| | Delaware
|
| 11-2989601 | (State or Other Jurisdiction of Incorporation or Organization) | | 11-2989601
(I.R.S. Employer Identification No.)
|
| | | Terminal Drive
Plainview, New York
| | 11803 | (Address of Principal Executive Offices) | | 11803
(Zip Code)
|
Registrant’s telephone number, including area code: (516) (516) 677-0200
Securities registered pursuant to Section 12(b) of the Act: | | | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | Common Stock, par value $0.01 per share | VECO | The NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o◻ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x.Yes ☒ No o◻ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | | | | | Large accelerated filero☒ | | Accelerated filer x
| Non-accelerated filero (Do not check if a smaller reporting company)
| | Accelerated filer ☐ | Non-accelerated filer ☐ | | | | Smaller reporting company o☐ | | | | | Emerging growth company o☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒ Indicate the numberAs of August 1, 2023, there were 56,345,525 shares outstanding of each of the issuer’s classes ofregistrant’s common stock asoutstanding.
VEECO INSTRUMENTS INC. INDEX Title of Class
|
| Shares Outstanding
| Common Stock
| | as of October 25, 2017
| par value $0.01 per share
| | 48,301,909
|
Safe Harbor Statement This quarterly report on Form 10-Q (the “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Discussions containing such forward-looking statements may be found in Part I - Items 1, 2, and 3 hereof, as well as within this Report generally. In addition, when used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “targets,” “plans,” “intends,” “will,” and similar expressions related to the future are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. In addition, the preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates and assumptions are based on knowledge of current events, including the potential impact of the COVID-19 pandemic on our business, and planned actions to be undertaken in the future, they may ultimately differ from actual results. Operating results for the ninethree and six months ended SeptemberJune 30 2017, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 2023. All estimates and assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from these estimates and assumptions. The risks and uncertainties of Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco,” the “Company,” “we,” “us,” and “our,” unless the context indicates otherwise) include, without limitation, those set forth under the following: · Unfavorable market conditions may adversely affect our operating results;
· A reduction or elimination of foreign government subsidies and economic incentives may adversely affect the future order rate for our MOCVD equipment;
· The cyclicality of the industries we serve directly affects our business;
· We operateheading “Risk Factors” in industries characterized by rapid technological change;
· We have a concentrated customer base, located primarily in a limited number of regions, which operate in highly concentrated industries;
· We face significant competition;
· The timingPart 1, Item 1A of our orders, shipments,2022 Form 10-K, and revenue recognition may cause our quarterly operating resultsthe following:
Risks Related to fluctuate significantly;Our Business and Industry | ● | Changes in U.S. trade policy and export controls and ongoing trade disputes between the U.S. and China have adversely affected, and may continue to adversely affect, our business, results of operations, and financial condition; |
| ● | Unfavorable market conditions have adversely affected, and may continue to adversely affect, our operating results; |
| ● | We face significant competition; |
| ● | We operate in industries characterized by rapid technological change; |
| ● | Certain of our sales are dependent on the demand for consumer electronic products and automobiles, which can experience significant volatility; |
| ● | The effects of the COVID-19 pandemic have strained and have negatively impacted our businesses and operations, and the duration and extent to which COVID-19 may impact our future results of operations and overall financial performance remains uncertain; |
| ● | We have a concentrated customer base, located primarily in a limited number of regions, which operates in highly concentrated industries; |
| ● | The cyclicality of the industries we serve directly affects our business; |
| ● | Our failure to estimate customer demand accurately could result in inventory obsolescence, liabilities to our suppliers for products no longer needed, and manufacturing interruptions or delays which could affect our ability to meet customer demand; |
| ● | We rely on a limited number of suppliers, some of whom are our sole source for particular components; |
| ● | Our failure to successfully manage our outsourcing activities or failure of our outsourcing partners to perform as anticipated could adversely affect our results of operations; |
| ● | The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to fluctuate significantly; |
| ● | Our sales cycle is long and unpredictable; |
| ● | Our backlog is subject to customer cancellation or modification which could result in decreased sales, increased inventory obsolescence, and liabilities to our suppliers for products no longer needed; |
| ● | We are exposed to risks associated with business combinations, acquisitions, strategic investments and divestitures; |
· Our sales cycle is longRisks Associated with Operating a Global Business
| ● | We are exposed to risks of operating businesses outside the United States; |
| ● | We may be unable to obtain required export licenses for the sale of our products; |
| ● | We are exposed to various risks associated with global regulatory requirements; |
Risks Related to Intellectual Property and unpredictable;Cybersecurity | ● | Disruptions in our information technology systems or data security incidents could result in significant financial, legal, regulatory, business, and reputational harm to us; |
| ● | We may be unable to effectively enforce and protect our intellectual property rights; |
| ● | We may be subject to claims of intellectual property infringement by others; |
· Our backlog is subject to customer cancellation or modification which could result in decreased sales, increased inventory obsolescence, and/or liabilities to our suppliers for products no longer needed;Financial, Accounting, and Capital Markets Risks
| ● | Our operating results may be adversely affected by tightening credit markets; |
| ● | We are subject to foreign currency exchange risks; |
| ● | We may be required to take impairment charges on assets; |
| ● | Changes in accounting pronouncements or taxation rules, practices, or rates may adversely affect our financial results; |
| ● | The agreements governing our current debt facilities, including our 3.50% Convertible Senior Notes due 2025 (the “2025 Notes”), our 3.75% Convertible Senior Notes due 2027 (the “2027 Notes”), and our 2.875% Convertible Senior Notes due 2029 (the “2029 Notes”) (the 2025 Notes, 2027 Notes, and 2029 Notes, together, the “Notes”), and our revolving credit facility (the “Credit Facility”), contains certain restrictions, covenants and repurchase provisions that may limit our ability to raise the funds necessary to meet our working capital needs, which may include the cash conversion of the Notes or repurchase of the Notes for cash upon a fundamental change; |
| ● | Issuance of our common stock, if any, upon conversion of the Notes, as well as the capped call transactions and the hedging activities of the option counterparties, may impair or reduce our ability to utilize our foreign tax credits or our research and development credits carryforwards in the future; |
| ● | The capped call transactions may affect the value of the 2027 Notes and our common stock; |
· Our failure to estimate customer demand accurately could result in inventory obsolescence, liabilities to our suppliers for products no longer needed, and/or manufacturing interruptions or delays which could affect our ability to meet customer demand;General Risk Factors
| ● | The price of our common shares is volatile and could decrease; |
· Our failure to successfully manage our outsourcing activities or failure of our outsourcing partners to perform as anticipated could adversely affect our results of operations and our ability to adapt to fluctuating order volumes;
| ● | Our inability to attract, retain, and motivate employees could have a material adverse effect on our business; |
| ● | We are subject to risks of non-compliance with environmental, health, and safety regulations and sustainability requirements; |
· We rely on a limited number of suppliers, some of whom are our sole source for particular components;
| ● | We are exposed to risks associated with the increased attention by our stakeholders to environmental, social and governance (“ESG”) matters; and |
| ● | We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our Company by another company more difficult. |
· Our inability to attract, retain, and motivate employees could have a material adverse effect on our business;
· Our acquisition strategy subjects us to risks associated with evaluating and pursuing these opportunities and integrating these businesses;
· Timing of market adoption of LED technology for general lighting is uncertain;
· Our sales to manufacturers are highly dependent on sales of consumer electronics applications, which can experience significant volatility due to seasonal and other factors and materially adversely impact our future results of operations;
· Our operating results have been, and may continue to be, adversely affected by tightening credit markets;
· We are exposed to the risks of operating a global business, including the need to obtain export licenses for certain of our shipments and political risks in the countries we operate;
· We may be exposed to liabilities under the Foreign Corrupt Practices Act and any determination that we violated these or similar laws could have a material adverse effect on our business;
· We are subject to internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act and any delays or difficulty in satisfying these requirements or negative reports concerning our internal controls could adversely affect our future results of operations and our stock price;
· Changes in accounting pronouncements or taxation rules or practices may adversely affect our financial results;
· Our income taxes can change;
· We may be required to take additional impairment charges on assets;
· We have indebtedness in the form of convertible senior notes which could adversely affect our financial position, prevent us from implementing our strategy, and dilute the ownership interest of our existing shareholders;
· The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Senior Notes, could have a material effect on our reported financial results;
· The price of our common shares is volatile and could decline significantly;
· The enforcement and protection of our intellectual property rights may be expensive and/or divert our limited resources;
· We may be subject to claims of intellectual property infringement by others;
· We are subject to foreign currency exchange risks;
· If we are subject to cyber-attacks we could incur substantial costs and, if such attacks are successful, we could incur significant liabilities, reputational harm, and disruption to our operations;
· We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our Company by another company more difficult;
· We are subject to risks of non-compliance with environmental, health, and safety regulations;
· Regulations related to conflict minerals will force us to incur additional expenses, may make our supply chain more complex, and may result in damage to our relationships with customers;
· We have significant operations in locations which could be materially and adversely impacted in the event of a natural disaster, an act of terrorism or other significant disruption; and
· We may not be able to successfully integrate the business of Ultratech with our own or realize the anticipated benefits of the merger.
