AXCELIS TECHNOLOGIES INC (ACLS)

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve risks and uncertainties. Words such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such forward-looking statements. The forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Factors that might cause such a difference include, among other things, those set forth under “Liquidity and Capital Resources” and “Risk Factors” and others discussed elsewhere in this Quarterly Report on Form 10-Q. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as may be required by law.

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Overview

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We are primarily a producer of ion implantation equipment used in the fabrication of semiconductor chips in the United States, Europe, and Asia. In addition, we provide extensive worldwide aftermarket service and support, including spare parts, equipment upgrades and maintenance services to the semiconductor industry. Our product development and manufacturing activities currently occur primarily in the United States and South Korea. Our equipment and service products are highly technical and are sold through a direct sales force in the United States, Europe, and Asia. Consolidation and partnering within the semiconductor manufacturing industry has resulted in a small number of customers representing a substantial portion of our business. Our ten largest customers accounted for 68.5% of total revenue for the six months ended June 30, 2026.

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Sales of our systems in the first half of 2026 were down slightly compared to the same period in the prior year. During the six months ended June 30, 2026, the overall mature process segment represented 77% of our shipped systems revenue, with the remainder represented by 22% of shipments to dynamic random-access memory (“DRAM”) applications and 1% of shipments to advanced logic. Of the mature process segment, power device shipments comprised 38% of total systems revenue with the general mature segment representing 39%, which includes image sensor applications.

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On September 30, 2025, the Company, Victory Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), and Veeco Instruments Inc., a Delaware corporation (“Veeco”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of the conditions specified therein, Merger Sub shall be merged with and into Veeco (the “Merger”), with Veeco surviving as a wholly-owned subsidiary of the Company. For further information regarding the Merger, see Note 19 to the consolidated financial statements included in this report. On February 6, 2026, Axcelis held a special meeting of stockholders at which the issuance of Company common stock to the Veeco stockholders in the Merger was approved. The completion of the Merger remains subject to other customary closing conditions, including the final pending regulatory approval from the State Administration for Market Regulation of the People’s Republic of China. Axcelis and Veeco continue to expect that the Merger will be completed in the second half of 2026.

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Critical Accounting Estimates

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Management’s discussion and analysis of our financial condition and results of operations included herein and in our 2025 Form 10-K are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions. Management’s estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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Management has not identified any need to make any material change in, and has not changed, any of our critical accounting estimates and judgments as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2025 Form 10-K.

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Results of Operations

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The following table sets forth our results of operations as a percentage of total revenue:

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Revenue

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The following table sets forth our product and services revenue:

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Three months ended June 30, 2026 Compared with Three months ended June 30, 2025

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Product

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Product revenue, which includes systems sales, sales of spare parts, product upgrades and used systems, was $200.5 million, or 93.2% of revenue, during the three months ended June 30, 2026, compared with $183.4 million, or 94.3% of revenue, for the three months ended June 30, 2025. The $17.1 million increase in product revenue for the three-month period ended June 30, 2026, in comparison to the same period in 2025, was primarily driven by an increase in Aftermarket sales.

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Deferred revenue includes payments received in advance of system sales as well as deferral of revenue from systems sales for installation and other future performance obligations. The total amount of deferred revenue at June 30, 2026 and December 31, 2025 was $118.5 million and $108.9 million, respectively.

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Services

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Services revenue, which includes the labor component of maintenance and service contracts and fees for service hours provided by on-site service personnel, was $14.7 million, or 6.8% of revenue, for the three months ended June 30, 2026, compared with $11.1 million, or 5.7% of revenue, for the three months ended June 30, 2025. Although services revenue typically increases with the expansion of the installed base of systems, it can fluctuate from period to period based on capacity utilization at customers’ manufacturing facilities, which affects the need for equipment service.

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Six months ended June 30, 2026 Compared with Six months ended June 30, 2025

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Product

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Product revenue was $388.5 million, or 93.8% of revenue, during the six months ended June 30, 2026, compared with $366.2 million, or 94.6% of revenue, for the six months ended June 30, 2025. The $22.3 million increase in product revenue for the six-month period ended June 30, 2026, in comparison to the same period in 2025, was primarily driven by an increase in Aftermarket sales, partially offset by a customer settlement of $4.9 million.

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Services

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Services revenue was $25.6 million, or 6.2% of revenue, for the six months ended June 30, 2026, compared with $20.9 million, or 5.4% of revenue, for the six month

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve risks and uncertainties. Words such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such forward-looking statements. The forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Factors that might cause such a difference include, among other things, those set forth under “Liquidity and Capital Resources” and “Risk Factors” and others discussed elsewhere in this Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as may be required by law.

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Overview

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The semiconductor capital equipment industry is subject to cyclical swings in capital spending by semiconductor chip manufacturers. Capital spending is influenced by demand for semiconductors and the products using them, the utilization rate and capacity of existing semiconductor chip manufacturing facilities and changes in semiconductor technology, all of which are outside of our control. As a result, our revenue may fluctuate from year to year and period to period. Our established cost structure does not vary significantly with changes in volume. We may also experience fluctuations in operating results and cash flows depending on our revenue level.

