VECO 10-K & 10-Q changes, risk factors and insider trading

Unfavorable market conditions have adversely affected, and may continue to adversely affect, our operating results.

Changes in U.S. trade policypolicies, export controls, and export controls andthe ongoing trade disputesdispute between the U.S. and China have adversely affected, and may continue to adversely affect, our business, results of operations, and financial condition.

Over the past several years, the U.S. Commerce Department, Bureau of Industry and Security (“BIS”) has announced new rules aimed in part at restricting China’s ability to obtain advanced computing chips and manufacture advanced semiconductors. Other changes in trade policy by BIS have included, without limitation, the elimination of license exception for Civil End Users (“CIV”), the implementation of new regulations governing the sale of equipment to defined “Military End Users” and for defined “Military End Uses”, the addition of several companies to the U.S. Commerce Department’s Unverified List and Entity List (including Swaysure Technology Co., Ltd. andLtd., Semiconductor Manufacturing International CorporationCorporation, and certain similar and related entities), and the expansion of the “foreign direct product rule” to restrict the sale of certain products if Huaweicertain Technologiesnamed Co.,China Ltd.customers or itstheir affiliates are parties to a transaction involving the products.

The effect of these changes, among others, is that U.S. companies are now required to obtain export licenses – now at times with a presumption of denial --– before providing commodities, software, and technology (which are subject to the regulations) to customers for whom licensing requirements did not previously apply. These changes have had, and will likely continue to have, a negative effect on our ability to sell and service certain equipment and for certain end users in China. The heightened export restrictions have resulted, and may alsocontinue resultto result, in confusion and shipping delays, as the new regulations are interpreted and applied, and may inhibit technical discussions with existing or prospective customers, negatively impacting our ability to pursue sales opportunities. The administrative processing, attendant delays and risk of ultimately not obtaining required export approvals pose a particular disadvantage to the Company relative to certain of our non-U.S. competitors and increase our exposure to foreign and Chinese domestic competition. This difficulty and uncertainty has adversely affected our ability to compete for and win business from customers in China. Foreign customers affected by U.S. government sanctions or threats of sanctions may respond by developing their own solutions to replace our products or by utilizing our foreign competitors’ products. These heightening restrictions, together with the prospect of additional governmental action (which has included and may include, for example, significantinclude increases in tariffstariffs, domestic and foreign, on a broad array of goods), has adversely affected, and is likely to continue to adversely affect, demand for our products and the results of our operations.

The changes in U.S. trade policy and export controls, as well as sanctions imposed by the U.S. against certain Chinese companies, have triggered retaliatory action by China (including China’s recent2025 ban on exports to the United States of criticalrare earth minerals gallium,which germaniumare andused antimonyin certain of our products) and could trigger further retaliation (including the possible escalation of geopolitical tensions between China and Taiwan). In addition, China has provided, and is expected to continue to provide, significant assistance, financial and otherwise, to its domestic industries, including some of our competitors. We face increasing competition as a result of significant investment in the semiconductor industry by the Chinese government and various state-owned and affiliated entities that is intended to advance China’s stated national policy objectives (including a heightened focus on the production of legacy node and mature chips in response to U.S. and foreign government regulation impeding the production of advanced node chips). In addition, the Chinese government may restrict us from participating in the China market or may prevent us from competing effectively with Chinese companies.

Whether with respect to sales to customers located in China or otherwise, products which (i) are manufactured in the United States, (ii) incorporate controlled U.S. origin parts, technology, or software, or (iii) are based on certain U.S. technology,technology or made using certain tools with a U.S. nexus, are subject to the U.S. Export Administration Regulations (“EAR”) when exportedexported, re-exported, or transferred to andor re-exported fromwithin international jurisdictions,jurisdictions. inLocal addition to the local jurisdiction’sjurisdictions’ export regulations may also be applicable to individual shipments. Currently, our laser annealing, MOCVD, MBE, SiC and certain other systems and products are controlled for export under the EAR. Licenses or proper license exceptions may be required for the shipment of our products to or within certain customers or countries. Obtaining an export license or determining whether an export license exception exists often requires considerable effort by us and cooperation from the customer, which can add time to the order fulfillment process. We may be unable to obtain required export licenses or qualify for export license exceptions and, as a result, we may be unable to export products to our customers and/or meet their servicing needs (potentially requiring us to refund customer prepayments for unperformed contractual obligations). Furthermore, circumstances may arise where shipments are detained or export clearance is uncertain, which may impact the timing of revenue recognition or our ability to recognize revenue at all. Non-compliance with the EAR or other applicable export regulations could result in a wide range of penalties including the denial of export privileges, fines, criminal penalties, and the seizure of commodities. In the event that an export regulatory body determines that any of our shipments violate applicable regulations, we could be fined significant sums and our export capabilities could be restricted, which could have a material adverse impact on our business and reputation.

