Veeco Instruments Inc: Form 10-Q for the period ended Sep 30, 2025

Cautionary Statement Regarding Forward Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to facilitate an understanding of our business and results of operations. This MD&A should be read in conjunction with our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included elsewhere in this Form 10-Q. The following discussion contains forward-looking statements and should also be read in conjunction with the cautionary statement set forth at the beginning of this Form 10-Q.

The following section generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2024 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 September 30, 2024, filed on November 6, 2024.

Executive Summary

We are an innovative manufacturer of semiconductor process equipment. Our proven ion beam, laser annealing, lithography, MOCVD, and single wafer wet processing technologies play an integral role in the fabrication and packaging of advanced semiconductor devices. With equipment designed to optimize performance, yield and cost of ownership, Veeco holds leading technology positions in the markets we serve. To learn more about Veeco’s systems and service offerings, visit www.veeco.com (http://www.veeco.com).

Merger with Axcelis Technologies, Inc.

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 unanimously approved by our board of directors (except for one (1) independent director who serves on the Axcelis board of directors as well and thus recused himself) and is subject to certain customary closing conditions, including the approval by the stockholders of each company and various regulatory approvals. For more information regarding the previously announced Merger, see Note 10 Subsequent Events to the accompanying Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Business Update

Sales in the Semiconductor industry are estimated to have increased year-over-year in 2024 to around $650 billion. 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.

Growth in the Semiconductor industry, coupled with increasing technological complexity of Semiconductor chips, are expected to drive long-term growth in 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.

Our strategy of investing in advanced logic and memory has enabled our Semiconductor business to outperform WFE growth for four consecutive years. 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.

While the long-term outlook of the Semiconductor industry remains favorable, recently enacted tariffs, foreign and domestic, have resulted in uncertainty across Veeco’s business. The tariffs have resulted in an increase in certain of our costs and those of our customers and could impact future end market demand. Given the dynamic nature of the situation, we continue to evaluate the potential impacts to our business, and our team is working diligently with our suppliers and customers to assess, manage and mitigate the related impacts.

Semiconductor revenue decreased by 5% in the third quarter from the comparable prior year period, comprising 71% of total revenue. Revenue was primarily driven by system shipments of our Laser Spike Annealing (“LSA”), Ion Beam Deposition EUV for mask blanks and our Advanced Packaging wet processing.

Our laser annealing solutions continue to gain traction at advanced logic nodes, highlighted by recent order activity and shipments to leading-edge logic customers Gate-All-Around nodes. In the memory market, we continue to ship LSA systems to a Tier 1 customer for high volume production of HBM and advanced DRAM devices.

We have two next generation laser annealing systems under evaluation at Tier 1 foundry and logic customers. 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 annealing solutions and driving higher device performance. 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 EUV system for mask blanks. Leading logic and memory customers expect EUV and High Numerical Aperture (“High-NA”) lithography to be integral to their future roadmaps, which our Ion Beam Deposition technology is a key enabler of the EUV mask blank Multiple Layer Mirror. 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 pellicles which 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. 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, 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 and high-performance computing. In the third quarter of 2025, we had increased order activity supporting these end markets.

Our Advanced Packaging lithography systems are used for packaging applications such as 2.5D and 3D packaging, fan out wafer level packaging and other advanced packaging solutions. We are seeing an uptick in the order activity from several OSAT customers driven by AI and consumer 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.

Veeco also serves customers in the Compound Semiconductor, Data Storage, and Scientific & Other markets. We address the Compound Semiconductor market with a broad portfolio of technologies, including Wet Processing, MOCVD, MBE and Ion Beam, for Power Electronics, Photonics, and 5G RF applications. Sales in the Compound Semiconductor market declined in the third quarter from the comparable prior year period. In GaN Power, emerging use cases have driven some traditional silicon power electronics manufacturers to consider adoption of GaN at 300mm.

Additionally, we received an order for a Propel 300mm GaN on Silicon Epitaxy system from a leading power device IDM customer. This order cements our position as a leader in 300mm MOCVD technology.

