ACLS - NASDAQ

Good day, ladies and gentlemen and welcome to the Axcelis Technologies' Call to discuss the Company’s Results for the First Quarter 2025. My name is Sean Othmer, 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 yesterday, 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. As we mentioned on our previous earnings call, we have decided to add non-GAAP measures to our first quarter results and those going forward. As a result, 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. Russell?

Good morning, and thank you for joining us for our first quarter 2025 earnings call. Beginning on Slide number 4, we executed well during the first quarter with revenue of $193 million and earnings per diluted share of $0.88, both exceeding our outlook with particular strength in our gross margins and disciplined cost control. On a non-GAAP basis, we delivered earnings per share of $1.04. Jamie will discuss our financial results in further detail, including non-GAAP measures, which we're introducing today. Within overall revenue, both systems and CS&I sales were slightly better than our expectations. In the first quarter, we generated $110 million in bookings, reflecting a sequential increase compared to fourth quarter levels. This translates into a book-to-bill of 0.8x, the highest level we've seen since Q4 of 2023. While we're encouraged by the improvement in bookings in the first quarter, we believe bookings can fluctuate from quarter-to-quarter, as we move through 2025. Before I turn to providing more detail on the trends we are seeing by market segment, I'd like to touch on the global tariff situation and how this impacts Axcelis. To date, while the tariff and macroeconomic environment is dynamic, Axcelis has not seen any meaningful change in demand from our customers as a result of the announced tariffs. Moreover, Axcelis has plans in place to lessen the direct tariff impact. From a supply chain perspective, as many of you know, Axcelis possessed a global supply base with partners inside and outside of the United States. And over the past several years, we've made significant progress in diversifying our supply chain to drive better resilience in our sourcing. From a manufacturing perspective, our corporate headquarters and primary manufacturing facility is located in Massachusetts. However, several years ago, we invested in a new Asian operation center capable of supporting our global customers. Our locations and facilities allow us to be highly adaptive to the rapidly-changing policy environment. We are executing well in developing solutions so we can continue to support our customers across the world, lessen the impact associated with the tariffs to support our gross margin goals, while maintaining our focus on innovation to catch the long-term growth opportunities that lie ahead. With that, let me add some additional color on the trends we're seeing by market segments. Turning to Slide 5. In the quarter, sales to mature node applications remained the lion's share of our business, in particular, power and general mature. As we noted on fourth quarter earnings call, beginning with first quarter results, ship system sales to the image sensor market will now be included in our overall general mature category to simplify our disclosure. Now on Slide 6, let me review our trends by end market. Within our power business, shipments of silicon carbide applications declined sequentially in the quarter, consistent with expectations as customers are moderating investments due to softer end demand. From a regional perspective, we are seeing continued pockets of investment in China, while the rest of the world is managing through a broader digestion of capacity. While companies in China have made significant progress with the production of silicon carbide wafers, we believe our customers are earlier in their journey on silicon carbide device manufacturing where ion implantation is foundational. In fact, on a global basis, despite an overall moderation investments into silicon carbide, we are seeing strong engagement in technology transitions, which includes increased customer pool for us to support them in the transition from 150 to 200 millimeter wafers as well as the transition from planar to trench device architecture and also growing collaboration on superjunction devices. All these trends play to Axcelis' core strengths. We are the market leader of ion implantation for silicon carbide with the largest installed base and extensive application know how. We're also the global market leader in high energy implant, which is increasingly relevant for next-generation device architectures in silicon carbide. And finally, we have robust product and service upgrade offerings, that allow customers to enhance their solutions to latest generation of implant technology within the existing factory footprint, and this is a key driver for long-term growth in CS&I revenue. As we think about this business over the next several quarters, we see continued pockets of investments that are remaining at more muted levels compared to '23 and '24. Over the long-term, however, we believe that, the drivers for silicon carbide remain intact, namely rising penetration of EVs and silicon carbide content within those EVs, particularly as 800-volt models and above, are introduced to enable superfast charging. Growing adoption of silicon carbide in data center applications given the critical need for more power efficiency, and finally, proliferation of silicon carbide across a wide array of other industrial and commercial applications. For example, HVAC systems, which globally consume a significant amount of electricity. This can be an interesting