In addition, ourOur success is also subject to the risk of future disruptive technologies, including machine learning and artificial intelligence (“AI”). While such technologies offer significant opportunities, they also pose complex and novel risks, including operational risks (such as factual errors or inaccuracies in work product developed using AI), the unintended release of proprietary information, costs of compliance associated with evolving AI laws, regulations and standards, privacy concerns with respect to data dissemination, risks related to intellectual property rights (with respect to both the inputs to the program and ownership rights to AI work product), and risks related to AI’s impact on the workforce. AI technology is complex and rapidly evolving and its implementation can be costly. There is no guarantee that our use of AI will enhance our technologies, benefit our business operations, or produce products and services that are preferred by our customers. Our competitors may be more successful in their use of AI and may develop superior products and services. While it is not possible at this point to accurately identify or predict all of the risks related to the use of AI technologies, our failure to properly anticipate and timely respond to AI-related developments could adversely affect our business, financial condition, and results of operations.

Customer purchase orders may be cancelled or rescheduled by the customer, sometimes with limited or no penalties, which may result in increased or unrecoverable costs for the Company. We adjust our backlog for such cancellations and contract modifications, among other items. A downturn in one or more of our businesses could result in an increase in order cancellations and postponements. Also, our backlog may be impacted if we are unable to complete shipments to customers because of export control issues.

All information systems are subject to breach and disruption. Potential vulnerabilities can be exploited from inadvertent or intentional actions of our employees, third-party vendors, business partners, or by malicious third parties. Attacks of this nature are increasing in their frequency, levels of persistence, sophistication, and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of expertise and motives (including industrial espionage), including organized criminal groups, nation states, and others. In addition to the extraction of sensitive information, attacks could include the deployment of harmful malware, ransomware, or other means which could affect service reliability and threaten the confidentiality, integrity, and availability of information. These risks have been exacerbated by an increase in employees working from home, global conflicts and geopolitical tensions (including increasing tension between the U.S. and China governments), and by the possible use of new technologies, including AI and quantum computing, to directly attack information systems with greater speed and efficiency than human bad actors.

Our success depends in part upon the protection of our intellectual property rights. We rely primarily on patent, copyright, trademark, and trade secret laws, as well as nondisclosure and confidentiality agreements and other methods, to protect our proprietary information, technologies, processes, and brand identity. We own various U.S. and international patents and have additional pending patent applications relating to certain of our products and technologies. The process of seeking patent protection is lengthy and expensive, and we cannot be certain that pending or future applications will result in issued patents or in patents which provide meaningful protection or commercial advantage. In addition, our intellectual property rights may be circumvented, invalidated, or rendered obsolete by the rapid pace of technological change, or through efforts by others to reverse engineer our products or design around patents that we own. Policing unauthorized use of our products and technologies is difficult and time consuming and the laws of other countries may not protect our proprietary rights as fully or as readily as U.S. laws. Given these limitations, our success will depend in part upon our ability to innovate ahead of our competitors.

As a global company with worldwide operations, we are subject to volatility and adverse consequences associated with economic downturns and recessions in different parts of the world. In the event of a downturn, many of our customers may delay or reduce their purchases of our products and services. If negative conditions in the credit markets, such as a recommencement ofincluding increases in interest rates, prevent our customers from obtaining credit or necessary financing, product orders in these channels may decrease, which could result in lower revenue. In addition, we may experience cancellations of orders in backlog, rescheduling of customer deliveries, and attendant pricing pressures. If our suppliers face challenges in obtaining credit, in selling their products, or otherwise in operating their businesses, their ability to continue to supply materials to us may be negatively affected.

As part of our long-term strategy, we may pursue future acquisitions of, or investments in, other companies or assets which could increase our assets. We are required to test certain of our assets, including acquired intangible assets, property, plant, and equipment, and equity investments without readily observable market prices, for recoverability and impairment whenever there are indicators of impairment such as an adverse change in business climate. Adverse changes in business conditions or worse-than-expected performance by acquired companies could negatively impact our estimates of future operations and result in impairment charges to acquired assets. For example, during the fourth quarter of 2024, we recorded an asset impairment charge of $28.1 million related to the intangible assets acquired as part of our acquisition of EpliluvacEpiluvac AB. If our assets are further impaired, our financial condition and results of operations could be materially and adversely affected.