Consequently, such forward looking statements and estimates should be regarded solely as the current plans and beliefs of Veeco. We do not undertake any obligation to update any forward looking statements to reflect future events or circumstances after the date of such statements. PART I—I—FINANCIAL INFORMATION Item 1. Financial Statements Veeco Instruments Inc. and Subsidiaries Consolidated Balance Sheets (in thousands, except share amounts) | | | | | | | | | June 30, | | December 31, | | | 2023 | | 2022 | Assets | | (unaudited) | | | | Current assets: | | | | | | | Cash and cash equivalents | | $ | 180,524 | | $ | 154,925 | Restricted cash | | | 437 | | | 547 | Short-term investments | | | 105,875 | | | 147,488 | Accounts receivable, net | | | 130,140 | | | 124,221 | Contract assets | | | 20,490 | | | 16,507 | Inventories | | | 244,470 | | | 206,908 | Prepaid expenses and other current assets | | | 27,218 | | | 18,305 | Total current assets | | | 709,154 | | | 668,901 | Property, plant, and equipment, net | | | 111,993 | | | 107,281 | Operating lease right-of-use assets | | | 25,611 | | | 26,467 | Intangible assets, net | | | 48,192 | | | 23,887 | Goodwill | | | 214,964 | | | 181,943 | Deferred income taxes | | | 115,314 | | | 116,349 | Other assets | | | 3,219 | | | 3,355 | Total assets | | $ | 1,228,447 | | $ | 1,128,183 | | | | | | | | Liabilities and stockholders' equity | | | | | | | Current liabilities: | | | | | | | Accounts payable | | $ | 63,212 | | $ | 52,049 | Accrued expenses and other current liabilities | | | 61,823 | | | 56,031 | Customer deposits and deferred revenue | | | 156,700 | | | 127,223 | Income taxes payable | | | 563 | | | 2,432 | Current portion of long-term debt | | | — | | | 20,169 | Total current liabilities | | | 282,298 | | | 257,904 | Deferred income taxes | | | 6,878 | | | 1,285 | Long-term debt | | | 274,335 | | | 254,491 | Long-term operating lease liabilities | | | 32,838 | | | 33,581 | Other liabilities | | | 19,498 | | | 3,098 | Total liabilities | | | 615,847 | | | 550,359 | Stockholders' equity: | | | | | | | Preferred stock, $0.01 par value; 500,000 shares authorized; no shares issued and outstanding. | | | — | | | — | Common stock, $0.01 par value; 120,000,000 shares authorized; 56,337,933 shares issued and outstanding at June 30, 2023 and 51,660,409 shares issued and outstanding at December 31, 2022 | | | 564 | | | 517 | Additional paid-in capital | | | 1,189,051 | | | 1,078,180 | Accumulated deficit | | | (578,380) | | | (501,801) | Accumulated other comprehensive income | | | 1,365 | | | 928 | Total stockholders' equity | | | 612,600 | | | 577,824 | Total liabilities and stockholders' equity | | $ | 1,228,447 | | $ | 1,128,183 |
| | September 30, | | December 31, | | | | 2017 | | 2016 | | | | (unaudited) | | | | Assets | | | | | | Current assets: | | | | | | Cash and cash equivalents | | $ | 235,268 | | $ | 277,444 | | Short-term investments | | 85,853 | | 66,787 | | Accounts receivable, net | | 113,795 | | 58,020 | | Inventories | | 113,681 | | 77,063 | | Deferred cost of sales | | 17,594 | | 6,160 | | Prepaid expenses and other current assets | | 36,396 | | 16,034 | | Total current assets | | 602,587 | | 501,508 | | Property, plant and equipment, net | | 84,403 | | 60,646 | | Intangible assets, net | | 383,596 | | 58,378 | | Goodwill | | 308,529 | | 114,908 | | Deferred income taxes | | 2,528 | | 2,045 | | Other assets | | 25,263 | | 21,047 | | Total assets | | $ | 1,406,906 | | $ | 758,532 | | | | | | | | Liabilities and stockholders’ equity | | | | | | Current liabilities: | | | | | | Accounts payable | | $ | 53,716 | | $ | 22,607 | | Accrued expenses and other current liabilities | | 65,728 | | 33,201 | | Customer deposits and deferred revenue | | 107,636 | | 85,022 | | Income taxes payable | | 4,171 | | 2,311 | | Current portion of long-term debt | | — | | 368 | | Total current liabilities | | 231,251 | | 143,509 | | Deferred income taxes | | 46,268 | | 13,199 | | Long-term debt | | 272,825 | | 826 | | Other liabilities | | 11,033 | | 6,403 | | Total liabilities | | 561,377 | | 163,937 | | Stockholders’ equity: | | | | | | Preferred stock, $0.01 par value; 500,000 shares authorized; no shares issued and outstanding | | — | | — | | Common stock, $0.01 par value; 120,000,000 shares authorized; 48,294,284 and 40,714,790 shares issued at September 30, 2017 and December 31, 2016, respectively; 48,294,284 and 40,588,194 shares outstanding at September 30, 2017 and December 31, 2016, respectively. | | 483 | | 407 | | Additional paid-in capital | | 1,050,994 | | 763,303 | | Accumulated deficit | | (207,760 | ) | (168,583 | ) | Accumulated other comprehensive income | | 1,812 | | 1,777 | | Treasury stock, at cost, 126,596 shares at December 31, 2016. | | — | | (2,309 | ) | Total stockholders’ equity | | 845,529 | | 594,595 | | Total liabilities and stockholders’ equity | | $ | 1,406,906 | | $ | 758,532 | |
See accompanying Notes to the Consolidated Financial Statements.Statements. Veeco Instruments Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) | | Three months ended September 30, | | Nine months ended September 30, | | | | 2017 | | 2016 | | 2017 | | 2016 | | Net sales | | $ | 131,872 | | $ | 85,482 | | $ | 341,324 | | $ | 238,842 | | Cost of sales | | 78,811 | | 52,027 | | 215,344 | | 141,991 | | Gross profit | | 53,061 | | 33,455 | | 125,980 | | 96,851 | | Operating expenses, net: | | | | | | | | | | Research and development | | 24,061 | | 19,892 | | 57,669 | | 63,545 | | Selling, general, and administrative | | 29,771 | | 18,396 | | 71,574 | | 58,230 | | Amortization of intangible assets | | 12,500 | | 5,261 | | 21,722 | | 15,785 | | Restructuring | | 5,010 | | 1,798 | | 9,605 | | 3,993 | | Acquisition costs | | 783 | | — | | 16,277 | | — | | Asset impairment | | 2 | | 56,035 | | 1,139 | | 69,662 | | Other, net | | (140 | ) | 795 | | (228 | ) | 884 | | Total operating expenses, net | | 71,987 | | 102,177 | | 177,758 | | 212,099 | | Operating income (loss) | | (18,926 | ) | (68,722 | ) | (51,778 | ) | (115,248 | ) | Interest income | | 357 | | 283 | | 1,933 | | 879 | | Interest expense | | (5,105 | ) | (23 | ) | (14,301 | ) | (166 | ) | Income (loss) before income taxes | | (23,674 | ) | (68,462 | ) | (64,146 | ) | (114,535 | ) | Income tax expense (benefit) | | (1,790 | ) | 1,136 | | (24,969 | ) | 2,677 | | Net income (loss) | | $ | (21,884 | ) | $ | (69,598 | ) | $ | (39,177 | ) | $ | (117,212 | ) | | | | | | | | | | | Income (loss) per common share: | | | | | | | | | | Basic | | $ | (0.47 | ) | $ | (1.78 | ) | $ | (0.91 | ) | $ | (2.99 | ) | Diluted | | $ | (0.47 | ) | $ | (1.78 | ) | $ | (0.91 | ) | $ | (2.99 | ) | | | | | | | | | | | Weighted average number of shares: | | | | | | | | | | Basic | | 46,941 | | 39,131 | | 43,100 | | 39,193 | | Diluted | | 46,941 | | 39,131 | | 43,100 | | 39,193 | |
See accompanying Notes to the Consolidated Financial Statements.