We are also seeing photonics orders driven by demand for space-grade solar cells and panels, optical communication solutions for datacom industry, as well as opportunities in MicroLEDs for applications such as luxury TVs, AR/VR, and automotive.

We address the Data Storage market with sales of our Ion Beam technology. Demand for our Ion Beam products is driven by demand for cloud and AI Data Centers. Revenue in our Data Storage market declined in the third quarter from the comparable prior year period. While customers are not adding new system capacity in 2025, we have started seeing new order activity in the third quarter, driven by increased customer utilization rates and adoption of new technologies like Heat Assisted-Magnetic-Recording (“HAMR”).

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. Sales in this market increased in the third quarter from the comparable prior year period driven by optical deposition systems.

Results of Operations

For the three months ended September 30, 2025 and 2024

The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for the indicated periods in 2025 and 2024 and the period-over-period dollar and percentage changes for those line items. Our results of operations are reported as one business segment, represented by our single operating segment.

(dollars in thousands)

Net Sales

The following is an analysis of sales by market and by region:

(dollars in thousands)

Sales decreased for the three months ended September 30, 2025 against the comparable prior year period driven by a decrease in sales in the Data Storage, Semiconductor, and Compound Semiconductor markets, partially offset by an increase in sales in the Scientific & Other market. By geography, sales decreased in the United States and China, partially offset by increased sales in the Rest of APAC and EMEA regions. Sales in the Rest of APAC region for the three months ended September 30, 2025 included sales in Taiwan and Japan of $54.9 million and $10.3 million, respectively. Sales in the Rest of APAC region for the three months ended September 30, 2024 included sales in Taiwan and Japan of $49.9 million, and $4.0 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.

Gross Profit

For the three months ended September 30, 2025, gross profit decreased against the comparable prior period primarily due to a decrease in sales volume, as well as a decrease in gross margins. Gross margins decreased principally due to lower volume and higher logistics costs partially offset by favorable product mix. 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. Additionally, we anticipate a reduction in gross margin for the remainder of the year primarily driven by a shift in product mix.

Research and Development

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 decreased for the three months ended September 30, 2025 against the comparable prior period due to a decrease in personnel-related and operating-related expenses as part of our efforts to manage costs.

Selling, General, and Administrative

Selling, general, and administrative expenses increased for the three months ended September 30, 2025 against the comparable prior period due to expenses incurred associated with the Company entering into the Merger Agreement described above, partially offset by a reduction in personnel-related expenses as part of our efforts to manage costs.

Amortization Expense

Amortization expense decreased compared to the comparable prior year period primarily due to changes in amortization expense to reflect expected cash flows of certain intangible assets, and certain other intangible assets becoming fully amortized, as well as the full impairment of the Epiluvac related intangibles in 2024.

Other Operating Expense (Income), Net

Other operating income decreased compared to the comparable prior year period primarily due to reduction in the expected earn-out payment to the previous shareholders of Epiluvac during the three months ended September 30, 2024.

Interest Income (Expense)

We recorded net interest income of $1.3 million for the three months ended September 30, 2025, compared to net interest income of $0.3 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.

Income Taxes

Our tax expense for the three months ended September 30, 2025, was $1.3 million, compared to $2.7 million of tax expense for the comparable prior period. For the three months ended September 30, 2025, the effective tax rate was lower than the U.S. statutory tax rate primarily relating to tax benefits related to Foreign-Derived Intangible Income and research and development tax credits. For the three months ended September 30, 2024, the effective tax rate was lower than the U.S. statutory tax rate primarily relating to tax benefits related to Foreign-Derived Intangible Income and research and development tax credits.

For the nine months ended September 30, 2025 and 2024

The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for the indicated periods in 2025 and 2024 and the period-over-period dollar and percentage changes for those line items. Our results of operations are reported as one business segment, represented by our single operating segment.