Recommendations made pursuant to the Organization for Economic Cooperation and Development’s (“OECD”) Base Erosion and Profit Shifting (“BEPS”) project have led to changes in tax laws in numerous countries and could increase our tax obligations in countries where we do business. As part of BEPS 2.0, the OECD has focused on ensuring multinational businesses with consolidated global revenues in excess of 750 million euros pay their tax in the 'right place' (Pillar 1) and at least at a 15% 'minimum rate' (Pillar 2), including ensuring that multinational enterprises are paying tax at an effective rate of 15% or higher in every jurisdiction in which they operate,operate. regardlessIn January 2026, the OECD released a “side-by-side” package introducing new safe harbors and providing an exemption for U.S.-based multinational companies from parts of the localglobal headlineminimum tax rateframework. orThis guidance is intended to simplify compliance and is generally favorable to the impactCompany; ofit localneeds taxto reliefs.be adopted by each country to be considered enacted for financial accounting purposes. We may be subject to the Pillar Two requirements in the future should our global revenues exceed the Pillar Two thresholds. In addition, changes to U.S. tax laws will significantly impact how U.S. multinational corporations are taxed on U.S. and foreign earnings. On July 4, 2025, the enactment of the One Big Beautiful Bill Act (“OBBBA”) provides significant corporate tax reforms, including the permanent reinstatement of deducting domestic research and development expenditures, and modifying the Global Intangible Low-Taxed Income (“GILTI”) and Foreign-Derived Intangible Income (“FDII”) rules. While we do not currently expect Pillar Two and OBBBA to have a material impact on our effective tax rate, we are in the process of assessing and monitoring potential impacts and developments. These and other developments or changes in federal or international tax laws, rules, practices or rates (including future changes or modifications to existing practices) could have an adverse material impact on our ability to utilize our deferred tax attributes, our effective tax rate and results of operationsoperations, including cash flows and financial position.

As of December 31, 2024,2025, we had $26.5 million in principal amounts outstanding in 2025 Notes, $25.0 million in principal amounts outstanding in 2027 Notes, and $230.0 million in principal amounts outstanding in 2029 Convertible Senior Notes (together, the “Notes”). The 2025 Notes subsequently matured in January 2025 and were settled through the issuance of Company shares to the noteholders. In addition, as of December 31, 2024,2025, we had an undrawn senior secured revolving credit facility (the “Credit Facility”) in an aggregate principal amount of $225.0$250.0 million, including a $15.0 million letter of credit sublimit.

Finally, holders of the Notes will have the right to require us to repurchase all or any portion of their Notes upon the occurrence of a fundamental change before the maturity date. Additionally, in the event the conditional conversion features of the Notes are triggered (as is currently the case for the 2027 Notes through March 31, 2025),triggered, holders of Notes will be entitled to convert the Notes at any time during specified periods at their option. If one or more holders elect to convert the Notes, or if a fundamental change occurs before maturity, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted, which could adversely impact our liquidity. Additionally, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of the Notes surrendered therefor or pay cash with respect to the Notes being converted. In addition, even if holders do not elect to convert the Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which could result in a material reduction of our net working capital.

Veeco executed well during 2024,2025, accomplishingand accomplished a number of milestones, including:

We believe these accomplishmentsinflection points position us well to capture our largest SAM growth opportunities in the2026 comingand years.beyond.

The Semiconductor industry has historically demonstrated cyclicality based on fluctuations in global chip demand and production capacity. Sales in the Semiconductor industry are estimated to have increased year-over-year in 20242025 to aroundapproximately $650$770 billion dollars.dollars, according to Gartner. Looking ahead, industry analysts are forecasting long-term growth of the industry, driven by secular growth trends such as artificial intelligence, high-performance computing, mobile connectivity, and the electrification of the automotive industry. Additionally, government investments in the Semiconductor industry are projected to accelerate global spending in next-generation technologies.

Our strategy of investing in advanced logic and memory has enabled our Semiconductor business to outperformcontinue WFEto growth for four consecutive years.grow. Veeco’s technologies are at the forefront of enabling new technical innovations in the manufacture of high-performance AI chips and High-Bandwidth Memory (“HBM”). We continue to invest in new technologies to expand our SAM to a broad range of new applications.

Semiconductor revenue increased by 13%2% in 20242025 from the prior year, comprising 65%72% of total revenue. This increase was driven by our Laser Annealing business with both leading and mature node customers. Our laser annealing solutions continue to gain acceptance at advanced logic nodes, highlighted by recent order activity involving both new and existing customers. In 2024,2025, we received laser annealing orders from, and shipped systems to several leading-edge logic customers, including for customers’ Gate-All-Around processes. We also shippedcustomers and recognizedhad revenuemultiple onrepeat ourorders first NSA system tofrom a leadingDRAM logic customer in the fourth quarter.customer. In the memory market, we continue to ship systems to a Tier 1 customercustomers for high volume production of HBM and advanced DRAM devices. We also shipped a LSA evaluation system to a second leading memory customer in the fourth quarter of 2025. While ourwe continue to ship LSA systems to mature node customers in China, as anticipated this business has moderated and we expect to continue to see a decline heading into 2026. Our growth strategy isremains predominately focused on advanced node logic and memory,memory LSA shipments to mature node customers have continued to increase in 2023 and 2024, predominantly driven by new greenfield fabs and capacity additions in China.customers.

