Axcelis Technologies, Inc. (ACLS) Q3 2026 Earnings Call Transcript

Operator: Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the third quarter of 2026. My name is Rivka, and I will be your coordinator for today. I would now like to turn the presentation over to your host for today's call, David Ryzhik, senior vice president and interim chief financial officer. Please go ahead.

David Ryzhik: Thank you, operator. This is David Ryzhik, senior vice president and interim chief financial officer with me today is Russell J. 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 Veco, we will not be addressing questions related to the transaction. During this call, we will be discussing various non GAAP financial measures. Unless otherwise noted, all income statement related financial measures will be non GAAP other than revenue. Please refer to our press release and accompanying materials for information regarding our non GAAP financial results and a reconciliation to our GAAP. Now I will turn the call over to President and CEO, Russell J. Low.

Russell J. Low: Thank you, David. Good morning, everyone, and thank you for joining us for our third quarter 2026 earnings call.

David Ryzhik: Before I get into our quarterly results today, I would like to share a brief leadership update. As we announced on October 27, we are pleased to welcome Yaron Delsman as executive vice president and chief financial officer beginning November 12. Yaron brings deep financial expertise, extensive global semiconductor industry experience a strategic mindset, and proven leadership ability to the role. In a demonstrated track record of leading organizations through phases of growth and transformation, building strong teams, and translating strategy into measurable results. I look forward to partnering with him as we pursue our growth opportunities and build an even stronger company through our next chapter. I would also like to thank David for his contributions and leadership while serving as interim CFO. Following Yaron's arrival, David will transition to his new role as senior vice president corporate development, and investor relations, reporting directly to me. His deep knowledge of Axcelis, our markets, and our business will be especially valuable as we continue to advance our strategic priorities.

