Brief Summary
Alright, so this earnings call for Excelis Technologies' second quarter of 2025 gives a positive outlook. They beat expectations with solid revenue and earnings, driven by strong margins and cost control. Bookings were slightly down, but there's optimism for future growth, especially in silicon carbide applications. The company is managing costs well and investing in R&D to stay ahead.
- Revenue and earnings exceeded expectations.
- Strong performance in silicon carbide market, especially in China.
- Focus on innovation, customer engagement, and cost control.
Intro
The call starts with the formalities: the operator introducing David Riick, Senior VP of Investor Relations, who then introduces Russell Lowe, the CEO, and Jamie Kugan, the CFO. Riick mentions that the press release and accompanying slides are available on the website. He also gives a heads-up about forward-looking statements and non-GAAP financial measures, telling everyone to check the SEC filings and press release for details.
Q2 2025 Performance Overview
Russell Lowe kicks things off by saying Excelis had a good second quarter, beating expectations with $195 million in revenue and $1.13 non-GAAP earnings per share. Systems and CSNI (Customer Solutions and Innovations) revenue did better than expected, and they kept costs in check. Bookings were at $96 million, a bit down from the previous quarter, but first-half bookings were slightly better than the second half of 2024.
Market Trends and Silicon Carbide
Mature node applications, especially in power, drove system shipments. Silicon carbide shipments were steady, even though the industry is still absorbing capacity. China is still showing strong demand for both 150mm and 200mm applications, driven by the EV industry. Outside China, companies are using this time to ramp up R&D and tech upgrades. Excelis is the leader in high-energy iron implantation, which is key for next-gen architectures.
Silicon Carbide Demand Drivers
Russell points out that silicon carbide demand is being driven by a few things: declining device prices, the need for better energy efficiency, growing EV penetration (including hybrids), more silicon carbide content per vehicle, and the need for higher voltage applications for faster charging. Even though EV demand in the US has slowed down a bit, global EV sales are still growing fast. Plus, with lower prices, silicon carbide is being adopted in renewable energy, industrial motor drives, and data centers.
Performance in Other Markets
The power market segment is now called "other power," which includes silicon BCDs, power MOSFETs, and GAN power devices. System revenue from these applications grew, especially in China. General mature segment revenue dipped slightly as customers managed their capacity investments. However, there are signs of better tool utilization. Excelis also landed a big order for high-energy and high-current sources from a Chinese customer working on 28nm applications.
Advanced Logic and Memory
In advanced logic, Excelis is working closely with customers on evaluation units and even got a follow-on order. They're targeting next-gen implant applications at the M+1, M+2, and N+3 nodes, including backside power distribution network integration. Memory system revenue went down, as expected, but they're still expecting modest growth in this market compared to 2024. They secured an order for a high-current system for a DRAM application. NAND demand is expected to stay muted for the rest of the year.
Strategic Execution and Outlook
Despite the uncertain economy, Excelis is focusing on innovation, customer engagement, and their CSNI business. CSNI makes up about 30% of total revenue and has higher gross margins. They're also managing costs carefully, with an adjusted EBITDA margin of about 20%. They expect a slight improvement in revenue in the second half of 2025.
Financial Results and Q3 Outlook
Jamie Kugan dives into the numbers, saying Q2 revenue was $195 million, with $134 million from systems and $61 million from CSNI. China made up 65% of system sales, up from 37% in the previous quarter. They expect China revenue to be similar in the second half. US system sales were 19%, while Korea dropped to 8%. Bookings were $96 million, and they ended the quarter with a backlog of $582 million.
Gross Margins, Expenses, and Cash Flow
GAAP gross margins were strong at 44.9%, and non-GAAP margins were 45.2%. This was due to higher CSNI revenue, better warranty and installation costs, and a favorable systems mix. GAAP operating expenses were $58.4 million, and non-GAAP expenses were $53.6 million. They generated $6 million in other income due to foreign currency gains. The tax rate was about 10% on a GAAP basis and 11% on a non-GAAP basis. They generated $38 million in free cash flow and repurchased $45 million in shares. They ended the quarter with $581 million in cash and securities.