We have two next generation laser annealing systems under evaluation at Tier 1 foundry and logic customers. We also shipped and recognized revenue on our NSA500 tool to a logic customer in 2025. This next generation system, the NSA500, covers the nano-second annealing regime and complements our LSA product. This new system is part of our continued effort to enable our customers’ product roadmap by providing innovative annealing solutions. Nanosecond annealing provides Veeco with an opportunity to expand our laser annealing SAM for new advanced node logic and memory applications, including low thermal budget anneals for Gate-All-Around transistors and advanced 3D devices.

The ongoing adoption of EUV Lithography for advanced node semiconductor manufacturing continues to drive demand for our Ion Beam Deposition LDDEUV system for mask blanks. Leading logic and memory customers expect EUV and High-NumericalHigh Numerical Aperture (“High-NA”) lithography to be integral to their future roadmaps, whichwith our Ion Beam Deposition technology isserving as a key enabler of.enabler. Our product roadmap is well positioned as the industry adopts next-generation High-NA EUV lithography, and we are expanding our EUV related business to newEUV maskpellicles blankwhich applications.are increasingly being used to improve the productivity of EUV steps. Our IBD-EUV system is used to form the high transparency membrane used in pellicles.

We also have two Ion Beam Deposition (“IBD300”) systems under evaluation at leading DRAM memory customers.customers, which we have extended the evaluation into 2026. Our IBD300 system provides Veeco with another opportunity to expand our SAM to advanced node applications where low resistance films are critical. These initial systems are being evaluated for advanced memory applications, such as DRAM bitline.

In Advanced Packaging, we have seen significant growth in our business year-over-year. Our Wet Processing systems are used for several applications, and we continue to see strong demand driven by Heterogenous Integration and 3D Packaging for AI. In the fourth quarter, we announced over $50 million in orders for our Wet Processing systems from a leading foundry, a HBM manufacturer,AI and OSATs.high-performance computing. Our Advanced Packaging lithography systems are used for packaging applicationssteps such asCu pillar and microbumps used in fan out wafer level packaging and other 2.5 and 3D advanced packaging solutions. After two years of slow order activity driven by consumer markets, weWe are beginning to seeseeing an increaseuptick in quoting andthe order activity from IDM’s,several foundries,OSAT and OSAT’scustomers driven by capacity expansions for AI and mobileconsumer markets.markets recovery.

Looking ahead, we anticipate seeing growth in the semiconductor market in leading-edge investment driven by new nodes and AI-related demand, including investment in Gate-All-Around nodes, High-Bandwidth Memory, and 3D packaging for AI. At the same time, recent engagement with customers in China has moderated, and we expect a decline in China revenue heading into 2025.

Sales in the Scientific & Other market are largely driven by sales to governments, universities, and research institutions. We address the Scientific & Other market with several technologies, including MBE, ALD, MOCVD, Wet Processing, and IBD/IBE, which support scientific, optical coating and other applications, and sales in this market declinedincreased slightly in 20242025 from the prior year.

Total sales increaseddecreased for the year ended December 31, 20242025 against the comparable prior year period in the SemiconductorData Storage and DataCompound StorageSemiconductor markets, partially offset by a decreaseincreases in the Compound Semiconductor, and Scientific & Other and Semiconductor markets. By geography, sales increaseddecreased in the China, U.S., and Rest of APACEMEA regions, partially offset by aan decreaseincrease in the EMEARest region.of APAC Region. Included within the Rest of APAC region for the year ended December 31, 20242025 were sales in Taiwan and Japan of $115.3$178.8 million and $67.4$69.0 million, respectively, while sales within Rest of APAC region for the year ended December 31, 20232024 included sales in Japan, Taiwan,Taiwan and SingaporeJapan of $74.7$115.3 million, $62.7 million,million and $32.2$67.4 million, respectively. We expect there will continue to be year-to-year variations in our future sales distribution across markets and geographies. In light of the global nature of our business, we are impacted by conditions in the various countries in which we and our customers operate.operate, including the recent tariff and trade dynamics.