Russell J. Low: Turning to our performance in the quarter, we continue to build momentum in the third quarter as the demand backdrop strengthened further. Reported revenue of $238 million and earnings per diluted share of $1.26, which exceeded our expectations due to higher revenue and lower operating expenses more than offsetting lower gross margins due to foreign-exchange headwinds. These results reflect sequential improvement in systems delivered combined with another quarterly record in CS&I revenue. As expected, systems growth in the quarter was driven by an improvement in power and memory markets, partially offset by a relatively small sequential decline in general mature following a strong second quarter. CS&I continues to exhibit strong momentum supported by a growing installed base higher customer utilization of our tools in the field, and the continued growth in our service contract and upgrade offerings. CS&I continues to represent an important driver of our long term growth and profitability across market cycles. System bookings grew significantly quarter over quarter with our book to bill coming in at 1.5. This further supports our view that the end markets we serve are strengthening that we are entering 2027 with positive momentum. Turning to our systems revenue by segment, sales to mature node applications accounted for approximately 78% of system shipments with memory and advanced logic making up the balance of our sales. Now let me review our trends by end market. Beginning with power, sales from silicon carbide applications grew notably on a sequential basis. This reflects broad based improvements in demand, including custom pull ins in Europe and Asia. Combined with high utilization rates and increased customer engagement, this reinforces our view of a strengthening demand environment. We are also seeing an expanding range of applications driving silicon carbide adoption beyond additional automotive, industrial and solar markets. AI driven power requirements and data center investment are emerging as additional demand drivers. At the same time, declining wafer costs are improving the economics of silicon carbide across a broader range of applications including consumer and commercial products. As a result of the investments we have made over the past few years in our technology, we are now well positioned to capitalize on these dynamics and the increasing adoption of more advanced device architectures and customers transition to 200 millimeter silicon carbide wafers. Our wafer handling technology enables demanding high temperature implant applications while ongoing and improvements in cost of ownership deliver value to customers and expand opportunities for our CS&I business. We are also beginning to see the benefits of our early investments in the precision and process control capabilities required to enable low cost superjunction adoption. This is translating into growing commercial track with multiple tier 1 customers selecting our pure and family equipped with advanced channeling technology. Our other power markets, third quarter sales declined modestly or in a strong second quarter, but remained elevated compared to the prior year run rate. Demand continues to benefit from improving utilization across automotive, industrial, consumer, and data center applications. In silicon IGBT specifically, we are also seeing growing interest in our new proton implant solution with multiple orders for the pure VXE LT plus. Proton implantation is increasingly important in high performance silicon IGBTs, helping improve power efficiency and device reliability. Also seeing growing interest in our solutions for power management ICs or PMICs supported in part by increasing data center demands. In general mature, sales declined modestly on a sequential basis, but remained consistent with levels seen throughout 2026. More importantly, bookings show strong growth on a sequential basis, following several years of softer demand supported by rising utilization rates and renewed customer investment. North America was a particularly strong contributor, reflecting increased customer investment, including capacity expansion plans associated with AI related demand. General mature continues to represent a large market opportunity for Axcelis given the high implant intensity of these applications, our ability to address a wide range of customer requirements with our broad portfolio of high energy, high current, and medium current platforms. Our recently introduced Purion H6 high current system further strengthens our competitive position in this market, We are seeing increased customer interest as investment activity recovers. Turning to our advanced logic market, we shipped a follow on system we highlighted last quarter from materials modification application supporting 2 nanometer production. We continue to work closely with leading customers on advanced node technology road maps where 2 nanometers and future process technologies are creating additional opportunities for material modification applications. In memory, the industry demand environment remains robust, supported by accelerating investments in DRAM and HBM capacity to address growing AI related requirements. We are seeing momentum in the engagements with our memory customers in Korea as well as with our customers outside of Korea. In fact, building on a strong presence in Korea, we recently celebrated the groundbreaking of a new manufacturing facility in Pyeongdaek, representing a $35 million investment in our global production capabilities. We are especially pleased to mark the occasion alongside record representatives from our major Korean customers underscoring the strong relationships we have built in the region and our long term commitment to supporting their growth. The approximately 200 thousand square foot facility will consolidate and expand our Korean manufacturing operations and enhance our ability to respond quickly and with more flexibility to meet customer requirements. Production is expected to begin in the second half of 28, This investment represents an important step in expanding our global operations infrastructure to support our customers' long term growth plans. Now let me wrap up my thoughts and provide our perspective as we exit 2026 and move into 2027. While the broader demand environment is clearly improving, we are particularly pleased to see us strategy of continuing to invest through the recent digestion period beginning to yield results. Our next generation technologies, including our Purion H6 high current implant are for general mature and new high energy proton implants solution for silicon IGBTs our advanced channeling technology for silicon carbide, and several other technologies are gaining traction as customers investment recovers. In addition, we have seen increased interest in our highest energy solution, the Purion XEmax, and we also recently expanded our engagement with a leading European research institution with the placement of a medium current system to complement our existing high current system already installed, expanding our portfolio there. As we look ahead, we are increasingly encouraged by the broadening recovery across our end markets, and expect growth in 2027 across memory, power, and general mature. This outlook is supported by continued investment in DRAM and HBM capacity recovering conditions in carbide and growing activity across general mature applications. Higher customer utilization, increased bookings, and expanding investment plans further reinforce our confidence in the demand environment. At the same time, our CSI business continues to provide a growing foundation for revenue and profitability. We also look forward to completing our pending combination with Zico Instruments and the potential to create a stronger company with expanded capabilities broader growth opportunities, and long term value for our shareholders. The parties continue to work constructively towards a obtaining the required regulatory clearance in China. Given the upcoming exploration of our current HSR clearance, we also plan to promptly make a new HSR submission. We now expect the merger to close by the end of the first quarter of 27. Finally, I want to thank our employees, customers, partners, and shareholders for all their continued support and confidence in Axcelis. With that, let me turn the call over to David for a closer look at our financial results and outlook.

