AXCELIS TECHNOLOGIES INC

Results of Operations

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

Revenue

The following table sets forth our product and services revenue:

Product revenue, which includes systems sales, sales of spare parts, product upgrades and used systems, was $246.8 million, or 96.2% of revenue, during the three months ended September 30, 2024, compared with $283.4 million, or 96.9% of revenue, for the three months ended September 30, 2023. The $36.5 million decrease in product revenue for the

three-month period ended September 30, 2024, in comparison to the same period in 2023, was primarily driven by a decrease in system sales.

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 September 30, 2024 and December 31, 2023 was $164.0 million and $210.9 million, respectively.

Services revenue, which includes the labor component of maintenance and service contracts and fees for service hours provided by on-site service personnel, was $9.7 million, or 3.8% of revenue, for the three months ended September 30, 2024, compared with $9.0 million, or 3.1% of revenue, for the three months ended September 30, 2023. 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.

Product revenue was $735.6 million, or 96.1% of revenue, during the nine months ended September 30, 2024, compared with $795.0 million, or 96.9% of revenue, for the nine months ended September 30, 2023. The $59.4 million decrease in product revenue for the nine-month period ended September 30, 2024, in comparison to the same period in 2023, was primarily driven by a decrease in system sales.

Services revenue was $29.8 million, or 3.9% of revenue, for the nine months ended September 30, 2024, compared with $25.3 million, or 3.1% of revenue, for the nine months ended September 30, 2023.

Revenue Categories used by Management

In addition to the line item revenue categories discussed above, management also regularly disaggregates revenue in the following categories, which it finds relevant and useful:

(Aftermarket purchases reflect current fab utilization as opposed to Systems purchases which reflect capital investment decisions by our customers, which have differing economic drivers);

Aftermarket and Systems Revenue

Included in total revenue of $256.6 million during the three months ended September 30, 2024 is revenue from our Aftermarket business of $55.5 million, compared with $60.9 million of Aftermarket revenue for the three months ended September 30, 2023. Aftermarket revenue fluctuates from period to period based on capacity utilization at customers’ manufacturing facilities, which affects the sale of spare parts and demand for equipment service. Aftermarket revenue can also fluctuate from period to period based on the demand for system upgrades or used equipment. The remaining $201.1 million of revenue for the three months ended September 30, 2024 was systems revenue, compared with $231.4 million of systems revenue for the three months ended September 30, 2023. Systems revenue fluctuates from period to period based on our customers’ capital spending.

Included in total revenue of $765.4 million during the nine months ended September 30, 2024 is revenue from our Aftermarket business of $170.3 million, compared with $178.5 million of Aftermarket revenue for the nine months ended September 30, 2023. The remaining $595.1 million of revenue for the nine months ended September 30, 2024 was systems revenue, compared with $641.8 million of systems revenue for the nine months ended September 30, 2023.

Gross Profit / Gross Margin

The following table sets forth our gross profit / gross margin:

Gross margin from product revenue was 44.7% for the three months ended September 30, 2024, compared to 45.4% for the three months ended September 30, 2023. The decrease in gross margin primarily resulted from an unfavorable mix of system revenue.

Gross margin from services revenue was (4.9)% for the three months ended September 30, 2024, compared to 12.4% for the three months ended September 30, 2023. The decrease in gross margin is attributable to changes in the mix of service contracts.

Gross margin from product revenue was 45.8% for the nine months ended September 30, 2024, compared to 44.1% for the nine months ended September 30, 2023. The increase in gross margin primarily resulted from a favorable mix of system revenue.

Gross margin from services revenue was 6.2% for the nine months ended September 30, 2024, compared to 10.6% for the nine months ended September 30, 2023. The decrease in gross margin is attributable to changes in the mix of service contracts.

Operating Expenses

The following table sets forth our operating expenses:

Our operating expenses consist primarily of personnel costs, including wages, commissions, incentive-based compensation, stock-based compensation and related benefits and taxes; project material costs related to the design and development of new products and enhancement of existing products; and professional fees, travel and depreciation expenses.

Personnel costs are our largest expense, representing $35.5 million, or 56.3%, of our total operating expenses for the three months ended September 30, 2024, compared to $34.8 million, or 60.0%, of our total operating expenses for the three months ended September 30, 2023. Personnel costs were $107.2 million, or 58.9%, of our total operating expenses for the nine months ended September 30, 2024, compared to $99.3 million, or 59.6%, of our total operating expenses for the nine months ended September 30, 2023. The higher personnel costs for the three and nine months ended September 30, 2024 are primarily due to increases in wages and headcount as well as stock compensation expense, partially offset by a decrease in variable compensation expense.