In 2024,2025, gross profit increaseddecreased compared to 20232024 primarily due to ana increasedecrease in sales volume,volume partially offset by decreasedand gross margins. Gross margins decreased principally due to unfavorable product mix of sales and higher serviceproduction and tariff related costs. We expect our gross margins to fluctuate each period due to product mix and other factors. Additionally, other factors will cause our gross margins to fluctuate each period. We expect higher costs in future periods as we incur tariffs on imported materials from overseas suppliers, as well as higher costs from domestic suppliers incurring tariffs on their imports.

The markets we serve are characterized by continuous technological development and product innovation, and we invest in various research and development initiatives to maintain our competitive advantage and achieve our growth objectives. Research and development expenses increaseddecreased in 20242025 compared to 20232024 primarily due to personnel-related expenses as we invest in new research and development and additional applications for our technology in order to be well-positioned to capitalize on emerging global megatrends and support longer term growth in Semiconductor and Compound Semiconductor markets. However,operating-related expenses as a percentagepart of revenueour have remained flat when comparedefforts to themanage prior period.costs.

Amortization expense decreased in 20242025 compared to 20232024 primarily due to changes in amortization expense to reflect expected cash flows of certain intangible assets, as well as certain other intangible assets becoming fully amortized and the full impairment of the Epiluvac related intangibles in 2023.2024.

Net otherOther operating income for the year ended December 31, 2025 was $0.9 million, primarily comprised of a reduction in the expected earn-out payment to the previous shareholders of Epiluvac. Other operating income for the year ended December 31, 2024 was $22.3 million, primarily duecomprised toof a $21.2 million reduction in the expected earn-out payments to be made to the previous shareholders of Epiluvac, as well as proceeds from the sale of productive assets.

Interest IncomeIncome, (Expense)net

For the year ended December 31, 2024,2025, we recorded net interest income of $1.9$4.3 million, compared to $1.2$1.9 million of net interest expenseincome for the prior year. The increase in net interest income was primarily related to ana increasedecrease of interest incomeexpense of approximately $2.3$1.9 million due to a higherreduction in convertible note and bank guarantee interest rateexpenses. environmentAdditionally, the company had an increase of approximately $0.6 million of interest income due to a higher average cash balances for 20242025 compared to 2023.2024.

The cash used in investing activities during the year ended December 31, 2025 was primarily attributable to net cash used for capital expenditures and net investment activity. The cash used in investing activities during the year ended December 31, 2024 was primarily attributable to net cash used for capital expenditures, and net investment activity, partially offset by proceeds from the sale of productive assets. The cash used in investing activities during the year ended December 31, 2023 was attributable to net cash used in the acquisition of Epiluvac, and capital expenditures, partially offset by changes in net investment activity.

Furthermore,We believe that we have accesssufficient capital resources and cash flows from operations to asupport $225.0scheduled millioninterest payments on this debt. In addition, in June 2025, we increased the total funds available to us through our revolving credit facility from $225 million to provide$250 for our working capital needsmillion and reimburseextended drawingsthe undermaturity lettersuntil June 16, 2030, subject to a springing maturity date of creditMarch and2, for other general corporate purposes.2029. The Company has no immediate plans to draw down on the facility, which expires in December of 2026.facility. Interest under the facility is variable based on the Company’s secured net leverage ratio and is expected to bear interest based on SOFR plus a range of 150125 to 225200 basis points, if drawn. There is a yearly commitment fee of 2520 to 3530 basis points, based on the Company’s secured net leverage ratio, charged on the unused portion of the Facility.

As of December 31, 2024,2025, our operatingfuture minimum lease obligationpayments was $53.1$48.9 million relating to various operating lease arrangements for certain facilities. Refer to Note 10, “Commitments and Contingencies”, of the Notes to the Consolidated Financial Statements for further discussion related to our lease obligations.

We recognize revenue upon the transfer of control of the promised product or service to the customer in an amount that reflects the consideration we expect to receive in exchange for such product or service. We perform the following five steps to determine when to recognize revenue: (1) identification of the contract(s) with customers, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when, or as, a performance obligation is satisfied. Management uses judgements in identifying performance obligations, determining stand-alone selling price (“SSP”) for each distinct performance obligation andobligation, allocating consideration from an arrangement to the individual performance obligations based on the SSP.SSP, determining when transfer of control occurs to the customer, and estimating potential variable consideration including the probability that a significant reversal in the amount of cumulative revenue recognized will not occur. The SSPs are determined based on the prices at which we separately sell systems, upgrades, components, spare parts, installation, maintenance, and service plans. For items that are not sold separately, we estimate SSPs generally using an expected cost plus margin approach. Any material changes in the identification of performance obligations, determination and allocation of the transaction price to performance obligations, and determination of when transfer of control occurs to the customer, could impact the timing and amount of revenue recognition, which could have a material effect on our financial condition and results of operations.