David Ryzhik: Thank you, Russell, and good morning, everyone. Let me now start with the financial details of the third quarter before turning to our outlook for the fourth quarter. Third quarter revenue was $238 million consisting of system revenue of $145 million and CS&I revenue of $93 million Beginning with our third quarter results, are no longer separately disclosing the services component of revenue and gross margin. Services represents a small percentage of our broader CS&I business, and on a stand alone basis is not representative of the overall performance of CS&I. Accordingly, we believe presenting these amounts within our consolidated results provides a more meaningful view of our business. Now turning to our revenue by geography. Revenue in China remained flat from Q2 at 46%. Korea was our second largest revenue generating region at 18% of our total revenues In our other regions, The United States was 13%, Europe 12%, Taiwan was 2%, and Japan was 1%. The remaining 8% of revenue came from the rest of the world. Bookings were $222 million the highest quarterly bookings since the fourth quarter of 23. As a result, our backlog exiting the quarter increased to $531 million Now let me share some additional detail on our results. Gross margin was 41.2% the lower outlook of 43% primarily due to the sharp strengthening of the Korean won relative to the US dollar. Given our growing presence in Korea, this presented a headwind to our gross margin. This was partially offset by a corresponding FX gain in other income. Third quarter operating expenses were $58.5 million below our outlook of $2 million primarily due to lower than expected fringe costs as well as slower than expected onboarding of new hires. Tying it all together, our operating margin was 16.6%. Third quarter adjusted EBITDA was $44 million and adjusted EBITDA margin was 18.5%. Other income was $7 million higher on a sequential basis due primarily to the aforementioned foreign exchange gains. Our tax rate was 16%, In the quarter, we benefited from the reversal of tax positions resulting from an audit closed in the period. However, these discrete audit related items have been excluded from our non GAAP effective tax rate. And finally, third quarter earnings per diluted share was 1.26 exceeding our outlook of $1.11 Free cash flow for the third quarter was $38 million and we exited the third quarter with a strong balance sheet. Consisting of $615 million of cash, cash equivalents and marketable securities on hand This includes a $143 million of long term securities. With that, let me discuss our fourth quarter outlook. We expect revenue of approximately $275 million We anticipate the increase to be primarily driven by sequential improvement in our power and general mature markets. As we look beyond the fourth quarter, we currently anticipate revenue in the first quarter of 27 to be relatively consistent with fourth quarter levels. This is despite seasonally lower CS&I revenue we typically experience in the first quarter. We expect fourth quarter gross margins of approximately 42.5% We expect operating expenses of approximately $65 million The sequential increase primarily reflects annual merit increases, continued investment in R and D, higher fringe costs, and an increase in variable compensation associated with an improvement in our business. Adjusted EBITDA in the fourth quarter is expected to be approximately $56 million We anticipate a tax rate of approximately 15% And finally, we estimate net earnings per diluted share of approximately $1.50 In summary, we are exiting 2026 with strong momentum. Positioning Axcelis for another year of growth in 2027. At the same time, we remain focused on investing in the key growth opportunities ahead of us while maintaining discipline on cost. Taken together, these priorities along with our robust balance sheet provide a strong foundation as we prepare to merge with Veeco. And position us to deliver attractive long term growth profitability, and value creation for our shareholders. Before I turn it over to Q&A, I would like to add that it has been a pleasure to lead our talented finance organization in an interim capacity. I look forward to continuing my engagement with investors and analysts while also leading the integration planning and execution for our pending merger with Veeco. And our broader corporate development efforts. I also look forward to working with Yaron introducing him to the investment community after he joins. it is an exciting time at the company, and I believe we have the right strategy and talented team to capitalize on the opportunities ahead. With that, operator, we are ready to take questions.

Operator: Thank you. At this time, we will conduct a question and answer session. To ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. We ask that you please limit your questions to 1 question and 1 follow-up. Our first question comes from the line of Christian Schwab of Craig Hallum. Your line is now open.

Christian Schwab: Congrats on the solid results and outlook. Can we just get a exact percentage on memory? I am just trying to figure out, how memory business did last quarter, you know, Q2 to Q3.

David Ryzhik: Yeah. Yeah, Christian. It was about 20% of our total system sales. Yeah. And I think we did actually have 1 NAND system in the quarter, but the majority of all of our memory revenue is DRAM.

Christian Schwab: Great. And then the makeup, I guess, maybe you said it, but I do not have it written down. Just on the extremely strong bookings that you had in the quarter, can you give greater clarity of specific applications or geographies that is heavy to?

Russell J. Low: Yeah. Sure. So I would say that, it was a broad-based recovery. In bookings. So we are seeing continued strength in our bookings across all of our market segments. And also across each of our regions as well. So you know, I think I think that the biggest uptick was in general mature, and we are seeing that obviously in China. it is always been a strong market for us, but we are also now seeing that in Europe and also in The US, which is very encouraging. So you know, that. that is an example of what is happening in general mature. You know, power, I think power is also broad based by geography as well. The customers in different geographies are slightly focused on different items. So, you know, some are looking at 6 inch to 8 inch transform. You know, tran. Transitions. They are looking from planar to trench transitions. While others are just, ramping what they have. But it is broad-based at this stage. Geographically and across our end markets.

Christian Schwab: Great. And then and just lastly, do you guys have, some type of expectation for calendar 2027 yet? You know, for the combined company or by market, or is it a little bit early? And we will hear from you and January?