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
| | Three months ended September 30, | | Nine months ended September 30, | | | | 2017 | | 2016 | | 2017 | | 2016 | | Net income (loss) | | $ | (21,884 | ) | $ | (69,598 | ) | $ | (39,177 | ) | $ | (117,212 | ) | Other comprehensive income, net of tax | | | | | | | | | | Unrealized gain (loss) on available-for-sale securities | | 70 | | (7 | ) | 10 | | 32 | | Minimum pension liability | | — | | 866 | | — | | 866 | | Foreign currency translation | | 1 | | (7 | ) | 25 | | 20 | | Total other comprehensive income, net of tax | | 71 | | 852 | | 35 | | 918 | | | | | | | | | | | | Comprehensive income (loss) | | $ | (21,813 | ) | $ | (68,746 | ) | $ | (39,142 | ) | $ | (116,294 | ) |
See accompanying Notes to the Consolidated Financial Statements.
| | | | | | | | | | | | | | | | Three months ended June 30, | | Six months ended June 30, | | | | 2023 | | 2022 | | 2023 | | 2022 | | Net sales | | $ | 161,641 | | $ | 163,999 | | $ | 315,145 | | $ | 320,425 | | Cost of sales | | | 94,131 | | | 99,732 | | | 185,618 | | | 190,146 | | Gross profit | | | 67,510 | | | 64,267 | | | 129,527 | | | 130,279 | | Operating expenses, net: | | | | | | | | | | | | | | Research and development | | | 27,384 | | | 26,016 | | | 54,945 | | | 50,133 | | Selling, general, and administrative | | | 23,822 | | | 22,950 | | | 46,449 | | | 45,844 | | Amortization of intangible assets | | | 2,123 | | | 2,505 | | | 4,235 | | | 5,009 | | Other operating expense (income), net | | | 493 | | | (27) | | | 404 | | | (47) | | Total operating expenses, net | | | 53,822 | | | 51,444 | | | 106,033 | | | 100,939 | | Operating income | | | 13,688 | | | 12,823 | | | 23,494 | | | 29,340 | | Interest income | | | 2,420 | | | 213 | | | 4,494 | | | 302 | | Interest expense | | | (3,052) | | | (2,848) | | | (5,928) | | | (5,740) | | Other income (expense), net | | | (97,091) | | | — | | | (97,091) | | | — | | Income (loss) before income taxes | | | (84,035) | | | 10,188 | | | (75,031) | | | 23,902 | | Income tax expense (benefit) | | | 1,285 | | | 533 | | | 1,548 | | | 917 | | Net income (loss) | | $ | (85,320) | | $ | 9,655 | | $ | (76,579) | | $ | 22,985 | | | | | | | | | | | | | | | | Income (loss) per common share: | | | | | | | | | | | | | | Basic | | $ | (1.61) | | $ | 0.19 | | $ | (1.48) | | $ | 0.46 | | Diluted | | $ | (1.61) | | $ | 0.18 | | $ | (1.48) | | $ | 0.43 | | | | | | | | | | | | | | | | Weighted average number of shares: | | | | | | | | | | | | | | Basic | | | 52,861 | | | 49,697 | | | 51,764 | | | 49,702 | | Diluted | | | 52,861 | | | 59,455 | | | 51,764 | | | 59,521 | |
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | Nine months ended September 30, | | | | 2017 | | 2016 | | Cash Flows from Operating Activities | | | | | | Net income (loss) | | $ | (39,177 | ) | $ | (117,212 | ) | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | Depreciation and amortization | | 32,295 | | 26,010 | | Non-cash interest expense | | 7,641 | | — | | Deferred income taxes | | (21,235 | ) | 1,529 | | Share-based compensation expense | | 19,976 | | 12,133 | | Asset impairment | | 1,139 | | 69,662 | | Provision for bad debts | | 99 | | 160 | | Changes in operating assets and liabilities: | | | | | | Accounts receivable | | (10,409 | ) | (1,184 | ) | Inventories and deferred cost of sales | | 9,486 | | (10,909 | ) | Prepaid expenses and other current assets | | (331 | ) | 3,661 | | Accounts payable and accrued expenses | | 3,165 | | (13,995 | ) | Customer deposits and deferred revenue | | 17,779 | | 3,568 | | Income taxes receivable and payable, net | | (16 | ) | — | | Long-term income tax liability | | (4,877 | ) | 80 | | Other, net | | (259 | ) | 2,189 | | Net cash provided by (used in) operating activities | | 15,276 | | (24,308 | ) | | | | | | | Cash Flows from Investing Activities | | | | | | Acquisitions of businesses, net of cash acquired | | (399,478 | ) | — | | Capital expenditures | | (17,403 | ) | (10,717 | ) | Proceeds from the sale of investments | | 307,757 | | 131,297 | | Payments for purchases of investments | | (279,945 | ) | (78,376 | ) | Proceeds from held for sale assets | | 2,284 | | 693 | | Other | | — | | (230 | ) | Net cash provided by (used in) investing activities | | (386,785 | ) | 42,667 | | | | | | | | Cash Flows from Financing Activities | | | | | | Proceeds (net of tax withholdings) from option exercises and employee stock purchase plan | | 2,546 | | 1,192 | | Restricted stock tax withholdings | | (7,797 | ) | (1,184 | ) | Purchases of common stock | | — | | (13,349 | ) | Proceeds from long-term debt borrowings | | 335,752 | | — | | Principal payments on long-term debt | | (1,193 | ) | (252 | ) | Net cash provided by (used in) financing activities | | 329,308 | | (13,593 | ) | | | | | | | Effect of exchange rate changes on cash and cash equivalents | | 25 | | 20 | | Net increase (decrease) in cash and cash equivalents | | (42,176 | ) | 4,786 | | Cash and cash equivalents - beginning of period | | 277,444 | | 269,232 | | | | $ | 235,268 | | $ | 274,018 | | | | | | | | Supplemental Disclosure of Cash Flow Information | | | | | | Interest paid | | $ | 4,667 | | $ | 179 | | Income taxes paid | | 1,767 | | 1,456 | | Non-cash operating and financing activities | | | | | | Net transfer of inventory to property, plant and equipment | | 33 | | — | |
See accompanying Notes to the Consolidated Financial Statements. Veeco Instruments Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (in thousands) (unaudited) | | | | | | | | | | | | | | | | Three months ended June 30, | | Six months ended June 30, | | | | 2023 | | 2022 | | 2023 | | 2022 | | Net income (loss) | | $ | (85,320) | | $ | 9,655 | | $ | (76,579) | | $ | 22,985 | | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | Unrealized gain (loss) on available-for-sale securities | | | — | | | (224) | | | 470 | | | (1,043) | | Change in currency translation adjustments | | | (39) | | | (48) | | | (33) | | | (51) | | Total other comprehensive income (loss), net of tax | | | (39) | | | (272) | | | 437 | | | (1,094) | | | | | | | | | | | | | | | | Total comprehensive income (loss) | | $ | (85,359) | | $ | 9,383 | | $ | (76,142) | | $ | 21,891 | |
See accompanying Notes to the Consolidated Financial Statements. Veeco Instruments Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) (unaudited) | | | | | | | | | | Six months ended June 30, | | | | 2023 | | 2022 | | Cash Flows from Operating Activities | | | | | | | | Net income (loss) | | $ | (76,579) | | $ | 22,985 | | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | | Depreciation and amortization | | | 12,435 | | | 12,749 | | Non-cash interest expense | | | 514 | | | 477 | | Deferred income taxes | | | 778 | | | (18) | | Share-based compensation expense | | | 14,959 | | | 10,759 | | Loss on extinguishment of debt | | | 97,091 | | | — | | Provision for bad debts | | | 490 | | | — | | Changes in operating assets and liabilities: | | | | | | | | Accounts receivable and contract assets | | | (10,145) | | | (16,346) | | Inventories | | | (44,540) | | | (5,873) | | Prepaid expenses and other current assets | | | (5,633) | | | 8,231 | | Accounts payable and accrued expenses | | | 9,099 | | | (17,613) | | Customer deposits and deferred revenue | | | 29,048 | | | 11,424 | | Income taxes receivable and payable, net | | | (1,869) | | | (263) | | Other, net | | | (513) | | | 1,657 | | Net cash provided by (used in) operating activities | | | 25,135 | | | 28,169 | | | | | | | | | | Cash Flows from Investing Activities | | | | | | | | Capital expenditures | | | (10,836) | | | (15,420) | | Acquisition of businesses, net of cash acquired | | | (30,373) | | | — | | Proceeds from the sale of investments | | | 112,895 | | | 23,335 | | Payments for purchases of investments | | | (69,320) | | | (33,876) | | Net cash provided by (used in) investing activities | | | 2,366 | | | (25,961) | | | | | | | | | | Cash Flows from Financing Activities | | | | | | | | Proceeds from issuance of 2029 Notes, net of issuance costs | | | 223,202 | | | — | | Extinguishment of Convertible Notes | | | (218,991) | | | — | | Proceeds (net of tax withholdings) from option exercises and employee stock purchase plan | | | 2,619 | | | 2,129 | | Restricted stock tax withholdings | | | (8,801) | | | (7,115) | | Net cash provided by (used in) financing activities | | | (1,971) | | | (4,986) | | Effect of exchange rate changes on cash and cash equivalents | | | (41) | | | (51) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | | | 25,489 | | | (2,829) | | Cash, cash equivalents, and restricted cash - beginning of period | | | 155,472 | | | 120,472 | | Cash, cash equivalents, and restricted cash - end of period | | $ | 180,961 | | $ | 117,643 | | | | | | | | | | Supplemental Disclosure of Cash Flow Information | | | | | | | | Interest paid | | $ | 6,628 | | $ | 5,037 | | Income taxes paid | | | 2,983 | | | 1,083 | | Non-cash activities | | | | | | | | Capital expenditures included in accounts payable and accrued expenses | | | 3,938 | | | 6,464 | | Net transfer of inventory to property, plant and equipment | | | 4,328 | | | 237 | | Right-of-use assets obtained in exchange for lease obligations | | | 630 | | | 258 | |