application of silicon carbide given its ability to drive better power efficiency, which ultimately can lead to less strain on our power grid. Turning to silicon IGBTs, revenues muted as a result of continued cyclical softness in the auto end market combined with the secular impact of growing adoption of silicon carbide. Nonetheless, we anticipate silicon IGBTs to remain a sizable SAM for our implant solutions over the long-term, requiring our proprietary technology. In our general mature segment, customers continue to manage their capacity investments, given the current demand environment in auto, industrial, and consumer electronics. As a reminder, our general mature segment spans a broad array of planar devices with process modes of 28 nanometers and above. While we expect the overall market to remain in a digestion period through 2025, following several years of strong build out, we are seeing some pockets of increased tool utilization, which, if it continues, is an important step forward towards a recovery in implant investments. It's also important to note that, general mature market is ubiquitous to almost every aspect of our lives, including our phones, computers, cars, home appliances, TVs, and factories, to name a few. As the world becomes more connected and digitized, we expect demand for these foundational technologies to grow accordingly, and we are well-positioned as a critical enabler, especially given the higher intensity of implant required. Turning to Slide 7, in advanced logic, we continue to engage closer with customers on their evaluation units, as we work to expand this initiative. And as noted on our prior call, we anticipate a follow-on order from a customer that we added last year. Moving to memory. We saw a nice sequential improvement in sales to the memory market, specifically for DRAM. In NAND, customers are focusing on technology transitions to higher layer accounts, such as one and 1xx to 2xx, and beyond to drive better bit density rather than wafer capacity additions, which would be more impactful to our implantation demand. As a result, we expect demand from 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. We're adapting to the rapidly-evolving macroeconomic landscape, particularly as it relates to tariffs, and our primary focus is to continue to serve our customers to the best of our ability, while striving to control cost and drive resilience in our global operations. Despite the macroeconomic and cyclical backdrop and uncertainty associated with tariffs, we are seeing robust engagement with customers on the next-generation roadmaps across power, general mature memory, and advanced logic. We believe that, the long-term secular drivers for the semiconductor industry remain intact with ion plantation being an enabling process step for every single chip that is manufactured in the world today. In fact, it happens to be one of the most complex technologies used in semiconductor manufacturing process. At its core, ion implantation is a particle accelerator at scale. It requires the complexity of advanced nuclear physics, complying with the throughput, quality, and extreme precision demanded for semiconductor manufacturing. Each implant can boast more than 10,000 unique part numbers and more than 5 million lines of software code. We're able to deliver up to 15 million electron volts of energy in an ion beam. Our solutions are designed to implant more than 50 trillion ions per square centimeter of a wafer, and this has to be done with a half of 1% uniformity across the whole wafer. And finally, our solutions are designed to implant pretty much any element in the periodic table into a wafer. All of this is the culmination of almost 50 years of expertise, knowhow, close collaboration, and trial and error with nearly every semiconductor manufacturer in the world today. As a result, with the world needing more than $1 trillion of semiconductor devices by 2030 across all different categories, we expect the market for implant will continue to grow through the cycles, and we believe, we are well-positioned to capitalize on this opportunity that differentiate in the highly proprietary technology. 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 detail on our first quarter before turning to our outlook for Q2. Starting on Slide 9, first quarter revenue was $193 million, with systems revenue at $138 million and CS&I at $55 million, both slightly above our expectations for the quarter. From a geographic perspective, as expected, China declined sequentially to 37% of total shift system sales, down from 49% in the prior quarter. While we anticipate revenue from China in 2025 to be down on a year-over-year basis as customers digest the robust investments they've made into the mature node capacity, we expect revenue from China to fluctuate from quarter-to-quarter. Case in point, we currently estimate the mix of Shift Systems revenue to China to increase sequentially in the second quarter. Turning to the other regions. We saw ship system sales to the U.S. grow to 23% of the total, while Korea also improved to 20%, which was mainly due to improved shipments for DRAM in Korea. As Russell mentioned, we are pleased to see bookings grow nicely on a sequential basis to $110 million and we exited the first quarter with backlog of $618 million. Turning to Slide 10. Let me share some additional detail on our GAAP and non-GAAP results. As we previously announced, we're introducing non-GAAP measures in 2025 following a thorough review of our peer group. These non-GAAP measures reflect adjustments for the impact of share-based compensation expense and certain items related to restructuring and severance