David Ryzhik: Yeah. Yeah, Christian. A little early. You will hear more from us on our Q4 call. But we talked about Q1 revenue being relatively similar to Q4. And that is despite CS&I being seasonally lower. So you can use that Q1 as a starting point And as Russell said in his prepared remarks, really, we do expect now memory power, and general mature to all grow next year. How much? I think it is a little too early to tell. But we do see a growth year next year. And CS&I as well, I think, growth there as well.

Russell J. Low: Yeah.

Christian Schwab: Great. Fantastic. No other questions. Thank you.

David Ryzhik: Thanks, Christian. This is Jim.

Operator: 1 moment for our next question. Our next question comes from the line of Jed Dorsheimer of William Blair. Your line is now open.

Jed Dorsheimer: Just, I guess, first 1, and first off, congratulations to of operating well in a difficult environment. I guess, first question is a follow-up to Christian's. It sounds like silicon carbide's kind of returning back to growth is utilization is absorbed. Is there anything I know that there is the shift between planar and trench. Plays into your is going to be a benefit to you. Is there anything with moving to higher voltage such as a 2.3 or 3.3 kilovolt for a solid state transformer that requires additional tools, does that necessitate additional high energy, implants? Or any color around that would be useful. And then I have a couple follow-ups.

Russell J. Low: Yeah. Sure, Jed. Thanks. it is Russell. So, yeah, we have seen 4 consecutive quarters of bookings rising in power. And we are now seeing that coming through into revenue. So it is definitely power is definitely recovering at the-- on the macro scale. Although, I would say that year over year, we are still slightly down on 2025. Just gonna give you that color there. But, we are seeing strengthening in the silicon in power. Talking about silicon carbide specifically, as you know, obviously, the killer application is EV vehicles. And we are seeing outside of The US, there is still a healthy number of EV vehicles being sold. Those EV vehicles are getting more and more silicon carbide content not only because they are taking on the traction conversion, but they are also taking on additional applications as well, such as the on-board charger and DC-DC, and I expect that to accelerate as the suppliers to the car manufacturers start to basically produce modules. You know, they have a module, which is a 3 in 1, for example, where you get traction inverter, you get on-board charger and DC all in 1 module. That module is cheaper. it is smaller. it is lighter. And from a manufacturing point of view, it is a lot less complex to build around. So we are definitely seeing EVs doing very well. The next kind of piece we are still seeing doing well is solar. And wind turbines and all the battery backup systems. that is working out well. The 800 volt stuff, is actually very interesting. So I think we have talked before about 800 volts I think it was developed for the car industry initially. So that you could have really supercharging. And I kind of consider the 800 volt architecture in EV being basically EV 2 point o. It makes. It, you know, cuts the charge time by a factor of 2, which is now getting really close to that kind of-- that chasm that people wanna cross regarding kind of concerns about charging rates and distance. And then, you know, that 800 volt technology is equally now making its way into data centers. So I think, you are seeing that silicon carbide has a real role to play in data centers, but it is going to be sitting between the grid and the rack. So it is going to take the grid voltages, the kilovolts, bring it down to the 800 volts. And I think we are seeing some opportunity there. Obviously, it is not as big as the EV market, but it is certainly growing very quickly. So it is a very interesting area to be watching.

Jed Dorsheimer: that is helpful color. Thanks. I guess for my follow-up, 2 part question. 1, did you mention, the share of China in the bookings? And then 2, just in memory, did you-- for DRAM specifically, is that all high bandwidth, or is it traditional, or are you not able to tell on that? And in that build out, are there any examples where you are the lead in terms or you second source there? Thanks.

David Ryzhik: Okay.

Jed Dorsheimer: I will let David quickly look up what the-- percentage of China bookings were in Q3. I think that is your first question. Right, Jed? So That is correct. Yep.

Russell J. Low: Yeah. Okay. I will give you a couple more seconds. So I will start answering the second 1. I think the second question was the build out of memory and how much of that was high bandwidth memory, and then what we think essentially could be our opportunities in memory. Was that correct? That is correct. Okay.

Jed Dorsheimer: So, basically, I am kind of thinking about high.