See accompanying Notes to the Consolidated Financial Statements. Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements (unaudited) Note 1 -— Basis of Presentation The accompanying unaudited Consolidated Financial Statements of Veeco have been prepared in accordance with U.S. GAAP as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 270 for interim financial information and with the instructions to Rule 10-01 of Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements as the interim information is an update of the information that was presented in Veeco’s most recent annual financial statements. For further information, refer to Veeco’s Consolidated Financial Statements and Notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 20162022 (“20162022 Form 10-K”). In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal, recurring nature. Certain amounts previously reported have been reclassified in the financial statements to conform to the current presentation. Veeco reports interim quarters on a 13-week basis ending on the last Sunday of each quarter. The fourth quarter always ends on the last day of the calendar year, December 31. The 20172023 interim quarters end on April 2, July 2, and October 1, and the 20162022 interim quarters ended on April 3, July 3, and October 2. These interim quarters are reported as March 31, June 30, and September 30 in Veeco’s interim consolidated financial statements. The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, actual results may differ from these estimates. Revenue recognitionRecognition Veeco recognizes revenue when allRevenue is recognized upon the transfer of control of the following criteria have been met: persuasive evidencepromised product or service to the customer in an amount that reflects the consideration the Company expects to receive in exchange for such product or service. The Company’s contracts with customers generally do not contain variable consideration. In the rare instances where variable consideration is included, the Company estimates the amount of an arrangement exists withvariable consideration and determines what portion of that, if any, has a customer; deliveryhigh probability of significant subsequent revenue reversal, and if so, that amount is excluded from the specified products has occurred or services have been rendered; prices are contractually fixed or determinable; and collectability is reasonably assured. Revenue is recorded including shipping and handling costs and excluding applicable taxes related to sales.
Contractstransaction price. The Company’s contracts with customers frequently contain multiple deliverables,, such as systems, upgrades, components, spare parts, installation, maintenance, and service plans.plans. Judgment is required to properly identify the accounting units of the multiple-element arrangementsperformance obligations within a contract and to determine how the revenue should be allocated among the accounting units. Veecoperformance obligations. The Company also evaluates whether multiple transactions with the same customer or related parties should be considered part of a single multiple-element arrangementcontract based on an assessment of whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of one another. Moreover, judgment is used in interpreting the commercial terms and determining when all criteria have been met in order to recognize revenue in the appropriate accounting period.
When there are separate units of accounting, Veecothe Company allocates revenue to each elementperformance obligation on a relative stand-alone selling price basis. The stand-alone selling prices are determined based on the followingprices at which the Company separately sells the systems, upgrades, components, spare parts, installation, maintenance, and service plans. For items that are not sold separately, the Company estimates stand-alone selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available; third party evidence (“TPE”) if VSOE is not available; or the best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. Veeco uses BESP for the elements in its arrangements. The maximum revenue recognized on a delivered element is limited to the amount that is not contingent upon the delivery of additional items.prices generally using an expected cost plus margin approach. VeecoMost of the Company’s revenue is recognized at a point in time when the performance obligation is satisfied. The Company considers many facts when evaluating each of its sales arrangements to determine the timing of revenue recognition, including its contractual obligations the customer’s creditworthiness, and the nature of the customer’s post-delivery acceptance provisions. Veeco’sThe Company’s system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For the majoritymany of thethese arrangements, a customer source inspection of the system is performed in Veeco’sthe Company’s facility, or test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery.delivery, or other quality assurance testing is performed
Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) internally to ensure system functionality prior to shipment. Historically, such source inspection or test data replicates the field acceptance provisions that are performed at the customer’s site prior to final acceptance of the system. When Veecothe Company objectively demonstrates that the criteria specified in the contractual acceptance provisions are achieved prior to delivery either through customer testing or the Company’s historical experience of its tools meeting specifications, transfer of control of the product to the customer is considered to have occurred and revenue is recognized upon system delivery since there is no substantive contingency remaining related to the acceptance provisions at that date, subject to the retention amount constraint described below for certain contracts.date. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where Veecothe Company cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferreddeferred. The Company recognizes such revenue and fully recognizedcosts upon obtaining objective evidence that the receipt of customer acceptance provisions can be achieved, assuming all other revenue recognition criteria have been met. The Company’s system sales arrangements, including certain upgrades, generally do not contain provisions for the right of return, forfeiture, refund, or other purchase price concession. In the rare instances where such provisions are included, all revenue is deferred until such rights expire. The sales arrangements generally include installation. The installation process is not deemed essential to the functionality of the equipment since it is not complex; it does not require significant changes to the features or capabilities of the equipment or involve constructing elaborate interfaces or connections subsequent to factory acceptance. Veeco has a demonstrated history of consistently completing installations in a timely manner and can reliably estimate the costs of such activities. Most customers engage Veeco to perform the installation services, although there are other third-party providers with sufficient knowledge who could complete these services. Based on these factors, installation is deemed to be inconsequential or perfunctory relative to the system sale as a whole, and as a result, installation service is not considered a separate element of the arrangement. As such, Veeco records the cost of the installation at the earlier of the time of revenue recognition for the system or when installation services are performed.