(dollars in thousands)

* Not meaningful

Net Sales

The following is an analysis of sales by market and by region:

(dollars in thousands)

Sales decreased for the nine months ended September 30, 2025 against the comparable prior year period driven by a decrease in sales in the Data Storage and Compound Semiconductor markets, partially offset by an increase in sales in the Semiconductor and Scientific & Other markets. By geography, sales decreased in the United States, China, and the Rest of the World partially offset by increased sales in the Rest of APAC and EMEA regions. Sales in the Rest of APAC region for the nine months ended September 30, 2025 included sales in Taiwan, Japan, and Singapore of $132.9 million, $39.0 million, and $33.1 million, respectively. Sales in the Rest of APAC region for the nine months ended September 30, 2024 included sales in Taiwan and Japan of $90.2 million, and $45.8 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.

Gross Profit

For the nine months ended September 30, 2025, gross profit decreased against the comparable prior period primarily due to a decrease in sales volume, as well as a decrease in gross margins. Gross margins decreased principally due to lower volume and higher logistics costs. 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.

Research and Development

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 decreased for the nine months ended September 30, 2025 against the comparable prior period due to a decrease in personnel-related and operating-related expenses as part of our efforts to manage costs.

Selling, General, and Administrative

Selling, general, and administrative expenses increased for the nine months ended September 30, 2025 against the comparable prior period due to expenses incurred associated with the Company entering into the Merger Agreement described above, partially offset by a reduction in personnel-related expenses as part of our efforts to manage costs.

Amortization Expense

Amortization expense decreased compared to the comparable prior year period primarily due to changes in amortization expense to reflect expected cash flows of certain intangible assets, and certain other intangible assets becoming fully amortized, as well as the full impairment of the Epiluvac related intangibles in 2024.

Other Operating Expense (Income), Net

Other operating income decreased compared to the comparable prior year period primarily due to a reduction in the expected earn-out payment to the previous shareholders of Epiluvac, as well as proceeds from the sale of productive assets during the nine months ended September 30, 2024.

Interest Income (Expense)

We recorded net interest income of $3.1 million for the nine months ended September 30, 2025, compared to net interest income of $1.3 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.

Income Taxes

Our tax expense for the nine months ended September 30, 2025, was $5.2 million, compared to $5.7 million of tax expense for the comparable prior period. For the nine months ended September 30, 2025, the effective tax rate was favorably impacted by tax benefits related to Foreign-Derived Intangible Income and research and development tax credits, partially offset by a discrete income tax expense resulting from the share-based compensation shortfall. For the nine months ended September 30, 2024, the effective tax rate was favorably impacted by tax benefits related to Foreign-Derived Intangible Income and research and development tax credits, as well as a discrete income tax benefit resulting from the share-based compensation windfall.

Liquidity and Capital Resources

Our cash and cash equivalents, restricted cash, and short-term investments are as follows:

(in thousands)

At September 30, 2025 and December 31, 2024, cash and cash equivalents of $36.4 million and $45.1 million, respectively, were held outside the United States. As of September 30, 2025, we had $23.8 million of accumulated undistributed earnings generated by our non-U.S. subsidiaries for which the U.S. tax has previously been provided. Approximately $9.8 million of undistributed earnings will be subject to foreign withholding taxes if distributed back to the United States and we accrued $1.0 million for foreign withholding taxes for the undistributed earnings.

We believe that our projected cash flow from operations, combined with our cash and short-term investments, will be sufficient to meet our projected working capital requirements, contractual obligations, and other cash flow needs for the next twelve months, including scheduled principal and interest payments on our convertible senior notes, purchase commitments, and payments required under our operating leases.

A summary of the cash flow activity for the nine months ended September 30, 2025 and 2024 is as follows:

Cash Flows from Operating Activities

(in thousands)

Net cash provided by operating activities was $44.6 million for the nine months ended September 30, 2025 and was due to net income of $34.3 million and adjustments for non-cash items of $44.3 million, partially offset by a decrease in cash flow from changes in operating assets and liabilities of $34.0 million. The changes in operating assets and liabilities were largely attributable to a decrease in contract liabilities and increases in accounts receivables, and inventories, partially offset by a decrease in prepaid expenses and other current assets.

Cash Flows from Investing Activities

(in thousands)

The cash provided by investing activities during the nine months ended September 30, 2025 was primarily attributable to net cash provided for investment activity, partially offset by capital expenditures. The cash provided by investing activities during the nine months ended September 30, 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.