Russell J. Low: So the vast majority of that revenue is high-bandwidth memory. We did have 1 NAND tool. I do not consider it a trend. There really is not a lot going on in NAND right now for implants. Obviously, when they start doing more wafer starts, that interesting, but right now, they are focused on mostly more and more layers. So it is all about DRAM and HBM. As you know, some companies have been talking about not having sufficient, capacity all the way through to 2028, and onwards, and the pricing has gone up in this supply demand crunch. We have historically done well in Korea. I actually think we are we are starting to do really quite well outside of Korea as well. So I think we are now getting more share of the of the whole DRAM market. And then when I kind of look at what are the opportunities, I think if you look at the really big manufacturers, the top 3 or so, they are looking to add above 1 million wafer starts a month over the next 4 to 5 years. Right? So that is a huge amount of capacity that is been presented to the public. And these are, like, mega fabs. Some of these fabs, like 600 thousand wafer starts a month on their own. that is just 1 customer. So then you say, okay. What is the opportunity I think historically, we have said it is about a 150 to $200 million of implant equipment required. To do a 100 thousand wafer starts per month. So now you are kind of seeing the size of this market opportunity in the next 4 to 5 years And then I think your final part was also, okay. How much do you think you might get of that? I think we do well in Korea, and we will continue to do well in Korea. And we are obviously always looking to get to get additional market share. I think we are beginning to see outside of Korea, our memory business start to actually show strength. So we are we are actually pretty upbeat about memory.

David Ryzhik: Yeah, Jed. And just to answer your question earlier on China, So on an overall revenue perspective, Q3, China was 46%. And you can think about bookings system bookings, as being close to that number. Mid forties.

Jed Dorsheimer: Okay. I appreciate it. I will jump back in the queue.

David Ryzhik: Thanks.

Operator: 1 moment for our next question. Our next question comes from the line of Craig Ellis of B. Riley Securities. Your line is now open.

Craig Ellis: Yes. Thanks for taking the question, guys, and congratulations on the upturn. in the business. Given the 50% increase in bookings quarter-on-quarter, I will start there with a different line of inquiry. than those before. And the question is this, Russell, can you talk about the linearity of bookings through the third quarter What did you see by end markets? And can you characterize the strength of bookings fourth quarter to date versus what you saw through the third quarter and exiting the third quarter?

Russell J. Low: I think, looking at the Q3 bookings, as you saw, that the book to bill went to a healthy 1.5, which was good. We did talk about, you know, across the segment. The market segments that deliver the most revenue for us, general mature, power, and memory, that was a pretty good spread. Although we did say there was a particular uptick in general mature. So the largest gain in bookings was seen in general mature which we have kind of talked about the life cycle of a recovery. You know, it goes from you start to see utilization rates go up. You start to see CS&I spending in spares go up, and you start talking to customers about forecasts then the POs come, then the calls to pull in come, and then the revenue comes. I think general mature, we are seeing the bookings coming in So we are confident that we continue-- that there is strengthening into the end of the year and into 2027. We obviously talked about power, and we have mentioned that was actually slightly further ahead. We had 4 consecutive quarters of improved bookings in power, and now we are seeing that come through in the revenue. And, obviously, we are saying that memory we believe, will continue to stay strong We are expecting to see higher memory revenue in 2027, and, you know, we are we are watching very, very carefully the availability of kind of greenfield clean room space because clearly, you know, today, our customers are often 4 wall constraints. So as that capacity starts to come on board, that is when we start to see more of our opportunities going into memory.

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

Russell J. Low: Yeah. that is actually a that is a fair point, Craig. So, yeah, sorry. I missed your first your first part of the question. Yes. I would say that it is a trend. We are. We actually believe we will we will continue to see growth into 2027 and the bookings will reflect that. Right. Okay. Thank you.

Craig Ellis: And then a question and a clarification. The question is, stellar quarter from CS&I, $92 million I think, by far the best you have ever done. The question is, as customers sometimes add capacity to respond to higher utilization with CS&I before their major equipment orders and installations can you characterize how you would expect the general arc of CS&I to trend through the year and next year? And then the clarification is what did you bake in on the FX side to fourth quarter's gross margin guide? Thank you.

David Ryzhik: Yes. So on the CS&I question, I think at this point, when we look at 2027, well, first off, for 2026, certainly, CS&I has grown faster than what we expect for systems certainly. For 2027, it could be reversed where systems grows faster than CS&I, just you know, coming from a lower base. that is number 1. But we still do expect CS&I to grow next year as utilization rates are strong And even if there are new fabs, I mean, that is still an opportunity for more spares, more consumables, upgrades, etcetera. So we are in a pretty good position on the CS&I side. As far as FX, as what is dialed into Q4, we do not expect the kind of headwind that we saw from the FX on the Korean won side. In Q3. It was a pretty sharp move in the Korean won. And as you know, Craig, we have been increasing our presence in Korea over the past several years. But we do not expect that kind of impact in Q4.