In certain cases Veeco’s products are soldthe Company’s contracts with customers contain a billing retention, typically 10% of the sales price, which is billed by Veecothe Company and payable by the customer when field acceptance provisions are completed. The amountRevenue recognized in advance of revenue recognized upon delivery of a system or upgrade, if any, is limited to the lower of i) the amount that has been billed that is not contingent upon acceptance provisions or ii)recorded as a contract asset on the value of the arrangement consideration allocated to the delivered elements, if such sale is part of a multiple-element arrangement.Consolidated Balance Sheets. The Company recognizes revenue related to maintenance and service contracts ratably over time based upon the applicablerespective contract term. VeecoInstallation revenue is recognized over time as the installation services are performed. The Company recognizes revenue from the sales of components, spare parts, and specified service engagements at a point in time, which is typically consistent with the time of delivery in accordance with the terms of the applicable sales arrangement. The Company may receive customer deposits on system transactions. The timing of the transfer of goods or services related to the deposits is either at the discretion of the customer or generally expected to be within one year from the deposit receipt. As such, the Company does not adjust transaction prices for the time value of money. Incremental direct costs incurred related to the acquisition of a customer contract, such as sales commissions, are expensed as incurred even ifsince the related revenueexpected amortization period is deferred in accordance with the above policy.one year or less. Recent accounting pronouncements
The FASB issued ASU 2014-09, as amended: Revenue from Contracts with Customers, which has been codified as Accounting Standards Codification 606 (“ASC 606”). ASC 606 requires the Company’s revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. ASC 606 outlines a five-step model to make the revenue recognition determination and requires new financial statement disclosures. Publicly-traded companies are required to adopt ASC 606 for reporting periods beginning after December 15, 2017. The Company is still completing its evaluation of the impact of adopting this standard; however, the Company currently expects the most significant financial statement impacts of adopting ASC 606 will be the elimination of the constraint on revenue associated with the billing retention relatedhas elected to the receipt of customer final acceptance as well as the identification of installation servicestreat shipping and handling costs as a performance obligation. The elimination of the constraint on revenue related to customer final acceptance, which is usually about 10 percent of a system sale, will generally be recognized at the time the Company transfers control of the system to the customer, which is earlier than under the Company’s current revenue recognition model for certain contracts that are subject to the billing retention constraint described above. The new performance obligation related to installation services under the new standard will generally be recognized as the installation services are performed, which is later than under the Company’s current revenue recognition model. Taken together, the Company currently believes there will be a net acceleration of a small percentage of its revenue under ASC 606 as compared to its current revenue recognition model. ASC 606 provides for different transition alternatives,fulfillment activity, and the Company includes such costs in cost of sales when the Company recognizes revenue for the related goods. Taxes assessed by governmental authorities that are collected by the Company from a customer are excluded from revenue.
Inventories Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Each quarter the Company assesses the valuation and recoverability of all inventories: materials (raw materials, spare parts, and service inventory); work-in-process; and finished goods. Obsolete inventory or inventory in excess of management’s estimated usage requirement is evaluatingwritten down to its estimated net realizable value if less than cost. The Company evaluates usage requirements by analyzing historical usage, anticipated demand, alternative uses of materials, and other qualitative factors. Unanticipated changes in demand for the Company’s products may require a write down of inventory, which methodwould be reflected in cost of adoption to select. In January 2016,sales in the FASB issued ASU 2016-01: Financial Instruments — Overall, which requires certain equity investments to be measuredperiod the revision is made. Inventory acquired as part of a business combination is recorded at fair value with changes in fair value recognized in net income. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2017; early adoption is permitted. The Company does not expect this ASU will have a material impact on the consolidated financial statements.date of acquisition.
Table of Contents In February 2016,Veeco Instruments Inc. and Subsidiaries
Notes to the FASB issued ASU 2016-02: Leases, which generally requires operating lessee rights and obligations to be recognized as assets and liabilities on the balance sheet. In addition, interest on lease liabilities is to beConsolidated Financial Statements - continued (unaudited) recognized separately from the amortization of right-of-use assets in the Statement of Operations. Further, payments of the principal portion of lease liabilities are to be classified as financing activities while payments of interest on lease liabilities and variable lease payments are to be classified as operating activities in the Statement of Cash Flows. When the standard is adopted, the Company will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early application permitted. The Company is evaluating the anticipated impact of adopting the ASU on the consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which provides guidance on eight specific cash flow issues, including debt prepayments or debt extinguishment costs. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2017. This ASU will not have a material impact on the consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2017. This ASU will not have a material impact on the consolidated financial statements.
The Company is also evaluating other pronouncements recently issued but not yet adopted. The adoption of these pronouncements is not expected to have a material impact on our consolidated financial statements.
Note 2 -— Income (Loss) Per Common Share The Company considers unvested share-based awards that have non-forfeitable rights to dividends prior to vesting to be participating shares, which are treated as a separate class of security from the Company’s common shares for calculating per share data. Therefore, the Company applies the two-class method when calculating income (loss) per share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. However, since the holders of the participating shares are not obligated to fund losses, participating shares are excluded from the calculation of loss per share.
The dilutive effect of the Convertible Senior Notes on income (loss) per share is calculated using the treasury stock method since the Company has both the current intent and ability to settle the principal amount of the Convertible Senior Notes in cash. See Note 5, “Liabilities,” for additional information on the Convertible Senior Notes.
Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period under the two-class method. Diluted income per share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted income per share is calculated by dividing net income available to common shareholders by the weighted average number of shares used to calculate basic income (loss) per share plus the weighted average number of common share equivalents outstanding during the period. The dilutive effect of outstanding options to purchase common stock and non-participating share-based awards is considered in diluted income per share by application of the treasury stock method. The dilutive effect of performance share units is included in diluted income per common share in the periodsif the performance targets have been achieved. achieved, or would have been achieved if the reporting date was the end of the contingency period. Finally, the Company includes the dilutive effect of shares issuable upon conversion of its Notes in the calculation of diluted income per share using the if-converted method. The Company has the option for the 2025 and 2027 Notes to settle the conversion value in any combination of cash or shares, and as such, the maximum number of shares issuable are included in the dilutive share count if the effect would be dilutive. The Company must settle the principal amount of the 2029 Notes in cash, and has the option to settle any excess of the conversion value over the principal amount in any combination of cash or shares. As such, the Company only includes the excess shares that may be issuable above the principal amount of the 2029 Notes in the dilutive share count, if the effect would be dilutive. The computations of basic and diluted income (loss) per share for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 are as follows: | | | | | | | | | | | | | | | | Three months ended June 30, | | Six months ended June 30, | | | | 2023 | | 2022 | | 2023 | | 2022 | | | | | (in thousands, except per share amounts) | | Numerator: | | | | | | | | | | | | | | Net income (loss) | | $ | (85,320) | | $ | 9,655 | | $ | (76,579) | | $ | 22,985 | | Interest expense associated with convertible notes | | | — | | | 1,273 | | | — | | | 2,546 | | Net income (loss) available to common shareholders | | $ | (85,320) | | $ | 10,928 | | $ | (76,579) | | $ | 25,531 | | | | | | | | | | | | | | | | Denominator: | | | | | | | | | | | | | | Basic weighted average shares outstanding | | | 52,861 | | | 49,697 | | | 51,764 | | | 49,702 | | Effect of potentially dilutive share-based awards | | | — | | | 816 | | | — | | | 877 | | Dilutive effect of convertible notes | | | — | | | 8,942 | | | — | | | 8,942 | | Diluted weighted average shares outstanding | | | 52,861 | | | 59,455 | | | 51,764 | | | 59,521 | | | | | | | | | | | | | | | | Net income per common share: | | | | | | | | | | | | | | Basic | | $ | (1.61) | | $ | 0.19 | | $ | (1.48) | | $ | 0.46 | | Diluted | | $ | (1.61) | | $ | 0.18 | | $ | (1.48) | | $ | 0.43 | | | | | | | | | | | | | | | | Common share equivalents excluded from the diluted weighted average shares outstanding since the Company incurred a net loss and their effect would be antidilutive | | | 838 | | | N/A | | | 674 | | | N/A | | Potentially dilutive shares excluded from the diluted calculation as their effect would be antidilutive | | | 743 | | | 987 | | | 763 | | | 645 | | Potential shares to be issued for settlement of the convertible notes excluded from the diluted calculation as their effect would be antidilutive | | | 8,868 | | | 6,025 | | | 11,722 | | | 6,025 | |