Cash Flows from Financing Activities

(in thousands)

The cash used in financing activities for the nine months ended September 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. The cash used in financing activities for the nine months ended September 30, 2024 was related to cash used to settle taxes related to employee equity programs and contingent consideration payment related to Epiluvac acquisition, partially offset by cash received under the Employee Stock Purchase Plan.

Convertible Senior Notes

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.

We believe that we have sufficient capital resources and cash flows from operations to support scheduled interest 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 $250 million and extended the maturity until June 16, 2030, subject to a springing maturity date of March 2, 2029. The Company has no immediate plans to draw down on the 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 125 to 200 basis points, if drawn. There is a yearly commitment fee of 20 to 30 basis points, based on the Company’s secured net leverage ratio, charged on the unused portion of the Facility.

In connection with the Merger, the convertible senior notes will be assumed by Axcelis.

Contractual Obligations and Commitments

We have commitments under certain contractual arrangements to make future payments for goods and services. These contractual arrangements secure the rights to various assets and services to be used in the future in the normal course of business. We expect to fund these contractual arrangements with cash generated from operations in the normal course of business.

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates primarily relates to our investment portfolio. We centrally manage our investment portfolios considering investment opportunities and risks, tax consequences, and overall financing strategies. Our investment portfolio includes fixed-income securities with a fair value of approximately $176.1 million at September 30, 2025. These securities are subject to interest rate risk and, based on our investment portfolio at September 30, 2025, a 100 basis point increase in interest rates would result in a decrease in the fair value of the portfolio of $1.2 million. While an increase in interest rates may reduce the fair value of the investment portfolio, we will not realize the losses in the Consolidated Statements of Operations unless the individual fixed-income securities are sold prior to recovery or the loss is determined to be other-than-temporary.

Currency Exchange Risk

We conduct business on a worldwide basis and, as such, a portion of our revenues, earnings, and net investments in foreign affiliates is exposed to changes in currency exchange rates. The economic impact of currency exchange rate movements is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions, and other factors. These changes, if material, could cause us to adjust our financing and operating strategies. Consequently, isolating the effect of changes in currency does not incorporate these other important economic factors.

Changes in currency exchange rates could affect our foreign currency denominated monetary assets and liabilities and forecasted cash flows. We may enter into monthly forward derivative contracts from time to time with the intent of mitigating a portion of this risk. We only use derivative financial instruments in the context of hedging and not for speculative purposes and have not historically designated our foreign exchange derivatives as hedges. Accordingly, changes in fair value from these contracts are recorded as “Other, net” in our Consolidated Statements of Operations. We execute derivative transactions with highly rated financial institutions to mitigate counterparty risk.

Our net sales to customers located outside of the United States represented approximately 84% and 85% of our total net sales for the three and nine months ended September 30, 2025, respectively, 68% and 76% for the comparable 2024 period. We expect that net sales to customers outside the United States will continue to represent a large percentage of our total net sales. Our sales denominated in currencies other than the U.S. dollar represented approximately 3% and 5% of total net sales for the three and nine months ended September 30, 2025, respectively, and 4% for both the comparable 2024 period.

A 10% change in foreign exchange rates would have an immaterial impact on the consolidated results of operations since most of our sales outside the United States are denominated in U.S. dollars.

Evaluation of Disclosure Controls and Procedures

Our principal executive and financial officers have evaluated and concluded that our disclosure controls and procedures are effective as of September 30, 2025. The disclosure controls and procedures are designed to ensure that the information required to be disclosed in this report filed under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our principal executive and financial officers as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2025, there were no changes in internal control that have materially affected or are reasonably likely to materially affect internal control over financial reporting.

Information regarding risk factors appears in the Safe Harbor Statement at the beginning of this quarterly report on Form 10-Q, in Part I — Item 1A of our 2024 Form 10-K and in Item 1A of our quarterly reports on Form 10-Q for quarters ended March 31, 2025 and June 30, 2025. Except as set forth below, there have been no material changes from the risk factors previously disclosed.

Risks Related to the Merger

The Merger is subject to certain closing conditions, including the receipt of consents and approvals from governmental authorities, which may impose unexpected delays in the completion of the Merger, or the Merger may not be completed at all.