We adopted ASU 2020-06 Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity effective January 1, 2022 and2022, ASU 2023-072023-09 Improvements to Income Tax Disclosures (Topic 740) effective December 31, 2024.2024, ASU 2024-04 Debt – Debt with Conversion and Other Options (Subtopic 470-20) effective June 30, 2025. We are also evaluating other pronouncements recently issued but not yet adopted, including ASU 2023-09 and ASU 2024-03. The adoption of these pronouncements is not expected to have a material impact on our consolidated financial statements. Refer to Note 1, “Significant Accounting Policies,” for additional information.

The following section generally discusses 2026 and 2025 items and year-to-year comparisons between 2026 and 2025. Discussions of 2025 items that are not included in this Form 10-Q can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of our Quarterly Report on Form 10-Q for the interim period ended MarchJune 31,30, 2025, filed on MayAugust 7,6, 2025.

On September 30, 2025, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Axcelis Technologies, Inc., a Delaware corporation (“Axcelis”), and Victory Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Axcelis (“Merger Sub”). 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 Axcelis. The Merger Agreement was approved by our board of directors (except for one (1) independent director who serves on the Axcelis’ board of directors as well who recused himself) and, on February 6, 2026, by the stockholders of each company. The completion of the Merger remains subject to the satisfaction or (to the extent permissible) waiver of customary closing conditions, including the final pending regulatory approval from the State Administration for Market Regulation of the People’s Republic of China.China, and is currently expected to close in the second half of 2026.

Sales in theThe Semiconductor industry areexperienced estimatedrobust to have increased year-over-yeargrowth in 2025 toand, approximately $770 billion dollars, according to Gartner. Lookinglooking ahead, industry analysts are forecasting long-term growth of the industry, driven by secular growth trends such as artificial intelligence,intelligence (“AI”), high-performance computing, mobileadvanced connectivity, and the electrification of the automotive industry. Additionally, government investments in the Semiconductor industry are projected to accelerate global spending in next-generation technologies.

Growth in the Semiconductor industry,industry driven by AI investments, coupled with increasing technological complexity of Semiconductor chips, are expected to drive long-term growth in Wafer Fab Equipment (“WFE”) spending. In an effort to improve chip performance, optimize power consumption, and reduce costs, today’s most advanced Semiconductor manufacturers are shrinking device geometries, investing in more complex transistor designs such as Gate-All-Around and exploring 3D architectures. As a result, growth of the WFE market is forecasted to keep pace with long-term growth of the Semiconductor industry, which we believe should benefit semiconductor capital equipment providers, including Veeco.

Veeco’s technologies are at the forefront of enabling new technical innovations in the manufacturing of high-performance AI chipschips, advanced connectivity and High-Bandwidth Memory (“HBM”). We continue to invest in new technologies to expand our Serviceable Available Market (“SAM”) to a broad range of new applications.

Semiconductor revenue comprised 69%68% of firstsecond quarter total revenue primarily driven by system shipments of our Laser Spike Annealing (“LSA”), technology, and our Advanced Packaging,Packaging technology, particularly for our wet processing and lithography products. Semiconductor revenue decreasedincreased 12%5% from the comparable prior period due to a reductionincrease in Chinasales revenueto ofour 74%leading-edge partially offset by increases in Rest of APAC revenue of 38%foundry/logic and Unitedmemory States revenue of 69%.customers.

In the logic market,and foundry, we have long-standing and trusted customer relations and our annealing solutions continue to gain traction at advanced node customers. Our LSA platform is production tool of record at all three Tier 1 logic customers.customers, Ourdriving repeat business. Additionally, our next-generation Nanosecond Annealing (“NSA”) system is progressing through evaluations at Tier 1 logic customers. Our NSA tool addresses critical low-thermal budget applications such as contact annealing, 3D device integration and materials modification. TheseIn evaluationsthe aresecond advancingquarter, well,for our NSA system we announced that a Tier 1 customer successfully completed their evaluation and weplaced area anticipatingfollow-on anorder additionalfor evaluationa shipmentsecond system to aship in the second half of 2026. We also announced in the second quarter, that the third Tier 1 logic customer inreceived thean comingNSA months.evaluation tool. We have now successfully engaged all three Tier 1 logic and foundry customers with our NSA technology, and we continue working closely with them to support high-volume manufacturing.

We also have two Ion Beam Deposition 300 (“IBD300”) systems under evaluation at leading DRAM memory customers. Our IBD300 system provides Veeco with another opportunity to expand our SAM to advanced node applications where low resistance films are critical. These initial systems are being evaluated for advanced memory applications, such as DRAM bitline metallization.

