because you can't diffuse these implant profiles in the silicon carbide, you have to overlay them with channel -- sorry, with training. And also, we're seeing the energy is going higher and higher as well. So it's utilizing more and more of our high energy capability. So if you're going to do trench and super junction, you're going to be using medium, current and high energy and probably a little smattering of high -- sorry, high current, medium current and high energy. But if you're doing planar, you don't need the high energy.

I appreciate you -- Yes, that helps a lot. As my follow-up, and maybe somewhat related. Clearly, your position in high energy with a linear particle accelerator is a clear differentiation versus your competitor. I'm curious on the R&D front, away from just traditional power and silicon carbide, are you seeing any applications that are demanding high energy in a similar way that silicon carbide has? I'm just curious, as you look out on the horizon in terms of markets, what you're seeing?

So high energy is used in pretty much every application, right, other than advanced logic. So in NAND and DRAM, particularly in image sensors, they are particularly deep devices because of the IQE. So you have lots of implants into those. We're also seeing some kind of more advanced kind of avalanche devices being utilizing really high energy. But I'd say that silicon carbide is definitely a driver at the moment, but high energy -- and when I say high energy, we've got various flavors of high energy all the way up to like 15 mega electron volts. So we certainly cover the entire gamut. But yes, the density of high-energy implants in silicon carbide is certainly a driver.

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

So I was curious if tariff pull-ins or anything of the like might be contributing to some of the positive momentum in CS&I because last quarter, you mentioned that spare parts saw some upside. And logically, depending on the sector or the end market, I guess, if these customers had underutilized capacity, then I would imagine to get ahead of tariffs, they might purchase some spares rather than new systems. So I guess maybe just more broadly, what were some of the drivers behind the strong performance in CS&I?

Yes. No, it's a good question, Jack. And obviously, Q2 coming into Q2 is a wild time, right, with the announcement of the tariffs, the regimes and all the sort of uncertainty that created. I would say nothing material driven by what we saw from a pull-in perspective. Really, the driver for us in the second quarter for our CS&I had to do with upgrades and upgrade-related activity. We've talked about this on our road map to sort of new capacity additions is you're going to see increased utilization.

You're going to see our customers, finding ways to squeak out incremental efficiencies out of their current tool sets, right? That leads to higher upgrade activity, higher spares, consumables and others. And then they'll go through and make those capacity additions over time. So the trend is following sort of the playbook that we've seen in the past. But as Russell noted in the commentary, we have not seen the inflection point yet that's going to translate that into necessarily increased bookings just yet. We still think we're sort of bouncing along the bottom. But the fact that upgrades came in a little bit stronger in Q2 helped both our CS&I margin and the overall margin for the period.

And Jack, it's kind of like piggyback on the back of that. So we have been investing in upgrades. It's a great opportunity because, one, we have a large installed base of legacy tools, but we also have a large installed base of our Purion platform as well. So it's a relatively captive market. And we've made a point of managing customers' product life cycles. So this has been a really good business for us.

Great. Okay. That's helpful. And then I guess it was good to see the elevated repurchases in the quarter. Should we expect kind of a higher baseline going forward? Or was this more just Axcelis being a bit more opportunistic?

Yes. We certainly talked about our sort of capital allocation strategy, right, being sort of organic growth based, right, higher R&D investments and others and then sort of pivoting over to the return side as well as looking at inorganic. So again, during the second quarter, we were opportunistic here allocating the $45 million plus to share repurchases in the period. As we go forward, our comment at the time we announced our incremental authorization in the second quarter was around having -- buying at a higher rate than we had historically. And so you may recall, if you go back into some of our filings, you'll see we typically bought around $15 million or so a quarter. So we do anticipate buying at an elevated rate relative to that $15 million. But I'm not going to forecast exactly how much we'll put towards share repurchases for the third quarter just yet.

Our next question comes from Tom Diffely with D.A. Davidson & Company.