The Merger is currently expected to close during the second half of 2026, assuming that all of the conditions in the Merger Agreement are satisfied or waived. The Merger Agreement provides that either we or Axcelis may terminate the Merger Agreement if the Merger has not occurred by September 30, 2026 (subject to automatic extensions until as late as June 30, 2027 under certain conditions with respect to the receipt of regulatory approvals). Certain events may delay the completion of the Merger or result in a termination of the Merger Agreement. Some of these events are outside the control of either party. In particular, completion of the Merger requires the receipt of various government approvals, the expiration or termination of the applicable antitrust waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, and the adoption of the Merger Agreement by our and Axcelis’ respective stockholders at our and Axcelis’ respective special meetings of stockholders.

If the required vote is not obtained at either special meeting (including any adjournment or postponement thereof) at which the Merger has been voted upon, either we or Axcelis may terminate the Merger Agreement. If the Merger Agreement is terminated by Axcelis following a recommendation change of our board of directors, we will be required to pay a termination fee of $77,500,000 to Axcelis. In addition, if the Merger Agreement is terminated by Axcelis as a result of our failure to obtain stockholder approval, or is terminated by Axcelis due to our breach of the Merger Agreement that would result in a failure of an applicable closing condition (subject to the applicable cure period set forth in the Merger Agreement), then the we will be required to pay a fixed expense reimbursement amount of $15,000,000.

We may incur significant additional costs in connection with any delay in completing the Merger or termination of the Merger Agreement, in addition to significant transaction costs, including legal, financial advisory, accounting and other costs we have already incurred. We cannot provide any assurance that the conditions to the completion of the Merger will be satisfied or waived or that any adverse change, effect, event, circumstance, occurrence or state of facts that could give rise to the termination of the Merger Agreement will not occur, and we cannot provide any assurances as to whether or when the Merger will be completed on the terms or timeline set forth in the Merger Agreement or at all.

Failure to complete the Merger in a timely manner or at all could materially and adversely affect our stock price and future business and financial results.

We can provide no assurance that the Merger will occur or that the conditions to the Merger will be satisfied in a timely manner or at all. Also, we can provide no assurance that an event, change or other circumstance that could give rise to the termination of the Merger Agreement will not occur. Delays in completing the Merger or the failure to complete the Merger at all could materially and adversely affect our future business and financial results, and, in that event, the market price of our common stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the Merger will be completed. If the Merger is delayed for any reason, we will be subject to several risks, including the diversion of management focus and resources from operational matters and other strategic opportunities while working to complete the Merger, any of which could materially and adversely affect our business, financial condition, results of operations, cash flows, and stock price.

The pendency of the Merger could materially and adversely affect our business and operations.

In connection with the pending Merger, some of our current or prospective customers, suppliers and other vendors, lenders or other business counterparties may delay or defer decisions concerning their business relationships or transactions with us, which could negatively impact our sales and revenue generation, margins, operating expenses, and profitability, regardless of whether the Merger is completed. In addition, under the Merger Agreement, we are restricted from entering into certain corporate transactions and taking certain other specified actions, and requires that we conduct our business in all material respects in the ordinary course and consistent with past practice until the completion of the Merger or the termination of the Merger Agreement. These restrictions, which could be in place for an extended period of time if the completion of the Merger is delayed, could prevent us from pursuing attractive business opportunities that may arise prior to completion of the Merger or from making appropriate changes to business or organizational structure. This could in turn materially and adversely impact our business, financial condition and results of operations.

The pendency of the Merger may also make it more difficult for us to effectively recruit, retain and incentivize key personnel and may cause distractions from our strategy and day-to-day operations for our current employees and management. Further, uncertainty about the effect of the Merger on our employees may have a material adverse effect on us during the pendency of the Merger, as this uncertainty may impair our ability to retain and motivate key personnel during the pendency of the Merger and the combined company’s ability to retain and motivate them following the Merger. Employee retention may be particularly challenging as our employees may experience frustration during the integration process and uncertainty about their future roles following consummation of the Merger.