and any other associated adjustments. For more information on our GAAP to non-GAAP reconciliation, I can refer you to the appendix of this slide presentation as well as the tables in our earnings release. With that, we delivered strong GAAP gross margins of 46.1% in the quarter, exceeding our outlook of 40%. Our non-GAAP gross margins were 46.4%. Our better-than-expected margins were primarily due to lower-than-expected warranty and installation costs, favorable mix for our deferred revenue recognized, as well as more favorable mix within our CS&I business. In addition, our gross margins were benefiting from our continued focus on managing our expenses. We expect gross margins in the second quarter to moderate, primarily due to mix. In addition, as Russell noted, we have plans in place to lessen the impact from tariffs. GAAP operating expenses totaled $59.6 million, below our outlook of $63 million primarily due to lower employee related costs associated with variable compensation and benefit expenses, as well as prudent cost controls. In the quarter, we took a number of additional actions to reduce expenses for the balance of the year, which resulted in a restructuring charge of $1.1 million. On a non-GAAP basis, operating expenses were $54.1 million. As a result, GAAP operating profit was $29.2 million reflecting a 15.1% operating margin. Our non-GAAP operating margin was 18.3%. As part of our introduction of non-GAAP measures, we are also including adjusted EBITDA, as one of the key metrics we track. In the first quarter, adjusted EBITDA was $39.5 million reflecting a 20.5% margin. Despite the softer revenue on a quarter-over-quarter and year-over-year basis, we are pleased with the execution of the team to deliver strong operating profitability. This is a testament to the proprietary nature of our products, the value we create for our customers and our disciplined approach to managing costs. We generated approximately $3.9 million in other income, and our tax rate was 14% in the first quarter on both a GAAP and non-GAAP basis. For the balance of the year, we estimate our tax rate to be at the 15% level. Our weighted average diluted share count in the quarter was 32.3 million shares, and this all translates into GAAP diluted earnings per share of $0.88 which exceeded our outlook of $0.38. The higher than expected EPS was primarily due to better-than-expected revenue and gross margins. Finally, non-GAAP diluted earnings per share was $1.04. Moving to our cash flow and balance sheet data shown on Slide 11. We generated $35 million of free cash flow in the first quarter, as we benefited from better-than-expected profitability as well as robust working capital management. Turning to our share repurchases. On March 12th, we announced that the Board of Directors approved a $100 million increase to our share repurchase authorization, which reflects our continued confidence in the attractive long-term fundamentals of our business. In the first quarter, we repurchased $18 million of shares and exited the quarter with $212 million remaining in share repurchase authorization. To date, in the second quarter, as of market close on May 5th, we have already repurchased $23 million in shares, and we plan on continuing to repurchase at an elevated level over the balance of the quarter relative to our prior quarterly spend. Looking ahead, we intend to continue to deploy capital to share repurchases, while ensuring, we maintain a strong balance sheet that gives us added flexibility to invest in our business, while also evaluating inorganic growth opportunities. In fact, we exited the first quarter with a strong balance sheet consisting of $587 million of cash, cash equivalents, short-term investments on hand with no debt. With that, let me discuss our second quarter outlook on Slide 12. All measures will be non-GAAP with the exception of revenue. We expect revenue in the second quarter of approximately $185 million. As we look into the second half, while the dynamic macroeconomic and tariff-related environment has created some uncertainty, our discussions with our customers indicate that, they intend to continue making investments and executing on their technology roadmaps. As a result, we currently anticipate revenue in the second half to remain relatively consistent with first half levels. We expect non-GAAP gross margins of approximately 42%. The sequential decline is primarily due to mix as well as slightly lower volumes. In addition, this includes the impact from tariffs, which we estimate to be relatively small. Beyond the second quarter, non-GAAP gross margins may fluctuate based on volume and mix, but we would expect gross margins in the second half to be relatively similar to second quarter levels inclusive of the estimated impact of tariffs. We expect non-GAAP operating expenses of approximately $54 million, and for the full year, we anticipate non-GAAP operating expenses to be relatively flat on a year-over-year basis. Adjusted EBITDA in the second quarter is expected to be approximately $29 million. And finally, we estimate non-GAAP diluted earnings per share in the second quarter of approximately $0.73. In summary, we are pleased with our execution in the first quarter, as we maintained strong profitability amidst a muted demand environment, and this reflects the resilience of our operating model. We exited the quarter with a strong cash position and no debt. We've repurchased shares in a disciplined but opportunistic manner and are ensuring that, we continue to invest in our business to emerge in a stronger position once end markets recover. With that, let me hand the call back to Russell for closing remarks. Russell?