Table of Contents | | Three months ended September 30, | | Nine months ended September 30, | | | | 2017 | | 2016 | | 2017 | | 2016 | | | | (in thousands, except per share amounts) | | Net income (loss) | | $ | (21,884 | ) | $ | (69,598 | ) | $ | (39,177 | ) | $ | (117,212 | ) | | | | | | | | | | | Net income (loss) per common share: | | | | | | | | | | Basic | | $ | (0.47 | ) | $ | (1.78 | ) | $ | (0.91 | ) | $ | (2.99 | ) | Diluted | | $ | (0.47 | ) | $ | (1.78 | ) | $ | (0.91 | ) | $ | (2.99 | ) | | | | | | | | | | | Basic weighted average shares outstanding | | 46,941 | | 39,131 | | 43,100 | | 39,193 | | Effect of potentially dilutive share-based awards | | — | | — | | — | | — | | Diluted weighted average shares outstanding | | 46,941 | | 39,131 | | 43,100 | | 39,193 | | | | | | | | | | | | Unvested participating shares excluded from basic weighted average shares outstanding since the securityholders are not obligated to fund losses | | 166 | | 469 | | 166 | | 469 | | | | | | | | | | | | Common share equivalents excluded from the diluted weighted average shares outstanding since Veeco incurred a net loss and their effect would be antidilutive | | 220 | | 140 | | 275 | | 45 | | | | | | | | | | | | Potentially dilutive non-participating shares excluded from the diluted calculation as their effect would be antidilutive | | 1,956 | | 2,030 | | 1,628 | | 2,042 | | | | | | | | | | | | Maximum potential shares to be issued for settlement of Convertible Senior Notes excluded from the diluted calculation as their effect would be antidilutive | | 8,618 | | — | | 8,618 | | — | |
Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) Note 3 — Business CombinationsCombination UltratechEpiluvac
On May 26, 2017,January 31, 2023, the Company completed its acquisitionacquired Epiluvac AB, a privately held manufacturer of Ultratech, Inc. (“Ultratech”). Ultratech designs, manufactures, and markets lithography, laser annealing, and inspection equipment for manufacturers of semiconductor devices, including front-end semiconductor manufacturing and advanced packaging. Ultratech also designs, manufactures, and markets atomic layerchemical vapor deposition (“ALD”) equipment for scientific and industrial applications. Ultratech’s customers are primarily located throughout the United States, EMEA, China, Japan, Taiwan, Singapore, and Korea. With the addition of Ultratech, the Company establishes itself as a leading equipment supplier(CVD) epitaxy systems that enable silicon carbide (SiC) applications in the advanced packaging market, forming a strong technology portfolioelectric vehicle market. This acquisition is expected to address critical advanced packaging applications.accelerate penetration into the emerging, high-growth SiC equipment market. The results of Ultratech’sEpiluvac’s operations have been included in the consolidated financial statements since the date of acquisition. Ultratech shareholders received (i) $21.75 per share in cash and (ii) 0.2675 of a share of Veeco common stock for each Ultratech common share outstanding on the acquisition date. In connection with the Company’s continued finalization of purchase accounting, during the three months ended September 30, 2017, the Company decreased the fair value of acquired inventory and property, plant and equipment by $4.1 million and $1.2 million, respectively, resulting in a corresponding increase in goodwill. The Company plans to finalize the purchase accounting within the measurement period, which may include additional adjustments to the fair values of assets acquired and liabilities assumed. The preliminary acquisition date fair value of the consideration totaled $633.4$56.4 million, net of cash acquired, which consisted of the following:
| | | | | | Acquisition Date | | | (January 31, 2023) | | | (in thousands) | Cash paid, net of cash acquired | | $ | 30,373 | Contingent consideration | | | 26,055 | Acquisition date fair value | | $ | 56,428 |
The purchase agreement included performance milestones that, if achieved, could trigger additional payments to the original selling shareholders. The aggregate fair value of the contingent consideration arrangement at the acquisition date was $26.1 million. During the three months ended June 30, 2023, the Company recognized approximately $0.3 million of additional contingent consideration, for total contingent consideration of $26.4 million as of June 30, 2023, of which $9.8 million was included in “Accrued expenses and other current liabilities” and $16.6 million was included within “Other liabilities” on the Consolidated Balance Sheet as of June 30, 2023. The contingent arrangements include payments up to $15.0 million based on the timely completion of certain defined milestones tied to strategic targets, and up to $20.0 million based on the percentage of orders received during the defined Earn-out period. The Earn-out period is four years after the closing date of the acquisition, or earlier if certain conditions are met. The Company estimated the fair value of the contingent consideration by assigning probabilities and discount factors to each of the various defined performance milestones, while using a Monte-Carlo simulation model to determine the most likely outcome for payments to be based on value of orders received. These fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement as defined in ASC 820. The discount rate used was 5.54% for the strategic target and order value related contingent payments. The rate was determined based on the nature of the milestone, the risks and uncertainties involved and the time period until the milestone was measured. The determination of the various probabilities and discount factors is highly subjective, requires significant judgment and is influenced by a number of factors, including the adoption of SiC technology. While the use of SiC is expected to grow in the near future, it is difficult to predict the rate at which SiC will be adopted by the market and thus would impact the sales of our equipment. Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) | | Acquisition Date | | | | (May 26, 2017) | | | | (in thousands) | | Cash consideration, net of cash acquired | | $ | 404,489 | | Equity consideration (7.2 million shares issued) | | 228,644 | | Replacement equity awards attributable to pre-acquisition service | | 228 | | Acquisition date fair value | | $ | 633,361 | |
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date: | | Acquisition Date | | | | | (May 26, 2017) | | | | | (in thousands) | | | Short-term investments | | $ | 47,161 | | | | | | | | | | | Acquisition Date | | | | (January 31, 2023) | | | | (in thousands) | Accounts receivable | | 45,465 | | | $ | 247 | Inventory and deferred cost of sales | | 57,570 | | | Inventories | | | | 391 | Prepaid expense and other current assets | | 7,217 | | | | 381 | Property, plant, and equipment | | 18,332 | | | | 736 | Intangible assets | | 346,940 | | | | 28,540 | Other assets | | 6,442 | | | Total identifiable assets acquired | | 529,127 | | | | 30,295 | | | | | | | | | | | Accounts payable and accrued expenses | | 40,123 | | | | 656 | Customer deposits and deferred revenue | | 4,834 | | | | 429 | Deferred income taxes | | 32,478 | | | | 5,723 | Other liabilities | | 11,952 | | | | 80 | Total liabilities assumed | | 89,387 | | | | 6,888 | | | | | | | | | | | Net identifiable assets acquired | | 439,740 | | | | 23,407 | Goodwill | | 193,621 | | | | 33,021 | Net assets acquired | | $ | 633,361 | | | $ | 56,428 |
The gross contractual value of the acquired accounts receivable was approximately $46.0 million. The fair value of the accounts receivables is the amount expected to be collected by the Company.Company, and therefore is also considered its fair value. Goodwill generated from the acquisition is primarily attributableattributed to expected synergies from future growth and strategic advantages provided through the expansion of product offerings as well as assembled workforce and is not expected to be deductible for income tax purposes. The preliminary classes of intangible assets acquired, and the estimated useful life of each class is presented in the table below: | | Acquisition Date | | | | | (May 26, 2017) | | | | | Amount | | Useful life | | | | | (in thousands) | | | | | | | | | | | | | | | | Acquisition Date | | | | (January 31, 2023) | | | | Amount | | Useful life | | | | (in thousands) | | | | Technology | | $ | 158,390 | | 8 years | | | $ | 28,020 | | 15 | years | Customer relationships | | 116,710 | | 12 years | | | | 460 | | 5 | years | Backlog | | 3,080 | | 6 months | | | | 60 | | 1.5 | years | In-process research and development | | 43,340 | | * | | | Trademark and tradenames | | 25,420 | | 7 years | | | Intangible assets acquired | | $ | 346,940 | | | | | $ | 28,540 | | | |
*In-process research and development will be amortized (or impaired) upon completion (or abandonment) of the development project.