Tariffs and Q3 Outlook
Jamie says they're keeping an eye on tariffs and are ready to respond. The Q3 outlook includes a small estimated impact from tariffs. They expect Q3 revenue to be about $200 million, with similar levels in Q4. Non-GAAP gross margins are expected to be about 43%, and operating expenses around $53 million. Adjusted EBITDA is expected to be about $39 million, and non-GAAP diluted earnings per share around $1.
Closing Remarks
Russell wraps up by saying they're well-positioned to handle the current downturn, thanks to cost controls and a strong balance sheet. They're confident they'll come out stronger, supported by their technology roadmap. He thanks everyone for their support.
Q&A - Memory Market in 2026
Christian Schwab asks about the memory market in 2026. Russell says they're not forecasting that far ahead yet, but HBM (High Bandwidth Memory) is hot right now, eating away at DRAM capacity. They'll need wafer starts to increase to ship more implanters. New capacity might come online in late 2025 or early 2026.
Q&A - General Mature Market Improvement
Christian also asks about the general mature market. Russell says their revenue for the second half of 2025 will be slightly up, but not because of general mature. They're seeing a slight uptick in power, but general mature is in a digestion period.
Q&A - Silicon Carbide R&D and Volume Production
Craig Ellis asks about silicon carbide customers using this time for R&D and tech transitions. Russell says silicon carbide will be slightly stronger in the second half of 2025. There's a split between China, which is focused on getting processes and yields up, and the rest of the world, which is moving quickly to 200mm and advanced devices like trench and super junction. These advanced devices need high-energy implanters, which plays to Excelis's strengths.
Q&A - Gross Margin Drivers and Structural Gains
Craig also asks about gross margin drivers and structural gains. Jamie says systems mix and the mix between systems and CSNI will continue to drive gross margin. Structural changes are happening in warranty, installation, and maximizing their global operations. They're working to drive costs out over the long term. Margins might come down slightly in the back half of 2025 due to mix.
Q&A - China vs. Rest of World in Silicon Carbide
Jed Dorshimer asks for more detail on the difference between China and the rest of the world in silicon carbide. Russell clarifies that standard planar devices don't need high energy, but trench and super junction devices do. The intensity of high energy goes up because you can't diffuse the implant profiles in silicon carbide.
Q&A - High Energy Applications Beyond Power
Jed also asks about other applications demanding high energy. Russell says high energy is used in pretty much every application except advanced logic. NAND, DRAM, and image sensors use it, and they're seeing some advanced avalanche devices using really high energy. But silicon carbide is definitely a driver right now.
Q&A - Tariffs and CSNI Performance
Jack Egan asks if tariffs are contributing to the positive momentum in CSNI. Jamie says nothing material was driven by tariffs. The driver was upgrades and upgrade-related activity. Customers are finding ways to squeeze out incremental efficiencies from their current tool sets, leading to higher upgrade activity.
Q&A - Share Repurchases
Jack also asks about the elevated repurchases in the quarter. Jamie says they were opportunistic in the second quarter. They anticipate buying at an elevated rate relative to the $15 million per quarter they typically bought in the past.
Q&A - Competition in China
Tom Diffly asks for an update on the competition in China. Russell says they monitor the competition carefully, especially the new companies starting up in China. They don't see them outside of China or in accounts available to US manufacturers. The feedback they get is that they're still very immature.
Q&A - Backlog Details and Timing
Tom also asks about the backlog. Jamie says the backlog numbers they report are just systems-related orders and don't include CSNI. The backlog carries into 2026. They're looking to see that inflection point where they get increased bookings.
Q&A - Reconciling China and DRAM Sales
Mark Miller asks about reconciling Chinese sales and DRAM sales. Russell says China built out significant capacity through 2024 and is using 2025 to increase productivity and efficiency. They're seeing Chinese auto manufacturers push silicon carbide into hybrid vehicles. Memory is expected to be muted through 2025, but opportunistic buys are happening.
Closing Remarks
David Riick thanks everyone for joining the call and for their interest in Excelis. The operator then closes the call.