Thank you, Jamie. We are navigating a dynamic environment, but one thing remains very clear to us, the world's need for semiconductors will continue to grow, and this can't be possible without the highly complex and priority equipment that is required to manufacture them, and that's what we do. We believe that, Axcelis is well-positioned with a global and resilient operational footprint, leading technology in ion implantation with a relentless focus on innovation and a deeply ingrained customer first culture. We believe all of which will position Axcelis to drive long-term growth and value creation for shareholders. I want to thank our customers, employees, shareholders and partners for their continued support and trust Axcelis. With that, operator, we are ready to take your questions.

[Operator Instructions] And our first question comes from Craig Ellis with B. Riley Securities.

Yes. Thanks for taking the question and guys congratulations on the real robust gross margin. I wanted to start the inquiry on some of the things that are contributing to that. So we're in a period, which is our first period of macro troubles, where we really have a substantial pure and installed base. So as you look at the installed base of Purion Systems and as we think about the propensity of customers to often upgrade in periods where there's better capacity availability and they can flex changes more easily than when capacities call. How are you feeling about CS&I's momentum into the back half of the year from what's been a real strong last few quarters and looks like a real strong 2Q?

Yes. No, I appreciate the question, Craig. As we look at it, Q1 for CS&I, really the mix here was around spares. We had a higher volume of higher margin spares sales in the periods. So there's still opportunity here for us to see incremental upgrade opportunities, as we move through the course of the year, as people take care of the sort of their tool system and planning during these periods of lower utilization. I think you hit the nail on the head though. The CS&I business is relatively sticky, right? We saw systems volume come down year-over-year, while CS&I remained sort of relatively flat on a year-over-year basis from Q1 of last year to Q1 of this year, despite the lower utilization. And we think that that's benefited by the increase in the installed base around Purion. Relative to margins overall, mix is always going to be a primary driver of margin performance within that period. And so, as I noted on CS&I, that higher volume of higher margin spare sales, we also saw a little bit of systems -- benefit in our systems margin as well from the favorable deferred revenue recognition in the period. And I think most importantly, we have a focus, we put a focus in 2024 on making sure, we drive margins towards our long-term goals that we've discussed previously. One of those was around installation and warranty and driving that cost down. And as I mentioned in the prepared remarks, we actually saw some benefit of that in Q1 as well, at a higher rate than what we had anticipated and a little bit sooner coming into the model. So, I think we're well-positioned to continue to drive margin performance. As we look to the second quarter, we do see that moderation. And as we said in our prepared remarks, the second half margin should be relatively in line with what we see in the back half of the year inclusive of the tariff impacts. But overall, we are really well-positioned to see margin appreciation on return to volume in market recovery.

Thanks for that, Jamie. And then the follow-up question, I'll combine a couple of things. So we had a really nice increase in orders quarter-on-quarter, almost 30%. Can you talk about the level of order intensity 2Q to date? And on a headline basis, it looks like there's not a significant mix change in the business in the second half versus what we see in 2Q. But can you talk about any expectations you'd have for a shift either within the mature foundry business or just within memory, which seems very DRAM weighted?

Hi, Craig. It's Russell. Thanks for the question. So yes, we had a nice bookings quarter. And like we said on the call, in the prepared remarks, it was a 0.8 multiplier compared to basically the average for 2024 was about 0.5. So it was a good uptick. I would say that, obviously, we're very pleased and encouraged by that, but it's a bit premature, let's call it, an inflection point. Looking a little bit more closely into the bookings that we had in Q1, you're right, they do match pretty much the profile of our business going forward. So, general mature and power be where all of those bookings came from.

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

Hi. Thanks for taking my question and congrats on the better-than-expected, particularly in the margins and the bookings. I just want to come at the margin question, maybe slightly differently and maybe you answered this and I just, it wasn't as clear to me. But can you just help me with the granularity of the 600 basis points and kind of the 400 that you're looking into. And what I'm trying to get at is, really around in terms of mix and the predictive analytics of sort of what you're seeing during the quarter, like, it seems like that mix shifted rapidly in the quarter to your benefit. And so, I'm just trying to gauge how much of that 600 was specific to that, and what's kind of going against the headwind in the 400 basis point decline?

Yes. So Jed, as we think about the mix, the largest contributor of that was mix. And as we go through the period, right, we'll see periods of buying volume, specifically on the CS&I side, that can shift and move throughout the quarter. So we've obviously -- we pulled together plans and forecasts relative to what we anticipate. But as customer requests come in, we'll satisfy those as required, and that can change the mix within a period pretty quickly, depending on what is bought and what is procured in that period of time. In addition to that on the deferred revenue base, that really is just, we'll call it, clean-up of prior system sales as we deliver and execute against our commitments associated with system sales. And so, we can see that mix shift within a period given cost sign-offs from customers and how they look at the completion of system installations and related activities can result in a shift in deferred revenue relative to expectations as well. As we think about what's driving, we don't anticipate the same level of mix, positive mix benefit in the second quarter, as we look at what we see today versus our systems and related CS&I volumes. But we do anticipate to be able to continue to benefit from some of the cost actions and other activities, which has given us confidence to increase margins relative to our prior expectations.

Got it. And then as my follow-up, maybe just a slightly different angle on the tariffs. So I know that, you've done a great job in terms of mitigating the potential impact, but I think Secretary Bessent has talked about 14 deals in the next few weeks to be signed. So assuming that if we maybe exclude China, how much is sort of constrained from a margin perspective on the tariff side that -- I'm trying to get to what the potential impact will be positively, if you see those come to more normal type of trade relations?

Yes. I think, there could be some on the margin side, I think, yes, ex-China, right, I think there could be some opportunity on the up side. I think too early to tell. And as you know, it's been very volatile over the last few weeks trying to take the puts-and-takes in the daily news readings. And the team has been sort of working through the various iterations and permutations here for us to be able to size the potential impact. We had developed plans though that largely mitigated a significant portion of that by leveraging our global supply base, and I think more importantly our global manufacturing footprint. We did make those investments in our Asian operations center a number of years ago, which provides us with an opportunity to continue to serve our customers across the globe. It also provides us an opportunity to mitigate a potential impact associated with the geopolitical tensions and the trade. In addition to that, we have a large portion of our sales base, which is exportable. And so, although not all of the proposed tariffs are drawbackable, a large, significant portion of them are for us. And so, we have processes in place that allow us to also draw back tariffs that we do pay on the exported goods.