Craig Ellis: Got it. Thanks, David. Thanks, Russell. Good luck. Bye.

David Ryzhik: Thanks, Craig. Thanks, Craig.

Operator: 1 moment for our next question. Our next question comes from the line of Duksan Jang of Bank of America Securities. Your line is now open.

Duksan Jang: Hi. Yes. Thank you for taking the question. Just going back to the memory point you brought on earlier, obviously, the market very strong. You said you have very good presence in Korea. But then last quarter, I think you also mentioned some wins at the North American customer. So if you could have any more details around that, that would be helpful. Thank you.

David Ryzhik: Yeah. We are we are we are not gonna you know, comment on any particular customer. But as Russell said, we are seeing strength in Korea and seeing strength outside of Korea. And it is not just rising tide, Duksan. it is we are investing in technology We are delivering solutions. We are engaging with customers, and that is ultimately what matters to customers most. And so, we feel pretty good about our position and the investments we have made. And we think that is gonna translate into wins.

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

David Ryzhik: Yeah. So there are a number of things that work for next year. So there is mix. So mix within systems can vary. Right? So memory, as you know, has a lower than corporate margin on the system side. Although, you know, we still really like the memory business because it has a nice CS&I attached over the long term. that is a profitable business. So that is, generally speaking, lower than power and general mature. there is also mix between system and CS&I, and we discussed, and then there is a mix within CS&I. So a little too early to predict and determine the mix for next year. I think at least we do expect higher mix of overall systems versus CS&I next year. We do expect overall volume to be higher. So that helps us on the gross margin generally from factory absorption We are also, focused on a number of different initiatives company specific, that we can work on to drive more gross margin. So improving our the cost of our systems, improving manufacturing efficiency, And by the way, the more you innovate, the more value you can drive for customers. So we are focused on a number of initiatives plus higher volume At this point, we would expect on a year over year basis, gross margins would be higher than in 2026. But we will provide a little bit more color on our next call.

Duksan Jang: Great. Congrats on the results.

David Ryzhik: Thanks.

Operator: 1 moment for our next caller. Our next question comes from the line of Dennis Pachanin of Needham and Company. Your line is now open.

Denis Pyatchanin: Thank you very much. Good morning, Russell and David. Maybe we could perhaps start with some sort of outlook for 2027, whether quality qualitative or quantitative, maybe you can tell us about your visibility into next year. How far does it go, and perhaps discuss some of the key drivers revenue, you know, between DRAM, general mature, and then the 2 power segments, please?

Russell J. Low: Sure. So I think about the major revenue contributors in the in the near term for us. it is power, it is memory, it is general mature, and obviously CS&I. So we talked about the strength in CS&I. We expect that to continue to grow. We kind of said it was not expected to grow at the same rate of the systems. So let's now kind of talk a little bit about memory, power, and general mature. So, think about memory. The story for us right now is all about DRAM. We are not expecting NAND to play a significant role for us next year. And we are expecting a year over year improvement in DRAM. I think we should point out that, you know, 2026 is actually is actually looking like a good year for DRAM. And so. And know, you can say, well, it is-- and it is a year over year gain versus 2025, but 2025 was a relatively quiet year. But you know, 1 quarter of revenue, the first quarter of revenue in 2026 was more than the entire revenue of DRAM in 2025. So kind of give you an indication that, you know, 2026 is strong. We do expect that to continue to strengthen into 2027. But I would say keep an eye on the on the fabs. So there is a lot of fabs being built. They are being pulled forward very, very aggressively, and that is gonna be the key to a lot of the DRAM, going into new fabs. Obviously, there is still some fabs being filled up, but that is kind of a story on memory. Regarding power, we are actually still seeing silicon carbide and silicon doing well. We talked a little bit about the opportunities in IGBT with proton implantation. that is a good opportunity for us in high energy. We are also seeing a lot of opportunities in silicon carbide and for all the reasons I was talking to Jed about a moment ago about the opportunity 800 volts, the next generation of electric cars General mature-- general mature has always been a very broad category. Right? It kind of. It can be many, many things, but it is all of those chips in every 1 of the units you see around you. They are in your phone, they are in your fridge, they are in-- you know, they are everywhere, and we are seeing that particularly, you know, ramp up. So we are expecting to see basically continued strength in memory, and CS&I and continued recovery in general mature and power.