The ongoing adoption of EUV Lithography for advanced node semiconductor manufacturing continues to drive demand for our Ion Beam Deposition (“IBD”) EUV system for mask blanks. Leading logic and memory customersmanufacturers expect EUV and High Numerical Aperture (“High-NA”) lithography to be integral to their future roadmaps. Our Ion Beam DepositionIBD technology is a key enabler of the EUV mask blank Multiple Layer Mirror deposition. Our product roadmap is well positioned as the industry adopts next-generation High-NA EUV lithography, and we are expanding our EUV related business to EUV pelliclespellicles, which are increasingly being used to protect defect-free masks and improve the productivity ofas EUV steps.utilization Ourscales. IBD-EUVWe system is also usedcontinue to formwin theproduction high-transparencybusiness membraneat useda inTier 1 foundry and engage new customers for EUV pellicles.

Looking ahead, we anticipate growth in the semiconductor market in leading-edge investment driven by AI and high-performance computing.investments.

Compound Semiconductor revenue increased by 31%45% in the firstsecond quarter from the comparable prior year period, comprising 12%11% of total revenue. In the Compound Semiconductor market, we have a broad portfolio of products which are gaining momentum due to a significant inflection point within the industry withdue to the AI data center infrastructure build-out.

Additionally, in the Compound Semiconductor market there are otherOther photonicsPhotonics applications driving growth for our products in this space,products, including red MircoLEDs, low earth orbit solar cells and augmented / virtual reality applications.

Lastly, our Propel300mm GaN on Si product continues to be a strong long-term driver tied to AI data center power efficiency, electrification, and high-power density applications. At a leading power IDM customer, we have an evaluation for our Propel300 system in place, and we received a pilot-line order for a multi-chamber system at the end of 2025. AsWe thisbelieve leadingwe customerare rampswell andpositioned finalizesto long-termparticipate in future capacity plans, there is potential for additional system orders in the second half of 2026 for delivery in 2027.expansions.

Data Storage market revenue increased by 52%80% in the firstsecond quarter from the comparable prior year period, comprising 6%11% of total revenue. We address the Data Storage market with sales of our Ion Beam technology and wet process systems driven by demand for cloud and AI data centers. We haveexpect seenfull increaseyear in2026 orderto activitymore inthan the back-half of 2025double and increasedcontinue customerto utilizationbe ratesbooked aswell into 2027. We are engaged with our customers gainon tractiontheir inroadmaps, newincluding technologies likefor Heat Assisted-Magnetic-Recording (“HAMR”). Orderstechnology, receivedgiving us strong momentum in thethis third and fourth quarter of 2025 for our ion beam and wet processing equipment from demand for cloud and AI data centers, will drive revenue growth in 2026, principally in the second half. Customer engagement remains strong with our business fully booked in 2026 and extending into 2027.market.

Scientific & Other market revenue decreasedincreased by 9%28% in the firstsecond quarter from the comparable prior year period, comprising 13%10% of total revenue. Sales in the Scientific & Other market are largely driven by sales to government-funded laboratories, universities, and research institutions. We address the Scientific & Other market with several technologies, including MBE, ALD, MOCVD, Wet Processing, and IBD/IBE, which support diverse R&D and niche low-volume production applications.

For the three months ended MarchJune 31,30, 2026 and 2025

Sales decreasedincreased for the three months ended MarchJune 31,30, 2026 against the comparable prior year period drivenacross by a decrease in sales in the Semiconductor, and Scientific & Other markets, partially offset by an increase in sales in the Compound Semiconductor and Data Storageall markets. By geography, sales decreasedincreased in the United States, and China region,regions, partially offset by increaseddecreased sales in the Rest of APAC, United States, and EMEA regions. Sales in the Rest of APAC region for the three months ended MarchJune 31,30, 2026 included sales in TaiwanTaiwan, Singapore, and Japan of $65.6$43.4 millionmillion, $10.5 million, and $9.2$9.8 million, respectively. Sales in the Rest of APAC region for the three months ended MarchJune 31,30, 2025 included sales in JapanTaiwan, Singapore, and TaiwanJapan of $32.5$45.5 million, $23.4 million, and $14.0$14.8 million respectively. In light of the global nature of our business, we are impacted by conditions in the various countries in which we and our customers operate, including the recent tariff and trade dynamics. We expect there will continue to be year-to-year variations in our future sales distribution across markets and geographies.

For the three months ended MarchJune 31,30, 2026, gross profit decreasedincreased against the comparable prior period primarily due to aan decreaseincrease in sales volume, aspartially welloffset asby a decrease in gross margins. Gross margins decreased principally due to unfavorable product mix and higher spending, including logistics costs. Additionally other factors will cause our gross margins to fluctuate each period, including the impact of the evolving tariffs landscape, which may include potentialincludes refunds on previously paid tariffs, newly implemented tariffs, or changes to existing tariffs.