Yes. And this is Russell. So we did say that the impact was relatively small. So obviously, the upside would also be relatively small as well. But kind of like Jamie did give the numbers for the remainder of the year inclusive of tariffs.

And our next question comes from Charles Shi with Needham & Company.

Hi. Good morning, Russell and Jamie. Maybe the first question is about the composition of the backlog. First off, I think you guys did a good job at getting the very decent bookings for Q1, but that also leads to a backlog that is still, roughly speaking, four to five times of your system revenue run rate. That's a pretty high number, I would just say, compared to historical norm, it should have been somewhere between 1x to 2x of the system revenue run rate, but wonder what is the composition of the backlog there? Maybe one way I would like to look at, or maybe you can provide some color on is, what's the mix of the backlog between your China versus non-China customers? And if I look at your revenue, China has been somewhere between 40% to 60% of the total revenue for the company. But is China slightly over-represented in that $618 million backlog or under-represented or roughly in line with that?

Charles, this is Russell. So, yes, we are pleased to have a large backlog. Obviously, as you note, historically, we've been running, let's say, two quarters worth of backlog, which today's run rate of systems, that's probably like been the $300 million kind of regime and we're 2x that. So, I do expect those numbers to come down with time. So, I think you're going to see that coming down and then you'll start to see the book-to-bill get more standard. Regarding the kind of the backlog composition, as you can imagine, it looks an awful lot like our business in the sense that it's going to be predominantly general mature, so it's going to be mature foundry and power. So, that's what you're going to see. I think last year, we kind of saw quarter-to-quarter our Chinese revenue being in the 40% to 60%. I think, overall, you're going to see that, balancing around in 2025, but I think it will be going lower as a mix. So you will see the China percentage throughout 2025 becoming less than it was, say, in 2024.

Russell, maybe I wasn't very clear. Yes, I got your point that China revenue percentage is going to come down this year. But in the backlog, is China still in that 40% to 60% range or higher or lower in the backlog? I'm not talking about your expected revenue this year.

Charles, we don't really give that information. That's not something we provided. But I would say that, our bookings and our backlog match very much our revenue profile that we've shared with you for Q1.

Thank you. Maybe a very quick clarification, if you can provide some color. The U.S. revenue had a very decent, had some decent sequential growth in the March quarter. I wonder if you can provide some color. What's the application for the strength of that particular geography?

Okay. So, obviously, when we talk about U.S. revenue, it's landed U.S. revenue, right? So you can be multinationals from other countries building out inside that location. And I'd say that, it's actually quite broad. It's been -- we've general mature. It's been power, silicon carbide specifically. And I'd say there's also been a little bit of other business tucked in there as well. But ultimately, it's nice to see the U.S. domestic coming on stronger, and it's basically general mature as you'd imagine.

And as we look quarter-to-quarter, that's going to fluctuate over time, both the U.S. load, just given the customer delivery schedules and timing of orders expected out of backlog. So from period-to-period, we're going to see both the U.S. fluctuate. We'll see our memory business fluctuate from period-to-period. As you know today, that's primarily serving the Korean memory makers today. And we'll also see our China revenue fluctuate. So as Russell said, although we expect revenues on a year-over-year for China to be down relative to 2024. We do expect from quarter-to-quarter that that could move up and specifically in Q2, we could see China, as a higher proportion of sales in the second quarter, but overall on a year-to-year basis, it will be lower.

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

Yes, good morning and thank you for taking the questions. So maybe along the same lines with Charles' last question, Japan, we used to talk about, Japan as a pretty nice growth driver and I'm just surprised it hasn't had any activity for the last couple of quarters. Maybe just a quick update on your presence there?

Right. I think regarding Japan, we've actually had quite a good amount of progress there. So we have placed tools into silicon power, silicon carbide power. And I think there's also some, kind of like general mature as well. And I think, we're just beginning to see people having their utilization rates move up and to see the repeat orders. So I'm actually optimistic that, we'll see those areas go up as a percentage of our total revenue towards the back end of this year. So we kind of like put the seeds in there and now we're waiting for the repeat orders. And as we kind of talked about, all of our customers are in a slightly different place right now. So, if you looked at power, for example, some are looking to optimize their processes and improve their yields and reduce their costs, others are looking to do a node change. So it might take one machine or two machines. So we do see people taking, high energy machines in order to help them in their transition from say planar to trench devices. So the revenue is relatively low, but the future opportunities are relatively high, because once they're successful with those devices, you start to see the ramp. But, yes, I actually feel relatively positive about Japan.

