Axcelis(ACLS) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported third-quarter revenue of $214 million and non-GAAP earnings per diluted share of $1.21, both exceeding expectations [6][21] - GAAP gross margin was 41.6%, while non-GAAP gross margin was 41.8%, below the expected 43% due to product mix [23][24] - GAAP operating margin was 11.7%, and non-GAAP operating margin was 18.2% [25] - The company generated approximately $43 million in free cash flow during the third quarter [27] Business Line Data and Key Metrics Changes - Systems revenue was $144 million, while CS and I revenue reached a record $70 million, driven by strong demand for spares and consumables [21][22] - Bookings in the third quarter declined to $52 million, with a backlog of $484 million at the end of the quarter [22][28] - Revenue from the power business grew sequentially, particularly in silicon carbide applications, while general mature revenue declined [11][16] Market Data and Key Metrics Changes - Sales to China decreased sequentially to 46% of total sales, down from 55% in the prior quarter [22] - The company anticipates a decline in revenue from China in the fourth quarter, consistent with previous expectations [22][45] - Sales to the U.S. accounted for 14% of total sales, while Korea accounted for 10% [22] Company Strategy and Development Direction - The company announced a merger with Veeco, aiming to create a leading semiconductor equipment company and capitalize on trends in AI and electrification [7][10] - The merger is expected to enhance cross-sell synergies and optimize technology advancements [8][9] - The company is focused on maintaining a strong aftermarket strategy and growing its installed base to support profitability and cash flow [20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about bookings improving sequentially in the fourth quarter, driven by encouraging quoting activity [6][10] - The company is navigating a cyclical digestion period across markets while remaining disciplined on cost control [19] - Management noted that while 2025 has been a year of digestion, they see potential growth opportunities in 2026, particularly in memory and power markets [45][50] Other Important Information - The company implemented a one-time voluntary retirement program, with additional expenses expected in the fourth quarter [24] - The company exited the third quarter with a strong balance sheet, including $593 million in cash and marketable securities [27] Q&A Session Summary Question: Dynamics in the other power category - Management noted that Chinese customers are adding capacity in silicon carbide, while non-Chinese customers are not transitioning significantly [35] Question: Tariff impacts on the business - The company is managing through the tariff environment and expects potential impacts in 2026 as tariff costs move into the P&L [38] Question: China demand outlook for 2026 - Management indicated that China demand will depend on end demand environments and progress on chip self-sufficiency targets [45] Question: Memory market outlook - Management highlighted that demand is currently coming from DRAM and HBM, with expectations for new greenfield capacity to be brought online [50] Question: CS and I revenue sustainability - Management confirmed that the current level of CS and I revenue is expected to be sustainable, driven by improved utilization rates [66] Question: Bookings expectations for Q4 - Management anticipates bookings to increase across all customer segments, with a build-up of pressure leading to purchase orders [70] Question: Adoption of silicon carbide outside of electric vehicles - Management mentioned potential applications in the electric grid and data centers, indicating a growing market for silicon carbide [116]