The Company determined the estimated fair value of the identifiable intangible assets based on various factors including:including cost, discounted cash flow, income method, loss-of-revenue/income method, and relief-from-royalty method in determining the purchase price allocation. In-process research and development (“IPR&D”) represents the estimated fair values of incomplete Ultratech research and development projects that had not reached the commercialization stage and meet the criteria for recognition as IPR&D as of the date of the acquisition. In the future, the fair value of each project at the acquisition date will be either amortized or impaired depending on whether the projects are completed or abandoned. The fair value of IPR&D was determined using an income approach and costs to complete the project and expected commercialization timelines are considered key assumptions. This valuation approach reflects the present value of the projected cash flows that are expected to be generated by the IPR&D less charges representing the contribution of other assets to those cash flows. The value of the IPR&D was determined to be $43.3 million, approximately half of which is related to Ultratech’s lithography technologies and one-third of which is related to Ultratech’s laser annealing technologies.
For the three and ninesix months ended SeptemberJune 30, 2017,2023, the Company incurred approximately $0.2 million and $0.9 million, respectively, of acquisition related costs, were approximately $0.8 millionincluded within “Selling, general, and $16.3 million, respectively, including non-cash charges of $4.2 million for the nine months ended September 30, 2017 related to accelerated share-based compensation for employee terminations. The amounts of revenue and income (loss) from operations before income taxes of Ultratech includedadministrative” in the Company’s consolidated statementConsolidated Statement of Operations. Epiluvac’s results of operations were immaterial to the Company’s Consolidated Statement of Operations for the three and ninesix months ended SeptemberJune 30, 2017 are2023. Additionally, the pro forma Consolidated Statement of Operations as follows:
| | Three months ended
September 30, 2017 | | Nine months ended
September 30, 2017 | | | | (in thousands) | | Revenue | | $ | 21,236 | | $ | 45,286 | | Loss from operations before income taxes | | $ | (21,556 | ) | $ | (44,374 | ) |
Lossif Epiluvac had been acquired as of January 1, 2022 would not be materially different from operations before income taxesthe Company’s actual Consolidated Statement of UltratechOperations for the three month period ended September 30, 2017 of $21.6 million includes acquisition costs of $0.8 million, release of inventory fair value step-up related to purchase accounting of $1.9 million, amortization expense on intangible assets of $9.6 million, and restructuring charges of $2.1 million. Loss from operations before income taxes of Ultratech for the nine month period ended September 30, 2017 of $44.4 million includes acquisition costs of $16.3 million, release of inventory fair value step-up related to purchase accounting of $9.2 million, amortization expense on intangible assets of $13.1 million, and restructuring charges of $3.3 million.
The following table presents unaudited pro forma financial information as if the acquisition of Ultratech had occurred on January 1, 2016:
| | Three months ended September 30, | | Nine months ended September 30, | | | | 2017 | | 2016 | | 2017 | | 2016 | | | | (in thousands, except per share amounts) | | Revenue | | $ | 131,872 | | $ | 134,093 | | $ | 412,066 | | $ | 381,586 | | Loss from operations | | (14,957 | ) | (74,197 | ) | (45,309 | ) | (187,499 | ) | Diluted earnings per share | | $ | (0.40 | ) | $ | (1.67 | ) | $ | (1.01 | ) | $ | (4.34 | ) |
The pro-forma results were calculated by combining the unaudited results of the Company with the stand-alone unaudited results of Ultratech for the pre-acquisition period, and adjusting for the following:
(i) Additional amortization expense related to identified intangibles valued as part of the purchase price allocation that would have been incurred starting on January 1, 2016.
(ii) Additional depreciation expense for the property, plant, and equipment fair value adjustments that would have been incurred starting on January 1, 2016.
(iii) All acquisition related costs incurred by the Company as well as by Ultratech pre-acquisition have been removed from their respective periods and included in the threesix months ended March 31, 2016, as such expenses would have been incurred in the first quarter following the acquisition.June 30, 2023 or 2022.
(iv) All amortizationTable of inventory step-up has been removed from their respective periodsContents
Veeco Instruments Inc. and recorded in the first two quarters of 2016, as such costs would have been incurred as the corresponding inventory was sold.Subsidiaries (v) Additional interest expense relatedNotes to the Convertible Senior Notes (see Note 5, “Liabilities”) as if they had been issued on January 1, 2016.
(vi) Income tax expense (benefit) was adjusted for the impact of the above adjustments for each period.
Consolidated Financial Statements - continued (unaudited) Note 4 -— Assets Investments Short-term investments are generally classified as available-for-sale and reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income” in the Consolidated Balance Sheets. These securities may include U.S. treasuries, government agency securities, corporate debt, and commercial paper, all with maturities of greater than three months when acquired.purchased. All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are included in “Other operating expense (income), net” in the Consolidated Statements of Operations. Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants. Veeco classifies certain assets based on the following fair value hierarchy: Level 1: Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Veeco has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) The following table presents the portion of Veeco’s assets that were measured at fair value on a recurring basis at SeptemberJune 30, 20172023 and December 31, 2016:2022: | | Level 1 | | Level 2 | | Level 3 | | Total | | | | (in thousands) | | September 30, 2017 | | | | | | | | | | Cash equivalents | | | | | | | | | | Corporate debt | | $ | — | | $ | 1,500 | | $ | — | | $ | 1,500 | | Total | | $ | — | | $ | 1,500 | | $ | — | | $ | 1,500 | | Short-term investments | | | | | | | | | | U.S. treasuries | | $ | 58,806 | | $ | — | | $ | — | | $ | 58,806 | | Corporate debt | | — | | 10,911 | | — | | 10,911 | | Commercial paper | | — | | 16,136 | | — | | 16,136 | | Total | | $ | 58,806 | | $ | 27,047 | | $ | — | | $ | 85,853 | | | | | | | | | | | | December 31, 2016 | | | | | | | | | | Cash equivalents | | | | | | | | | | Corporate debt | | $ | — | | $ | 1,501 | | $ | — | | $ | 1,501 | | Total | | $ | — | | $ | 1,501 | | $ | — | | $ | 1,501 | | Short-term investments | | | | | | | | | | U.S. treasuries | | $ | 40,008 | | $ | — | | $ | — | | $ | 40,008 | | Government agency securities | | — | | 10,012 | | — | | 10,012 | | Corporate debt | | — | | 13,773 | | — | | 13,773 | | Commercial paper | | — | | 2,994 | | — | | 2,994 | | Total | | $ | 40,008 | | $ | 26,779 | | $ | — | | $ | 66,787 | |