Okay. And you answered there kind of spurred my next question. So Russell, when you look at the three technology transitions that your clients are using right now, the 150 to 200, planar to trench and super junction, how do each of those transitions specifically impact you and your business?

Right. So, 150 to 200, we so, obviously, we have we can ship 200 millimeter machines and we can also do upgrades. We actually have a large installed-base of silicon carbide tools across the entire Purion Power portfolio. So that's the high energy, the high current and the medium current and all of those tools will be eligible for upgrades. There's a great opportunity for upgrades. Regarding the transition from planar to trench, those devices require high energy. So, it moves the market even closer to where we've historically been very strong, which is in high energy. And one of the things we're seeing is that, they're going to even higher energy. So as you go from, say, trench to super junction, we're actually seeing some customers going up into the multiple mega electron volt energies. So that's playing really well to our high energy technology. So we see an opportunity to capture more of the business as those devices transition. And all of this, Tom, is increasing the wafer size and kind of reducing device sizes, increasing the number of devices and obviously reducing the cost. And we see this as the early innings of silicon carbide with lots of new applications being switched on as the cost continues to fall. So, we're kind of excited by this and obviously we benefit as well.

So we'll see this activity both in new systems as well as CS&I for some of the upgrades.

So I think what we see is that, many of our customers are making their money out of 150 millimeters. So consequently, they're going to want to continue to do that. Then, I think pretty much most customers, particularly the non-Chinese customers have moved on to 200 millimeter and they start with obviously the R&D, get the process down pat. And I think some of them are waiting for the yields to come. Others are waiting for the price parity points. I think there's still a little bit of time for the price to be more, more attractive for 200 millimeters. And then I think what you're gonna see is they'll ramp the 200 millimeters. So that probably be new machines. Once they've got that new 200 millimeter line up and running there may be an opportunity to then retrofit the 150 to make them more cost efficient. But I don't think, you're going to see somebody take down their 150 line for a couple of months, as they transition it over, because they then kind of reduce their run rates. So I think you're going to see this new tool systems going out and then ramping and then seeing the aftermarket. That's my impression.

[Operator Instructions] And our next question comes from Jack Egan with Charter Equity Research.

Great. Thanks for taking the questions. So you saw a pretty good increase in your book-to-bill and memory shipments were pretty strong in the first quarter. But as you've said before, those customers usually give you pretty short lead times. So is it fair to assume that, the bulk of that increase in your book-to-bill is from non-memory segments, or are you getting better visibility from those memory customers?

Yes. I think, again, no, the memory customers are still acting as they have historically in terms of we have some very robust conversations and discussions relative to their expected plans, but, we still wait for purchase orders to arrive to make sure that, we line everything up with the quarters and periods in which we expect to ship those devices relative to the expectations. What we did see in our book-to-bill though and as Russell commented a little bit earlier is, it does largely mirror that of our revenue splits for the periods as well. And so that trend around where the orders are coming in from for the quarter really does look and feel a lot like our revenue splits that we saw relative to general mature and power.

Got it. And then on OpEx, for the guidance for the full year being basically flat, you're probably going to see a pretty material decline in full year revenue, but that spending is going to be still flat. So, I guess what's the thinking there on just on keeping OpEx a bit elevated?

Yes. It's investing, right? So a large portion of that is going into our R&D, right? We made some really meaningful and significant progress and I can have Russell talk about some of the things that we're looking forward to in that space. But the goal here is to continue to invest in the base business. We've talked about our capital allocation strategy really focused on organic growth first. And so putting money into the business for R&D, CapEx and others to make sure that, we're positioned coming out of the -- coming into the recovery to really make sure that, we capitalize on the upswing and then partnering very closely with our customers during this period of time, to make sure that, we drive our technologies to their needs and requirements is going to be the most important part for us.

Yes, Jack. This is Russell. Just too kind of add more. So we know this is a cyclical industry and I think it's been down a little bit longer than most of us would have anticipated. So we believe, we have great opportunities ahead of us, the secular growth of this industry and the cyclical recovery. So, we're continuing to make sure, we invest in our products and services, stay close to our customers, so that when the market does start to recover, then we're ready with these new products. We want them to be differentiated, innovative, and we want to obviously continue to grow our margins and revenue. So, I think that's -- it would be a very bad idea to kind of like reduce significantly our OpEx given that we know there's an upturn coming. And the other thing is, it takes a long time to train people in our industry, right? I mean, it can take easily between two to five years for people to become, like, expert level. So given that we have these cycles that are considerably smaller than that, then, we want to make sure we maintain those people. And, like we said, continue to do our -- execute on our product roadmaps.