Research and Development

Our ability to remain competitive depends largely on continuously developing innovative technology, with new and enhanced features and systems and introducing them at competitive prices on a timely basis. Accordingly, based on our

strategic plan, we establish annual research and development budgets to fund programs that we expect will solve customers’ high value, high impact, ion implantation challenges.

Research and development expense was $26.4 million during the three months ended September 30, 2024, an increase of $2.3 million, or 9.6%, compared with $24.1 million during the three months ended September 30, 2023. The increase is primarily due to higher project and consulting expenses and higher personnel expenses associated with increases in wages partially offset by a decrease in variable compensation expense.

Research and development expense was $77.8 million during the nine months ended September 30, 2024, an increase of $5.8 million, or 8.1%, compared with $72.0 million during the nine months ended September 30, 2023. The increase is primarily due to higher project and consulting expenses and higher personnel expenses associated with increases in wages partially offset by a decrease in variable compensation expense and temporary employees.

Sales and Marketing

Our sales and marketing expenses result primarily from the sale of our equipment and services through our direct sales force.

Sales and marketing expense was $16.8 million during the three months ended September 30, 2024, an increase of $0.3 million, or 2.1%, compared with $16.5 million during the three months ended September 30, 2023. The increase is primarily due to higher personnel expenses associated with increases in wages and stock compensation expense partially offset by a decrease in variable compensation expense.

Sales and marketing expense was $51.5 million during the nine months ended September 30, 2024, an increase of $5.3 million, or 11.6%, compared with $46.1 million during the nine months ended September 30, 2023. The increase is primarily due to higher personnel expenses associated with increases in wages and stock compensation expense partially offset by a decrease in variable compensation expense.

General and Administrative

Our general and administrative expenses result primarily from the costs associated with our executive, finance, information technology, legal and human resource functions.

General and administrative expense was $19.9 million during the three months ended September 30, 2024, an increase of $2.4 million, or 13.8%, compared with $17.4 million during the three months ended September 30, 2023. The increase is primarily due to an increase in bad debt expense of $2.8 million partially offset by lower personnel expenses associated with a decrease in variable compensation expense.

General and administrative expense was $52.8 million during the nine months ended September 30, 2024, an increase of $4.3 million, or 8.9%, compared with $48.5 million during the nine months ended September 30, 2023. The increase is primarily due to higher bad debt expense and higher personnel expenses associated with an increase in wages and stock compensation partially offset by a decrease in variable compensation expense.

Other Income (Expense)

Other income (expense) consists of interest earned and accretion on our invested cash balances, interest expense relating to the finance lease obligation we incurred in connection with the 2015 sale of our headquarters facility and other financing obligations as well as foreign exchange gains and losses attributable to both fluctuations of the U.S. dollar against local currencies of the countries in which we operate and forward currency exchange contracts.

Other income was $8.5 million for the three months ended September 30, 2024, compared with other income of $2.0 million for the three months ended September 30, 2023. The $6.5 million increase in other income (expense) compared to the same prior year period was primarily due to an increase in interest income of $2.0 million and an increase in foreign exchange gains of $7.7 million, partially offset by foreign exchange losses of $3.2 million from forward currency exchange contracts. Other income was $15.4 million for the nine months ended September 30, 2024, compared with other income of $4.4 million for the nine months ended September 30, 2023. The $10.9 million increase in other income (expense) compared to the same prior year period was primarily due to an increase in interest income of $5.3 million, an increase in foreign exchange gains of $5.1 million and foreign exchange gains of $0.5 million from forward currency exchange contracts.

Income Tax Provision

Income tax expense was $6.8 million for the three months ended September 30, 2024, compared to $7.7 million for the three months ended September 30, 2023. The $0.9 million decrease was primarily due to a decrease in pre-tax income. Income tax expense was $20.6 million for the nine months ended September 30, 2024, compared to $16.0 million for the nine months ended September 30, 2023. The increase was primarily due to a decrease in the benefit received from share-based compensation.

The effective tax rate for the three and nine months ended September 30, 2024 was less than the U.S. statutory rate of 21% primarily attributable to the Foreign Derived Intangible Income deduction, Federal research and development tax credits and excess tax benefits from share-based compensation.

The deferred income taxes of $58.9 million and $53.4 million as of September 30, 2024 and December 31, 2023, respectively, reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carryforwards. As of September 30, 2024, we have recorded a $12.1 million valuation allowance in the U.S. against certain tax credits due to the uncertainty of their realization. Realization of our net deferred tax assets is dependent on future taxable income. We believe it is more likely than not that such assets will be realized; however, ultimate realization could be impacted by market conditions and other variables not known or anticipated at this time.