The markets we serve are characterized by continuous technological development and product innovation, and we invest in various research and development initiatives to maintain our competitive advantage and achieve our growth objectives. Research and development expenses increased for the three months ended MarchJune 31,30, 2026 against the comparable prior period due to an increase in personnel-related expenses.

Selling, general, and administrative expenses increased for the three months ended MarchJune 31,30, 2026 against the comparable prior period due to personnel-relatedvariable expenses.incentive related compensation and commission expenses based on increased order volume.

During the three months ended MarchJune 31,30, 2026, we incurred an additional $2.0$1.5 million in legal, accounting, consulting fees and employee-related costs in connection with the proposed Merger.

We recorded net interest income of $1.2 million for the three months ended MarchJune 31,30, 2026, compared to net interest income of $0.8$0.9 million for the comparable prior year period. The increase in net interest income was primarily due to reduced interest expense on the 2025 Notes as they matured on January 15, 2025 and the 2027 Notes that were settled on May 15, 2025.

Our tax benefitexpense for the three months ended MarchJune 31,30, 2026, was $1.2 million, compared to $3.0$0.9 million of tax expense for the comparable prior period. For the three months ended MarchJune 31,30, 2026, the effective tax rate was higherfavorably thanimpacted by the U.S.tax statutorybenefits related to Foreign-Derived Deduction Eligible Income and research and development tax credits. Additionally, the effective tax rate primarilywas relatedalso toimpacted by a discrete income tax benefit forresulting from share-based compensation windfall. For the three months ended MarchJune 31,30, 2025, the effective tax rate was inlower line withthan the U.S. statutory tax rate,rate whichprimarily included a $1.5 million tax expense relatedrelating to share-based compensation shortfalls, partially offset by tax benefits related to Foreign-Derived Intangible Income and research and development tax credits.

At MarchJune 31,30, 2026 and December 31, 2025, cash and cash equivalents of $34.0$46.6 million and $23.6 million, respectively, were held outside the United States. As of MarchJune 31,30, 2026, we had $27.5$29.2 million of accumulated undistributed earnings generated by our non-U.S. subsidiaries for which the U.S. tax has previously been provided. Approximately $13.4$14.2 million of undistributed earnings will be subject to foreign withholding taxes if distributed back to the United States and we have accrued $1.4 million for foreign withholding taxes for the undistributed earnings.

A summary of the cash flow activity for the threesix months ended MarchJune 31,30, 2026 and 2025 is as follows:

Net cash provided by operating activities was $7.9$59.4 million for the threesix months ended MarchJune 31,30, 2026 and was due to net lossincome of $0.3$11.5 million, adjustments for non-cash items of $27.2 million, and an increase in cash flow from changes in operating assets and liabilities of $20.6 million. The changes in operating assets and liabilities were largely attributable to an increase in contract liabilities, accrued expenses, and accounts payable, partially offset by an increase in accounts receivables, and inventories. Net cash provided by operating activities was $29.0 million for the six months ended June 30, 2025 and was due to net income of $23.7 million and adjustments for non-cash items of $12.7$30.2 million, partially offset by a decrease in cash flow from changes in operating assets and liabilities of $4.4$24.9 million. The changes in operating assets and liabilities were largely attributable to ana increasedecrease in contract liabilities and increases in accounts receivables, and inventories, partially offset by ana increasedecrease in contractprepaid liabilities,expenses and accrued expenses, and accounts payable.expenses.

The cash provided by investing activities during the threesix months ended MarchJune 31,30, 2026 was primarily attributable to net cash provided for investment activity, partially offset by capital expenditures. The cash provided by investing activities during the threesix months ended MarchJune 31,30, 2025 was primarily attributable to net cash usedprovided for investment activity, partially offset by capital expenditures.

The cash used in financing activities for the threesix months ended MarchJune 31,30, 2026 was related to cash used to settle taxes related to employee equity programs, offset by cash received under the Employee Stock Purchase Plan. The cash used in financing activities for the threesix months ended MarchJune 31,30, 2025 was related to cash used to settle taxes related to employee equity programs, settlement of the 2027 Notes, and debt issuance costs associated with the execution of the Fourth Amendment of the Loan and Security Agreement, partially offset by cash received under the Employee Stock Purchase Plan.

We have $230.0 million outstanding principal balance of convertible senior notes that bear interest at a rate of 2.875% per year, payable semiannually in arrears on June 1 and December 1 of each year, and mature on June 1, 2029, unless earlier purchased by the Company, redeemed, or converted. The 2029 Notes are currently convertible by noteholders until September 30, 2026.