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

Hi, good morning. Thank you for taking the question. I know earlier you said you do have some international manufacturing, but you still have a large portion of your products being manufactured out of the U.S. and you obviously have a large share of the China mix. So I'm curious, if you've seen any pull-in activities from customers, and is that perhaps included in your outlooks?

Right. I'd say that, the kind of -- the turmoil around tariffs kicked in kind of the April 2nd. So, obviously, Q1 was closed pretty much at that stage. There was not too to be talked about in Q1. So, really, it's about Q2. I would say, there hasn't really been any pull forwards of note. We've had the usual push-pulls depending on where customers' kind of like plans are, but I would say there hasn't been a, what you consider, a panic pull-in. That's on the system side. But, you think that might also happen you think you might get some activity on the aftermarket. And, one month into this quarter, we haven't seen that either. Our customers are behaving normally, and I think that's kind of because they believe that, we have a really good plan to support them going forward and this is obviously globally as well. So, we're very pleased to have built-up over multiple years a global operations footprint and that's allowing us to continue to serve our customers.

Got it. Thank you for the color. Then, excluding all the tariffs, what are you seeing overall in customer inventory and utilization out of silicon carbide tools? Because, I think you said you're still seeing a little bit of demand out of China.

So, I guess, we've been talking about the green shoots and the opportunities for our end markets to recover. And we are -- since we are quite focused on the general mature, then you're talking about consumer spending, industrial and automotive, yes, primarily. We are kind of expecting to see things to start to improve, although at this stage, it's hard to say there's any evidence of that. One of the second order effects of the tariffs though is, I would say, that it's actually caused a little bit of uncertainty in the market. So that, what might have been improvements have maybe caused a little bit, more uncertainty. But we're definitely seeing pockets improved utilization, but it's not broad based yet.

Our next question comes from David Duley with Steelhead Securities.

Thanks for taking my question and congratulations on the nice margin performance. My first question has to do with China. You mentioned I think that China revenue percentage declined to 37% in the quarter, and then might be up in Q2. Could you give us a guess as to where you think it declines to for the whole year? And I'm guessing that probably represents the bottom in Chinese revenue, maybe I'm wrong, but, maybe comment a little bit on that for us.

Yes. So we're back to -- we haven't provided full year expectations necessarily for China just yet, but we do anticipate, like I said, and we do anticipate it to increase here in the second quarter and then moderate through the rest of the year here. Based on what we understand today, we do anticipate China revenue being lower than what we saw in for mix overall in 2024 versus 2025. And so, as a result of that, that's kind of all the commentary we're going to provide at this point. We need to kind of see where the rest of the year flows out and what type of activity and opportunities may present themselves, before we make any more meaningful comment on that.

Okay. And just to be clear, the comments that you have made, I think it would indicate that, the 37% that you achieved in Q1 most likely for the year that that percentage would be down, is that the message that you're trying to send us?

It's going to all depend on the mix in the back half of the year and the averages over those periods of time, Dave. But again, we expect it to be lower than what we saw in -- well, I can say definitively as of right now, we do expect it to be lower than what we saw in 2024 overall. So, year-on-year, we do expect that percentage to be lower.

Okay. And as far as the memory business goes, I think, it's been kind of uptick in the last few quarters. I was curious and coincidentally the Korean revenue was up as well. I'm sure those are related. But I'm kind of wondering, has the memory business starting to broaden out? Is it all three customers or is it just one customer? Maybe some commentary on the breadth of the memory recovery?

Okay. Dave, it's Russell. So if you look at the uptick we had in memory, last quarter, it was a pretty good uptick. We have and but it was all DRAM. So addressing NAND first, we haven't seen orders from NAND for a long time. If you remember, for us to receive NAND orders, it has to be an increase in the number of wafer starts. And you're aware that, the NAND guys are basically looking to go more and more vertical. So, yes, 1xx to 2xx and beyond. So, they're using this relatively quiet time to do a node change, which is very typical and that's increasing a bit dramatically, but it's not actually increasing the number of wave starts. Regarding DRAM, which is pretty much where all of our revenue came from, we are seeing, multiple customers, look to grow their DRAM. And, obviously, there's some customers that are doing well on HBM, and that's actually taking down capacity. And then, there's other customers that are doing well on DRAM, because of the DRAM capacity being taken down by HBM. So we would say that, DRAM is probably going to be modest for around, for 2025. It's bouncing around a little bit, but that is really the story at this stage, is DRAM.

And our next question comes from Christian Schwab with Craig-Hallum Capital.

Good quarter, guys. I just want to follow-up on the earlier line of questioning by Tom Diffely. Do you guys see increased capital intensity, in other words, obviously impact on equipment sales per wafer starts, as the industry upgrades from 150 to 200 and moving from planer to trench and in high energy, it seems that your dollar content per wafer start, going forward should increase over time? Would you have any idea what percentage that would be?