Because the consideration to be received by our stockholders in connection with the Merger will include a fixed number of shares of Axcelis common stock, and the market price of such shares has fluctuated and will continue to fluctuate, our stockholders cannot be sure of the value of the consideration they will receive in the Merger.

Under the Merger Agreement, at the effective time of the Merger, each share of Veeco common stock (other than each share of Veeco common stock held in treasury or held or owned by Veeco, Axcelis or Merger Sub immediately prior to the effective time of the Merger) issued and outstanding immediately prior to the effective time of the Merger will be cancelled and converted into the right to receive 0.3575 newly issued shares of Axcelis common stock. The market value of the consideration our stockholders will receive in the Merger will therefore fluctuate with the market price of Axcelis common stock. The implied value of the Merger Consideration has fluctuated since the date of the announcement of the Merger Agreement and will continue to fluctuate until the date the Merger is completed, which could occur a considerable amount of time after the date hereof.

Prior to the completion of the Merger, the market price of Axcelis common stock, along with short selling activity in both our common stock and Axcelis common stock, has and is expected to continue to impact the market price our common stock. The value of the merger consideration to be received by our stockholders has fluctuated since the date of the announcement of the Merger Agreement and will continue to fluctuate until the Merger is completed and thereafter. Accordingly, at the time of our special meeting, our stockholders will not know or be able to determine the market value of the consideration they would receive upon completion of the Merger. Stock price changes may result from a variety of factors, including, among others, interest rates, general market, industry, economic and geopolitical conditions, including the impact of continued inflation and associated changes in monetary policy, short-selling activity, changes in and speculation regarding our and Axcelis’ respective businesses, operations and prospects, market assessments of the likelihood that the Merger will be completed, the timing of the Merger and regulatory considerations. Many of these factors are beyond our and Axcelis’ control.

Under Delaware law, our stockholders are not entitled to an appraisal of the fair value of their shares in connection with the Merger.

Under Delaware law, holders of our common stock are not entitled to an appraisal of the fair value of their shares in connection with the Merger. Appraisal rights are statutory rights that enable stockholders to dissent from certain extraordinary transactions, such as certain mergers, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the applicable transaction. Under Delaware law, appraisal rights are not available for the shares of any class or series if the shares of the class or series are listed on a national securities exchange or held of record by more than 2,000 holders on the record date, unless the stockholders receive in exchange for their shares anything other than shares of stock of the surviving or resulting corporation or of any other corporation that is publicly listed or held by more than 2,000 holders of record, cash proceeds from the sale of fractional shares or fractional depositary receipts or any combination of the foregoing. Our common stock is listed on the Nasdaq, and our stockholders will receive Axcelis common stock pursuant to the Merger Agreement and cash proceeds from the sale of fractional shares.

The market price of Axcelis common stock after the Merger may be affected by factors different from those affecting the market price of our common stock.

Upon completion of the Merger, holders of Veeco common stock will become holders of shares of Axcelis common stock. Our business differs from that of Axcelis in important respects, and, accordingly, the results of operations of Axcelis after the Merger, as well as the market price of Axcelis common stock, may be affected by factors different from those currently affecting our results of operations. Additionally, the market price of Axcelis common stock may fluctuate significantly following completion of the Merger.

Our current stockholders will have a reduced ownership interest and voting power in the combined company after the Merger.

Immediately following the Merger, our pre-Merger stockholders are expected to hold approximately 41.6% of the combined company’s common stock and the pre-Merger stockholders of Axcelis are expected to hold approximately 58.4% of the combined company’s common stock, in each case, calculated on a fully diluted basis.

Our stockholders and Axcelis’ stockholders currently have the right to vote for their respective directors and on certain other matters affecting their respective companies. If and when the Merger occurs, each Veeco stockholder who receives shares of Axcelis common stock will become an Axcelis stockholder with a percentage ownership of Axcelis that will be smaller than the stockholder’s current percentage ownership of Veeco (without considering such stockholder’s current ownership of our common stock, if any). Accordingly, our pre-Merger stockholders will have less voting power in us than they now have in Veeco and will be able to exercise less influence over the management and policies of the combined company following the consummation of the Merger than they are able to exercise over Veeco immediately prior to the consummation of the Merger.