Russell, first, I was hoping to get an update on just the state of the competition in China and maybe both on a systems and the spares business point of view.

Tom, yes, sure. So obviously, we monitor our competition incredibly carefully, particularly a lot of the new companies that are starting up in China. As I mentioned, there's been competition in China for many years. There's like 2 competitors out there have been there for about 20 years. And what I'd say is that they are -- we don't see them outside of China. We don't see them in accounts that are available to U.S. manufacturers, if you like. I think they're getting their foothold in these accounts that are essentially off limits to U.S. manufacturers.

The feedback we get is that they're still very immature. I mean, remember, these things -- these tools have really big simultaneous compliance requirements. So you need really high throughput, you need really good beam uniformity, beam angles, beam purity, low particles. It really does take a huge amount of knowledge, experience and work in order to come down, get that maturity curve where you need it to be. So we're certainly watching them very carefully. I would say they're still very early on in their road map.

Okay. That's very helpful. And maybe as a follow-up, Jamie, maybe talk a little bit about the backlog. At this point, is it just systems? Or does it include systems plus CS&I? And what do you think the projected shipment or timing is of that backlog?

Yes. So that's a great question, Tom. Yes, our backlog numbers we report are just systems-related orders. So it does not include any of our CS&I revenue expectations in there. So it's just systems purchase orders that we've brought into the business. As it relates to the timing, that backlog carries into 2026 for sure. And as we think about it, it gives us a nice runway, right, as we go into 2026. But we are looking to see that inflection point where we get increased bookings. I think of note, it's important for us to remember that we are at despite the bookings not necessarily maybe being where we want them to be, they are at substantially higher levels than they were in the back half of 2024.

And so we are starting to see some movement there. And ultimately, we just want to make sure that we position the business to be able to execute very well on the upturn, right? So investing in the R&D, maintaining slightly higher inventory levels to be opportunistic with when that upswing occurs that we've got the inventory related to our high-turn systems available for our customers. And so again, we're proud of the execution so far through the first 6 months here of 2025, and we look to finish the year out good.

Our next question comes from Mark Miller with The Benchmark Company.

I'm just trying to reconcile a couple of things here that China EV sales, as you noted, they've been strong year-over-year, yet you're projecting flat China sales in the second half. Similarly, DRAM sales have also been strong, but your memory sales were just 3% of total shipments and were sequentially down. I'm just trying to reconcile both of these things with what you're seeing.

Yes. So I think on the China side, what you're seeing is, again, they built out significant capacity over -- through '24. And it's coming into the year, we knew that they would use '25 in order to increase the productivity and efficiency of their tools and systems while continuing to add capacity, but at a slightly lower rate. So although we see power continue to be strong, we see China continuing to perform for us. Our customers are absolutely trying to find ways to increase the penetration of silicon carbide into the EVs.

The penetration rate of silicon carbide into EV in China is still relatively low given the volume of automobiles they're selling. In addition to that, Mark, we're seeing some Chinese auto manufacturers push silicon carbide into hybrid vehicles as well. So I would say the market for silicon carbide in the electric vehicle, hybrid vehicle market is increasing. And as a result, our customers are trying to find ways to make sure that their devices are qualified to support that in future periods. So I think that's the dynamic we're seeing there.

On the memory side, we knew memory was coming into the year. We had the deliveries there in the first quarter, which was a nice uptick. We still expect memory to be muted through 2025 as our customers are digesting the capacity. As Russell has noted a couple of times here, they're finding opportunities with the growth of HBM to sort of repurpose other parts of the fab to squeak tools in here or there to eke out incremental capacity, but they haven't necessarily pulled the trigger on significant capacity additions just yet. And so what we're really seeing is opportunistic buys by our customers to get that just 1 or 2, 3 more implanters in there. And memory will ebb and flow over the course of this year. It should be higher than what we saw in 2024, but it's still going to be at muted levels relative to our historical experience.

And this concludes the question-and-answer session. I would now like to turn it back to David Ryzhik 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.

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