Hi, Christian. So I think, actually, that's a great question. So as people go from planar to trench, absolutely, it moves to a different toolset and it's going to leverage the entire Purion platform. And that does actually increase the density of implants, particularly in the high energy. So you definitely see, yes, I don't think there's no high energy implant in a [indiscernible] device that I'm aware of. So it's moving to trench. You've now got to put the deeper implants in it. Obviously, Superjunction is the next level beyond that. And as you also probably remember that there's basically no ability to diffuse dopant officially in silicon carbide. So if you want to go deep, you now actually have to overlap a whole bunch of chained implants. So yes, we are seeing an increase in intensity, of implant steps in certain carbide devices as they go from mode-to-mode. I don't think we've actually quantified that at this stage. I think we've kind of had in prior examples, we've talked about the rough number of machines you need for 100,000 wafer starts, because we were trying to compare to memory. So that's probably the closest we've come, but I think you're going to see that, you're going to see a transition in machine types. And that's kind of what we've shown in the past as well, as we used to start off just by shipping Purion M tools and then people started taking the H200s and the XEs as they started to go into high volume manufacturing and make a device transition. So, yes, I mean, does that answer your question, Christian?

It does. Thank you. My next question is, of the silicon carbide production to-date, do you have a rough estimate of what percentage of the wafers are planar today and expectation of what percentage will move to trench over a given period of time?

Okay. So I'd say that right now, I mean, this is kind of like this transition is going on from 150 to 200 planer to trench. I can only think of one customer that's kind of like entrenched in planer. I think everybody else is looking to move to trench, because it gives you a higher performance device. It's also a lot smaller, so you can pack an awful lot more devices on a wafer, and it's also going to have a higher yield because it's less susceptible to crystal damage. So I think you're going to see, as people's capabilities grow, you will see this transition to trench and then on to Superjunction and you'll see this transition from 150 to 200. The most advanced companies are going to move much more quickly. And we've said before, we are the leaders in high energy. So as they move to trench and Superjunction that plays very nicely into our strengths.

Great. And if I could just sneak in one last question. You guys mentioned inorganic growth opportunities. Can you give us an idea of, is this bolt-on acquisitions that you're looking at, if there is such a thing in an industry with only two people, or are you looking, or is there a -- are you looking for something that could be more transformative or something any kind of color of what that means, I guess, would be helpful.

Yes. Understood. I think the goal here is to, one, to keep the aperture as wide open as we possibly can. We want to leverage the fact of our expertise and experience in the semiconductor capital equipment space to the best of our ability. We've talked about leveraging our global footprint, the fact that, we've got field service folks, inventory depots and operations, next to all the sort of major customers throughout the world here, we believe there is an opportunity for us to leverage that by potentially introducing new technologies into our ecosystem. As you noted, implant is a little bit of a niche application today and there aren't a ton of opportunities within that space to try to expand inorganically. So that's one of the reasons why we're looking as wide and broad as we are. As we go through it though, we're going to continue to assess those opportunities relative to the other return characteristics we have, both on organic as well as shareholder return basis in making decisions on how and when to execute that. So, unfortunately, that's probably all I can say relative to our efforts at this point in time. But, like I said, it's wide open.

And our next question comes from Mark Miller with The Benchmark Company.

Thank you for question. I wonder if you can give us any additional color or what's going on with an image with your image customers?

Sorry, Mark. Image sensor customers?

Yes.

So, we are so -- again, it's very regional. We actually do have a customer, sorry, that's actually adding significant capacity. I think, obviously, the number one use of image sensors is phones, which is by far away the biggest use followed by cars. We are seeing a lot of sensors going into cars. So, I would say, this one particular customer is adding significant cape capacity and that's a little unusual. I don't think many of the other image sensor customers are adding much capacity at the moment. It's relatively quiet. I mean, again, mobile phones and automotive are the end markets as they are fairly muted.

Yes. Just as a point of clarity for everyone, we did -- this quarter, we did embed image sensor sales as part of our general mature. I think we noted that in our prepared remarks. And so, it won't be broken out on a go forward basis. But by all means, happy to talk about the trends that we see within that space and the opportunities that present themselves.

I was a little surprised with your comments about not seeing a lot from NAND, because NAND CapEx for the first time in a couple of years is increasing. I assume most of it's for capacity additions. Are you seeing any quoting activity or is it still pretty dead?

I would say that, NAND is still pretty muted from our point of view. Remember, Mark, that we need new wafer starts. So, I'd say that NAND right now, they're beginning to build the Manhattan skyline. They're just going vertical. So, that adds significant depth and edge. It adds significant bits per wafer. It doesn't add a lot of new wafers. And we need new wafers in order to drive new implaners.

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

Thanks, operator. And I want to thank everyone for joining the call and your interest in Axcelis. Operator, you can close the call.