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Revenue for 2025 was $839.0 million, compared to $1,017.9 million in 2024. Systems revenue for 2025 was $571.0 million, compared to $782.6 million in 2024. Gross margin percent for the year was 44.9% compared to 44.7% in 2024. Operating profit was $119.3 million in 2025, compared to $210.8 million in 2024. Net income for the year was $120.2 million, compared to $201.0 million in 2024.

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The Company is in a strong competitive position. A focused strategy on ion implant, combined with the hard work and dedication of our employees and the encouragement and support of our customers and suppliers, enabled us to achieve numerous critical milestones in our drive to market leadership. Important accomplishments in 2025 included:

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We continue to work diligently to ensure that manufacturing and operating expense levels remain well aligned to business conditions.

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The market for our systems and aftermarket products and services is represented by a relatively small number of companies. In 2025, the top 20 semiconductor chip manufacturers accounted for approximately 86.4% of total semiconductor capital equipment spending, down from 87.6% in 2024. Our net revenue from our ten largest customers accounted for 55.2% of total revenue for the year ended December 31, 2025 compared to 45.9% and 51.7% of revenue for the years ended December 31, 2024 and 2023, respectively. For the year ended December 31, 2025, one customer represented 11.0% percent of total revenue.

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Critical Accounting Estimates

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Management’s discussion and analysis of our financial condition and results of operations are based upon Axcelis’ consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions. Management’s estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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We believe the following accounting policies are critical in the portrayal of our financial condition and results of operations and require management’s most significant judgments and estimates in the preparation of our consolidated financial statements. For additional accounting policies, see Note 2 to the consolidated financial statements for the year ended December 31, 2025 included in this Annual Report on Form 10-K.

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Revenue Recognition

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Our accounting policies relating to the recognition of revenue require management to make estimates, determinations and judgments based on historical experience and on various other assumptions, which include (i) the existence of a contract with the customer, (ii) the identification of the performance obligations in the contract, (iii) the value of any variable consideration in the contract, (iv) the standalone selling price of multiple obligations in the contract, for the purpose of allocating the consideration in the contract, and (v) determining when a performance obligation has been met. Our revenue recognition policies are set forth in section (k) of Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements for the year ended December 31, 2025 included in this Annual Report on Form 10-K. Recognition of revenue based on incorrect judgments, including an erroneous allocation of the estimated sales price between the units of accounting, could result in inappropriate recognition of revenue, or incorrect timing of revenue recognition, which could have a material effect on our financial condition and results of operations.

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Inventory—Provision for Excess and Obsolescence and Lower of Cost or Net Realizable Value

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We record a provision for estimated excess and obsolete inventory and lower of cost or net realizable value. The provision is determined using management’s assumptions of materials usage, based on estimates of forecasted and historical demand and market conditions. Specifically, our assumptions of forecasted system sales and the size and utilization of the installed base of systems may have a significant effect on estimated materials usage. If actual market conditions become less favorable than those projected by management, additional inventory write-downs may be required.

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Although we make every effort to ensure the accuracy of our forecasts or product demand and pricing assumptions, any significant unanticipated changes in demand, pricing, or technical developments would significantly impact the value of our inventory and our reported operating results. In the future, if we determine that inventory needs to be written down, we will recognize such costs in our cost of revenue at the time of such determination. If we subsequently sell product that has previously been written down, our gross margin in that period will be favorably impacted.

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Product Warranty

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We generally offer a one-year warranty for all of our systems, the terms and conditions of which vary depending upon the product sold. For all systems sold, we accrue a liability for the estimated cost of standard warranty at the time of system shipment and defer the portion of systems revenue attributable to the relative fair value of non-standard warranty. Costs for non-standard warranty are expensed as incurred. Factors that affect our warranty liability include the number of installed units, historical and anticipated product failure rates, material usage and service labor costs. We periodically assess the adequacy of our recorded liability and adjust the amount as necessary.

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Income Taxes

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We record income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax basis, and net operating loss and tax credit carryforwards.

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We establish a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Significant management judgment is required in determining our provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against those net deferred tax assets.

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We evaluate the weight of all available evidence such as historical losses, the expected timing of the reversals of existing temporary differences and projected future taxable income to determine whether it is more likely than not that some portion or all of the net deferred income tax assets will not be realized.

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Our income tax expense includes the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions or obtaining new information on particular tax positions may cause a change to the effective tax rate. We recognize accrued interest related to unrecognized tax benefits as interest expense and penalties as operating expense.

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Results of Operations

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The following year-to-year comparative statements include the 2025 and 2024 year periods. For comparative statements for the 2024 and 2023 periods, please refer to our 2024 Annual Report on Form 10-K, filed with the SEC on February 28, 2025.

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The following table sets forth our results of operations as a percentage of total revenue:

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