David Ryzhik: Yeah. Dennis, I would also add that it is not just a rising tide, but we are, as we have said, we have invested in a number of products We are seeing, increased interest in our new high-current H6 for general mature channeling for silicon carbide and a number of other areas that we have invested in. We are seeing increased customer engagement. So that is that is also a factor in our view for next year.

Russell J. Low: Yeah. We are actually really pleased, and it was, obviously, a strategy to continue to invest in new products and services during the kind of the recent you know, digestion period so that we could work with our customers, you know, develop these new technologies. And now as they ramp, we are seeing the benefits of that strategy play out.

Denis Pyatchanin: I appreciate the detailed answer. For my second 1, maybe we could discuss an otherwise hot topic for this quarter, which is some equipment companies are being impacted by component shortages. Can you discuss if you are seeing any pressure in terms of components, any particular ones that may be hard to come by for you, and any impact you may see on revenue or gross margins because of this?

David Ryzhik: Yeah, Dennis. Like other companies, we are seeing tightness in the supply chain. But for our fourth quarter, we are not constrained. And, you know, I give credit to our operations team I think it is a world class operations team. We have been through this before. And we invested in inventory ahead of time. As you know. And so that is helping us now. And so we will see about 2027 We are monitoring supply chain very closely. But for Q4, we are not constrained.

Denis Pyatchanin: Thank you. that is it for me.

David Ryzhik: 1 moment,. Thanks, Dennis.

Operator: Our next comes from the line of David Duley of Steelhead Securities. Your line is now open.

David Duley: Yes. Thanks for taking my question. Congratulations on a nice quarter and recovery in the business. I guess in your prepared presentation on slide number 6 in the General Mature bucket, you talk about North American activity strengthening, including AI related capacity expansion. And it seems like in the current quarter, the general mature area was responsible for a big spike in the orders. So I am just kind of wondering what exactly are the applications that is driving North American general mature bookings. Is it like, trailing edge foundry and logic, or maybe just help us understand you know, specifically why we are seeing the spike in orders in this area.

Russell J. Low: Yes. So thanks, David. it is Russell. So, think what you are seeing is that. You know, so data centers were driven. Were driving, you know, advanced compute, the GPUs, the memory, the super fast stuff. But now as they are starting to build out these data centers, for AI, you are seeing that all of the supporting infrastructure's needed as well. A lot of that is basically, you know, relatively mature from a from a from a device performance standpoint, silicon devices. I would say, just as a caveat, the technology being used in the ion implant is to support these applications to anything but mature. But I think you have kind of just seen this kind of like-- so you are seeing you know, lots of well, we always said before, general matures are very broad category, but lots of, you know, devices that are being used, I would say, to support the growth in data centers. You are kinda seeing the spillover of all the other parts that go next to the GPUs and the CPUs that are not. that is kinda how I am looking at it.

David Ryzhik: Yeah. Yeah. that is fine-- David is basically a spillover. A spillover.

Russell J. Low: Plus they have also gone through their digestion anyway. I mean, they were already getting tight in supply. So all the other applications were gonna be demanding you know, extra supply. But then on top of that, you have got the data center demand. So it is kind of a you know, recovery with extra demand.

David Ryzhik: Yeah. A lot of the GPUs and CPUs are built on advanced nodes. Where perhaps the companion chips and a lot of the other things that you are exposed to are built on 7 and 10 and 28 nanometers and so you are. Basically, you are seeing a spillover in demand from the data center into the general mature bucket.

Russell J. Low: Yep. that is right. Yeah. Okay. Yeah. Well put.

David Duley: And do you do you expect this to be a sustainable trend throughout 2027 and 2028, or is this more just a onetime event?

Russell J. Low: I think we are gonna see it being a sustained, growth. I think, you know, we had a digestion period anyway just without data centers. We were in a digestion period, and we were coming out through that anyway, whether it be for automotive consumer. We were starting to see that recover anyway, just kinda seen in days of inventory on hand. And then this is obviously additive, but I do think you are gonna see, you know, I think the genie of the bottle for AI is out. And I think now all of these additional devices, whether it is your phone whether it is, you know, your fridge, are all gonna be interacting with these data centers. So, you know, the communications components the, yeah, the local stuff, think that is all gonna benefit from having these very large data centers running AI.

David Ryzhik: Yeah. And then on top of that, you think about robotics, David. Over the longer term, that is gonna drive general mature as well.

