Axcelis Technologies, Inc. (ACLS) Earnings

Management highlights

- Overall Financial and Operational Performance * Q2 2026 total revenue of $215 million and diluted EPS of $1.06 both exceeded internal management expectations, driven by strong operational execution and favorable demand trends across key end markets * Bookings grew slightly sequentially to $131 million, with a book-to-bill ratio near 1.0 over the past three quarters, indicating stabilizing end market conditions * Gross margin hit 42.7%, slightly below the 43% outlook due to CS&I mix and higher-than-expected service costs; operating expenses were $60 million, slightly above forecast due to higher variable compensation; operating margin was 14.7%, adjusted EBITDA was $36 million (16.7% margin), and free cash flow was $15 million * The pending merger with VECO remains on track, with all remaining regulatory requirements (including Chinese state administration review) progressing, and closing expected in H2 2026 - End Market Operational Highlights * Power Market: Silicon carbide revenue declined sequentially as expected due to shipment timing fluctuations, but bookings improved sequentially and exceeded the 2024-2025 average through H1 2026. Management secured two new Chinese customer orders and multiple new orders for high-energy channeling applications for advanced superjunction architectures, validating the company's differentiated implant technology. Long-term demand fundamentals remain strong driven by EV adoption, AI data center power infrastructure, and industrial power efficiency applications. Silicon power sales grew sequentially, and Pure Xe Max completed a successful evaluation at a leading foundry for high-energy power management IC production * General Mature Market: Sales improved sequentially, with early signs of demand recovery outside China following a 2024-2025 capacity digestion period. Demand is supported by AI-related data center applications for 28nm and older process nodes. The company sees growing customer interest in its new Pure H6 high current platform * Advanced Logic: Shipped one early Q2 2026 system for 2nm materials modification applications, with a follow-on system shipped in Q3 2026, and is collaborating closely with the customer to support its next-generation technology roadmap * Memory Market: The expected sequential Q2 revenue decline from a strong Q1 2026 was tied to fab space availability, but customer engagement remains robust. Management received multiple new high current system orders and additional orders from a leading North American memory customer following a successful system evaluation, and continues to expand its memory customer portfolio. Strong full-year 2026 year-over-year growth is expected, with momentum continuing into 2027 driven by AI-related demand for DRAM and HBM

Guidance

- Full-year 2026 guidance has been upgraded from prior expectations of flat revenue year-over-year to positive year-over-year revenue growth, with H2 2026 revenue expected to be stronger than initial forecasts - Q3 2026 guidance: Revenue of ~$230 million, gross margin of ~43%, operating expenses of ~$62 million, adjusted EBITDA of ~$41 million, tax rate of ~15%, and diluted EPS of ~$1.11. Revenue will benefit from higher contributions from power and memory, partially offset by lower general mature revenue - Q4 2026 is expected to see sequential revenue growth, with gross margins improving slightly from Q3 levels and operating expenses increasing slightly from Q3 levels as the company continues targeted investment in long-term growth initiatives - Management expects favorable demand trends to continue into 2027, with another full year of revenue growth. Strong memory investment, improving silicon carbide demand, and stabilizing general mature demand are expected to drive 2027 growth, with percentage growth in memory expected to be lower than 2026 due to 2025's low baseline

Segment performance

Total Q2 2026 revenue was $215 million, split into two core business segments: 1. Systems segment: Generated $132 million in revenue, accounting for 61.4% of total company revenue. Sequential growth was driven by improved demand in power and general mature end markets, partially offset by an expected sequential decline in memory systems revenue tied to available fab space timing. 84% of system shipments went to mature node applications, with memory and advanced logic making up the remaining 16%. 2. CS&I (Customer Service and Installations) segment: Generated $83 million in revenue, accounting for 38.6% of total company revenue. This segment delivered a strong above-forecast performance, driven by growing install base, higher customer utilization, and expanded aftermarket product and service offerings. By geographic segment (revenue contribution %): China 46%, Korea 26%, Europe 11%, United States 6%, Taiwan 2%, Japan 1%, Rest of World 8%.

Risks & headwinds

- Forward-looking statements are inherently subject to business risks that could cause actual results to differ materially from current expectations, with detailed risks disclosed in the company's SEC filings (Form 10-K and other regulatory documents) - Memory systems revenue remains lumpy quarter-to-quarter in 2026 due to delayed new clean room availability, with customers currently prioritizing existing fab bottleneck resolution - NAND capacity expansion has not yet materialized as a meaningful demand trend, with most available fab capacity currently allocated to higher-value DRAM production - The company has existing excess production capacity relative to current revenue levels, though management expects margin benefits as capacity utilization increases with market recovery

Analyst Q&A

• Q: Analyst asks about recent changes in memory customer engagement, whether sequential memory sales growth should be expected in the near term, or if volatility will continue. /

  A: Management confirms memory revenue will remain lumpy in 2026 while customers wait for new cleanroom space to come online, as customers are currently focused on resolving bottlenecks in existing fabs. 2026 full-year memory revenue will still see significant year-over-year growth off a low 2025 baseline, with strong momentum continuing into 2027 once new cleanrooms come online. H2 2026 memory revenue will be similar to H1 2026 levels, and 2027 percentage growth will be lower than 2026 due to the higher starting base. Management is also expanding its memory customer portfolio beyond its traditional base.

• Q: Analyst asks what drove the sequential upside in CS&I revenue, and what the outlook is for H2 2026. /

  A: Multiple factors drove the strength: first, higher customer utilization across memory, silicon carbide, silicon power, and early recovery in general mature, which pushes up demand for spare parts and consumables before new system orders pick up. Second, the company's growing installed base contributes to steady CS&I revenue. Third, as customers look to maximize existing capacity while constrained by fab space, high-margin upgrade offerings are selling well, supporting continued strength in H2 2026.

• Q: Analyst asks what is driving the recent strength in power segment orders, which have exceeded the past two years' average levels, and how much of this growth comes from data center applications vs. traditional automotive EV demand. /

  A: Management notes both silicon carbide and silicon power are recovering after a prior digestion period, with H2 2026 expected to be stronger than H1. EVs remain the largest driver of silicon carbide demand, driven by increasing penetration of 800-volt EV systems that require silicon carbide. Fast-growing new demand comes from 800-volt architectures in data center power infrastructure, plus growing demand from industrial, solar, and motor applications. Management cannot break out the exact share of data center vs EV demand, as it does not track end products from customer tool purchases, but confirms data center demand is small but growing quickly.

• Q: Analyst asks about 2027 memory upside, NAND demand trends, and the margin impact of a larger memory sales share. /

  A: NAND activity remains minimal for now, as all available fab capacity is allocated to higher-value DRAM; NAND demand will only pick up when customers start adding new wafer capacity, and NAND has historically followed DRAM expansion cycles. While new memory systems have lower gross margins than the corporate average, memory tools generate high-margin CS&I aftermarket revenue over their lifespan, making the overall business attractive long-term.