Axcelis Q2 2026 Earnings: Revenue Grew as Margins Contracted

Axcelis Technologies (Nasdaq: ACLS) reported Q2 2026 revenue of $215.2 million, up 10.6% year over year from $194.5 million, while GAAP diluted EPS declined to $0.75 from $0.98. Management said stronger system shipments and higher Customer Support and Innovation, or CS&I, volume helped results exceed its forecast. However, lower margins, higher operating expenses, and weaker operating cash flow limited the benefit of the revenue growth.

Core earnings data

Quarterly gross profit increased, but substantially more slowly than revenue, while operating expenses rose 21.5%. That combination pushed GAAP operating income down 30.0% and produced year-over-year declines in both GAAP and non-GAAP earnings.

Axcelis’ non-GAAP results exclude items including stock-based compensation and costs associated with its pending merger with Veeco Instruments.

Business performance

Both reported revenue categories grew, with services recording the faster percentage increase. Management separately identified stronger system shipments and higher CS&I volume as the main operating drivers during the quarter.

Although services revenue grew quickly, service costs exceeded service revenue by approximately $2.3 million, compared with about $0.6 million a year earlier. This widening service gross loss contributed to the pressure on consolidated gross margin.

Revenue growth did not offset margin and expense pressure

The main issue in Q2 was the divergence between revenue and profit. Gross profit rose only 4.4% as revenue increased 10.6%, causing GAAP gross margin to fall from 44.9% to 42.4%. Total operating expenses then increased to $70.9 million from $58.4 million.

General and administrative expense rose about 37.2% to $22.4 million, while sales and marketing expense increased about 30.3% to $19.6 million. Research and development expense grew about 7.1% to $29.0 million. Q2 expenses included $4.8 million of Veeco transaction and integration costs and $6.4 million of stock-based compensation.

The pressure was not limited to those GAAP adjustments. Non-GAAP operating expenses increased 12.8% to $60.4 million, while non-GAAP operating income declined 8.2% to $31.5 million. Non-GAAP operating margin consequently fell to 14.7% from 17.7%.

Cash flow and balance sheet

Operating cash flow fell to $18.4 million from $39.7 million. Net changes in operating assets and liabilities used $15.1 million of cash in Q2 2026, compared with providing $7.8 million in the prior-year quarter. After $3.6 million of capital expenditures and capitalized software costs, approximate free cash flow was $14.8 million, down from $37.7 million.

Axcelis ended June with $155.0 million in cash and cash equivalents, $247.2 million in short-term investments, and $174.8 million in long-term investments, for combined cash and investments of approximately $577.0 million. Inventory increased to $338.2 million from $329.0 million at the end of 2025, while accounts receivable decreased to $154.1 million from $168.5 million.

Q3 2026 guidance

For the quarter ending September 30, 2026, Axcelis expects revenue to rise sequentially by approximately 6.9%. The company also expects modest sequential increases in both GAAP and non-GAAP EPS.

Management also said it now expects Axcelis to deliver year-over-year revenue growth in 2026, with momentum continuing into 2027.

Management’s view

President and CEO Russell Low described Memory demand as robust and said Axcelis was also benefiting from positive momentum in the Power market. In General Mature, the company is seeing improved customer engagement and utilization trends linked to end demand in data center, industrial, and automotive applications.

Interim CFO David Ryzhik said improving systems demand and continued strength in the CS&I aftermarket business should support better financial performance over the remainder of 2026. Axcelis is also working to satisfy the remaining conditions for its pending merger with Veeco, which management expects to close in the second half of 2026.

Recent insider transactions

The supplied insider data shows purchases of 83,663 shares across 15 transactions and sales of 40,338 shares across 20 transactions during the latest six-month period, resulting in net purchases of 43,325 shares. However, the 10 most recently reported individual transactions were all sales; this pattern alone does not establish insiders’ view of the company’s outlook.

Risks investors should monitor

• Margin recovery: GAAP and non-GAAP gross margins both contracted by 250 basis points, while the reported service gross loss widened. Continued revenue growth may not translate into comparable profit growth if this pressure persists.
• Operating expense growth: Total operating expenses increased faster than revenue. Non-GAAP operating expenses also rose, indicating that the pressure extended beyond merger costs and stock-based compensation.
• Cash conversion: Operating cash flow declined 53.8% as changes in operating assets and liabilities consumed cash. Inventory also increased from year-end levels.
• Demand and shipment timing: Axcelis identified customer ordering decisions, shipment timing, order conversion, and continuity with major customers as factors that can affect quarterly results.
• Veeco transaction and cost exposure: The pending merger remains subject to closing conditions and generated $4.8 million of Q2 transaction and integration expense. Tariffs, production costs, competition, and pricing pressure could create additional execution risk.

Summary

Axcelis delivered double-digit Q2 revenue growth as stronger system shipments and CS&I activity supported demand, but gross-margin compression and faster operating-expense growth caused earnings to decline. Q3 guidance points to further sequential revenue growth, while the main issues to monitor are margin recovery, cash conversion, demand across Memory, Power, and General Mature markets, and execution of the pending Veeco merger.