David Duley: Okay. And my second question is on the memory segment. You know, you have outlined how, you know, there is really only 3 major memory guys, but, you know, how the top 3 are adding, like, a million wafer starts per month I suspect that is a much higher number than they have added in the last couple of years. Maybe you could help us with understanding, you know, as far as the industry grows, how much more capacity is being added in 2027 and 2028 versus 2026. And since you highlighted how much the industry is gonna add, you probably know what your memory segment gonna do. Could you take a stab at the growth rate of that segment for 2027? Thanks.

David Ryzhik: Yeah. So we are not gonna, you know, give a concrete number for memory for next year. And I will let Russell weigh in on maybe the bigger picture dynamics. But we do expect memory to grow next year from 26 levels.

Russell J. Low: Yeah. I think what you have seen the last couple of years, 2025 and 2026, are people redirect, rejiggering fabs. We actually have seen some, like, NAND flags or otherwise getting converted into DRAM. We have seen some of the lower performing devices get outsourced or given to other companies, which is another kind of, trickle down to some of the foundries. They get some of the non leading edge from some of the big guys. But, ultimately, you know, we have we have as we as we look at memory, it is been more about trying to get the best out of what you have. The kind of informal constraint, maybe there is a couple of extensions added to some fabs, but what you are seeing now if you kind of read about this, these are mega plants being built and they are huge. Right? And they are just waiting for that investment to basically come online. So I would say there is kind of moving Milton building, you know, tools between buildings, trying to increase the productivity, driving the uptime, all those wonderful things too. Now there really is a brand new big mega fab. To be filled up. And I think, you know, you are start to see those mega opening their doors to new equipment starting in 2027, but they are they are gonna be in phases. Right? it is gonna be a number of wafers starts added every 6 months as they build out these kind of. What I consider mega fabs.

David Duley: Maybe let me ask it a different way then. Is you know, the amount of clean room space coming online in 2027 is much. In the memory space, it is much greater than it was in 2026. Right? Or, you know, because you of the. What you just highlighted. Right? In 2026, they were you know, jiggering fabs around to try to get more output out of the current footprint. But in 2027, the footprint's gonna expand dramatically. So, you know, would you expect the growth rate to accelerate in 2027 versus 2026 in the memory space?

Russell J. Low: Well, we have. Well, so we have definitely said that 2027, we believe, will be an. A up year for us in memory. And quite honestly, we are expecting this year to be our best ever year on DRAM. So, you know, there is kind of a data point. Prior, I think, it is 2023, we managed to achieve $90 million in DRAM. This year, we are gonna surpass that and we are expecting to surpass that again next year The reason I caution, you know, about the capacity coming online, it comes online in phases. Right? It might come online in 30 thousand wafer start chunks, and it might happen every 6 months. They add another 1, another 1, another 1. They are gonna be building this thing out in phases. They are not going to wait for the entire factory. To be complete and then fill it all at the same time. There really is so little supply out there. They are trying to bring it online as quickly as So they are building the clean rooms first. They are trying to get the machines in there. They are gonna be bringing it on, go to the next phase, bring it on. So I think you are gonna see a like I said, I do not know if it is going to be linear or not, but I think you are gonna see a relatively consistent addition of capacity every 6 months by some of these customers Final question for me is, could you just talk about the competitive environment and, you know, you have done really well in the silicon carbide space and always had a strong position in memory.

David Duley: What is your, what is the competitive environment versus applied, and are they trying to come into some of your markets? Or maybe just describe what is going on in the dynamics.

Russell J. Low: Well, so we have we have multiple competitors, and we always have done. Right? We have got competitors in the US, competitors in Japan, Taiwan, China is now developing their own domestic supply for iron implanters. And I think we are always gonna do what we have always done. Right? We are gonna we are gonna work really closely with our customers and we are gonna try and resolve their most valuable you know, problems in a really differentiated valuable way. Right? So that is where all the innovation comes from. So we talked about all these new products we are developing. Those have been developed, you know, with customers and that is where we are gaining, you know, revenue is by working with these customers on these new solutions that really add value. So I think, David, what is gonna happen is we are gonna continue to be a full portfolio full service supplier to our customers, and we are gonna continue to be investing heavily in R&D such that we can solve their problems and come out with new technologies, and that will help grow you know, grow gross margin and market share. So that is what we will be doing.

David Duley: Thank you.

David Ryzhik: Thanks, David.

Russell J. Low: Thanks.

Operator: I am showing no further questions at this time. Would now like to turn it back to David Rizik for closing remarks.

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

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