An adverse judgment in a lawsuit challenging the Merger may prevent the Merger from becoming effective or from becoming effective within the expected timeframe.

Our stockholders may file lawsuits challenging the Merger or the other transactions contemplated by the Merger Agreement, which may name us and/or our board of directors as defendants. We cannot provide any assurance as to the outcome of such lawsuits, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. One of the conditions to the completion of the Merger is that no injunction by any governmental entity of competent jurisdiction, such as a court, is in effect that prohibits, restrains or makes illegal the consummation of the Merger. As such, if any future legal actions result in an injunction prohibiting the consummation of the Merger, then such injunction may prevent the consummation of the Merger on the agreed terms, within the expected timeframe or at all, any of which could substantially harm our business. Whether or not any plaintiff’s claim is successful, this type of litigation may result in significant costs and divert management’s attention and resources, which could materially and adversely affect the operation of our business.

We are expected to incur significant costs in connection with the Merger and integration of the two companies, which may be in excess of those anticipated by us.

We have incurred and expect to continue to incur costs associated with negotiating and completing the Merger and combining the operations of the two companies. These costs have been, and will continue to be, substantial. The substantial majority of costs will consist of transaction costs related to the Merger and include, among others, fees paid to financial, legal and accounting advisors, filing fees, and employee retention and other employment-related costs. Many of these costs will be borne by us even if the Merger is not completed.

We will also incur transaction costs related to formulating and implementing integration plans, including facilities, systems and service contract consolidation costs and employment-related costs. We will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the Merger and the integration of the two companies’ businesses. Although we expect that the elimination of duplicative costs, as well as the realization of other synergies related to the integration of the businesses, should allow the combined company to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all. The costs described above, as well as other unanticipated costs and expenses, could materially and adversely affect the results of operations, financial condition and cash flows of the combined company following the completion of the Merger.

The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Merger, which could discourage a potential competing acquiror from making an alternative transaction proposal for greater consideration that what Axcelis has agreed to pay in the Merger.

The Merger Agreement contains provisions that preclude our ability to pursue alternatives to the Merger and require us to refrain from soliciting, initiating or knowingly encouraging or knowingly inducing, or taking any other action intentionally designed to facilitate, any inquiries or the making of any competing proposals from third parties or to engage in discussions or negotiations with third parties regarding any competing proposals, subject to certain exceptions. With respect to any unsolicited written, bona fide acquisition proposal that we receive, if it is deemed to be a superior proposal, Axcelis generally has an opportunity to offer to modify the terms of the Merger Agreement in response to such proposal before our board of directors may withdraw or modify its recommendation to stockholders in response to such acquisition proposal or terminate the Merger Agreement to enter into a definitive agreement with respect to such acquisition proposal. Upon termination of the Merger Agreement under circumstances relating to a superior proposal, we may be required to pay a termination fee of $77,500,000 to Axcelis depending on the circumstances giving rise to the termination, which likely would discourage a potential third-party merger partner from making an alternative transaction proposal, even if it were prepared to pay consideration with a higher value than implied in the Merger, or cause such third-party to propose to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee.

Additionally, if the Merger Agreement is terminated and we determine to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger.

Directors and officers of Veeco may have interests in the Merger that may be different from, or in addition to, those of other our other stockholders, which could have influenced their decisions to support or approve the Merger.

Certain of our directors and officers have interests in the Merger that may differ from, or that are in addition to, their interests as our stockholders. William J. Miller, Ph.D., our Chief Executive Officer and a member of our board of directors, and certain other members of our board of directors, will continue as directors of the combined company after the consummation of the Merger, and will be eligible to be compensated as non-employee directors of the combined company. In addition, Dr. Miller, together with certain other Company officers, will be entitled to cash severance payments, certain health insurance coverage and the acceleration of outstanding equity awards in the event of an involuntary termination in connection with a change of control of Veeco. Our board of directors (except for one (1) independent director who serves on the boards of both Axcelis and Veeco and thus recused himself) were aware of these interests at the time they approved the Merger Agreement. These interests may cause Dr. Miller and certain of our directors and officers to view the Merger differently than you may view it as a stockholder.