| | | | | | | | | | | | | | | Level 1 | | Level 2 | | Level 3 | | Total | | | | (in thousands) | June 30, 2023 | | | | | | | | | | | | | Cash equivalents | | | | | | | | | | | | | Certificate of deposits and time deposits | | $ | 57,432 | | $ | — | | $ | — | | $ | 57,432 | Commercial paper | | | — | | | 11,475 | | | — | | | 11,475 | Money market cash | | | 50,846 | | | — | | | — | | | 50,846 | Total | | $ | 108,278 | | $ | 11,475 | | $ | — | | $ | 119,753 | Short-term investments | | | | | | | | | | | | | U.S. treasuries | | $ | 12,041 | | $ | — | | $ | — | | $ | 12,041 | Government agency securities | | | — | | | 60,054 | | | — | | | 60,054 | Corporate debt | | | — | | | 13,020 | | | — | | | 13,020 | Commercial paper | | | — | | | 20,760 | | | — | | | 20,760 | Total | | $ | 12,041 | | $ | 93,834 | | $ | — | | $ | 105,875 | | | | | | | | | | | | | | December 31, 2022 | | | | | | | | | | | | | Cash equivalents | | | | | | | | | | | | | Certificate of deposits and time deposits | | $ | 61,135 | | $ | — | | $ | — | | $ | 61,135 | Money market cash | | | 405 | | | — | | | — | | | 405 | Total | | $ | 61,540 | | $ | — | | $ | — | | $ | 61,540 | Short-term investments | | | | | | | | | | | | | U.S. treasuries | | $ | 62,849 | | $ | — | | $ | — | | $ | 62,849 | Government agency securities | | | — | | | 27,366 | | | — | | | 27,366 | Corporate debt | | | — | | | 41,591 | | | — | | | 41,591 | Commercial paper | | | — | | | 15,682 | | | — | | | 15,682 | Total | | $ | 62,849 | | $ | 84,639 | | $ | — | | $ | 147,488 |
There were no transfers between fair value measurement levels during the three and ninesix months ended SeptemberJune 30, 2017.2023. Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) At SeptemberJune 30, 20172023 and December 31, 2016,2022, the amortized cost and fair value of available-for-sale securities consist of: | | | | | | | | | | | | | | | | | | | | Gross | | Gross | | | | | | Amortized | | Unrealized | | Unrealized | | Estimated | | | | Cost | | Gains | | Losses | | Fair Value | | | | | Gross | | Gross | | | | | | | Amortized | | Unrealized | | Unrealized | | Estimated | | | | | Cost | | Gains | | Losses | | Fair Value | | | | | (in thousands) | | | September 30, 2017 | | | | | | | | | | | U.S. treasuries | | $ | 58,816 | | $ | 3 | | $ | (13 | ) | $ | 58,806 | | | Corporate debt | | 10,912 | | 1 | | (2 | ) | 10,911 | | | Commercial paper | | 16,135 | | 1 | | — | | 16,136 | | | Total | | $ | 85,863 | | $ | 5 | | $ | (15 | ) | $ | 85,853 | | | | | | | | | | | | | | December 31, 2016 | | | | | | | | | | | | | | (in thousands) | June 30, 2023 | | | | | | | | | | | | | | U.S. treasuries | | $ | 40,013 | | $ | — | | $ | (5 | ) | $ | 40,008 | | | $ | 12,133 | | $ | — | | $ | (92) | | $ | 12,041 | Government agency securities | | 10,020 | | — | | (8 | ) | 10,012 | | | | 60,262 | | | — | | | (208) | | | 60,054 | Corporate debt | | 13,780 | | — | | (7 | ) | 13,773 | | | | 13,108 | | | — | | | (88) | | | 13,020 | Commercial paper | | 2,994 | | — | | — | | 2,994 | | | | 20,760 | | | — | | | — | | | 20,760 | Total | | $ | 66,807 | | $ | — | | $ | (20 | ) | $ | 66,787 | | | $ | 106,263 | | $ | — | | $ | (388) | | $ | 105,875 | | | | | | | | | | | | | | | December 31, 2022 | | | | | | | | | | | | | | U.S. treasuries | | | $ | 63,331 | | $ | — | | $ | (482) | | $ | 62,849 | Government agency securities | | | | 27,464 | | | — | | | (98) | | | 27,366 | Corporate debt | | | | 42,006 | | | — | | | (415) | | | 41,591 | Commercial paper | | | | 15,682 | | | — | | | — | | | 15,682 | Total | | | $ | 148,483 | | $ | — | | $ | (995) | | $ | 147,488 |
Available-for-sale securities in a loss position at SeptemberJune 30, 20172023 and December 31, 20162022 consist of: | | September 30, 2017 | | December 31, 2016 | | | | | | Gross | | | | Gross | | | | Estimated | | Unrealized | | Estimated | | Unrealized | | | | Fair Value | | Losses | | Fair Value | | Losses | | | | (in thousands) | | U.S. treasuries | | $ | 41,864 | | $ | (13 | ) | $ | 20,002 | | $ | (5 | ) | Government agency securities | | — | | — | | 10,012 | | (8 | ) | Corporate debt | | 7,909 | | (2 | ) | 13,774 | | (7 | ) | Total | | $ | 49,773 | | $ | (15 | ) | $ | 43,788 | | $ | (20 | ) |
| | | | | | | | | | | | | | | Continuous Loss Position | | Continuous Loss Position | | | for Less than 12 Months | | for 12 Months or More | | | | | | Gross | | | | | Gross | | | Estimated | | Unrealized | | Estimated | | Unrealized | | | Fair Value | | Losses | | Fair Value | | Losses | | | | | (in thousands) | June 30, 2023 | | | | | | | | | | | | | U.S. treasuries | | $ | 4,681 | | $ | (4) | | $ | 7,361 | | $ | (88) | Government agency securities | | | 60,053 | | | (208) | | | — | | | — | Corporate debt | | | 8,312 | | | (21) | | | 4,708 | | | (67) | Total | | $ | 73,046 | | $ | (233) | | $ | 12,069 | | $ | (155) | | | | | | | | | | | | | | December 31, 2022 | | | | | | | | | | | | | U.S. treasuries | | $ | 39,791 | | $ | (84) | | $ | 23,057 | | $ | (398) | Government agency securities | | | 22,528 | | | (86) | | | 4,838 | | | (12) | Corporate debt | | | 19,693 | | | (138) | | | 21,898 | | | (277) | Total | | $ | 82,012 | | $ | (308) | | $ | 49,793 | | $ | (687) |
At September 30, 2017 and December 31, 2016, there were no short-term investments that had been in a continuous loss position for more than 12 months.
The contractual maturities of securities classified as available-for-sale securities at SeptemberJune 30, 2017 all contractually mature in one year or less. 2023 were as follows: | | | | | | | | | June 30, 2023 | | | Amortized | | Estimated | | | Cost | | Fair Value | | | | | (in thousands) | Due in one year or less | | $ | 99,537 | | $ | 99,192 | Due after one year through two years | | | 6,726 | | | 6,683 | Total | | $ | 106,263 | | $ | 105,875 |
Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) Actual maturities may differ from contractual maturities. Veeco may sell these securities prior to maturity based on the needs of the business. In addition,maturities because borrowers may have the right to call or prepay obligations prior to scheduled maturities. with or without call or prepayment penalties. There were minimal realized gains for the three and nine months ended September 30, 2017 and no realized gains or losses, or unrealized losses from declines in fair value that are other than temporary, for the three and ninesix months ended SeptemberJune 30, 2016. The cost of securities liquidated is based on specific identification.2023 and 2022. Accounts receivableReceivable Accounts receivable is presented net of an allowance for doubtful accounts of $0.3$1.0 million and $0.7 million at SeptemberJune 30, 20172023 and December 31, 2016.2022 respectively. The Company considered its current expectations of future economic conditions when estimating its allowance for doubtful accounts. Inventories Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Inventories at SeptemberJune 30, 20172023 and December 31, 20162022 consist of the following:following:
| | | | | | | | | | | June 30, | | December 31, | | | | 2023 | | 2022 | | | September 30, | | December 31, | | | | | 2017 | | 2016 | | | | | (in thousands) | | | | | | (in thousands) | Materials | | $ | 59,767 | | $ | 46,457 | | | $ | 152,494 | | $ | 134,940 | Work-in-process | | 37,884 | | 25,250 | | | | 80,446 | | | 68,765 | Finished goods | | 16,030 | | 5,356 | | | | 11,530 | | | 3,203 | Total | | $ | 113,681 | | $ | 77,063 | | | $ | 244,470 | | $ | 206,908 |
Prepaid expensesExpenses and other current assetsOther Current Assets Prepaid expenses and other current assets primarily consist of supplier deposits, prepaid value-added tax, lease deposits, prepaid insurance, prepaid licenses, and prepaid licenses. Veecoother receivables. The Company had deposits with its suppliers of $6.7$13.4 million and $7.8$9.4 million at SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively. Additionally, included within prepaid expenses and other current assets at September 30, 2017 was a non-trade receivable of approximately $12.8 million. Property, plant,Plant, and equipmentEquipment Property, plant, and equipment at SeptemberJune 30, 20172023 and December 31, 20162022 consist of the following: | | September 30, | | December 31, | | | | 2017 | | 2016 | | | | (in thousands) | | Land | | $ | 5,669 | | $ | 5,669 | | Building and improvements | | 50,367 | | 50,814 | | Machinery and equipment(1) | | 126,631 | | 99,370 | | Leasehold improvements | | 10,471 | | 3,652 | | Gross property, plant and equipment | | 193,138 | | 159,505 | | Less: accumulated depreciation and amortization | | 108,735 | | 98,859 | | Net property, plant, and equipment | | $ | 84,403 | | $ | 60,646 | |
| | | | | | | | | June 30, | | December 31, | | | 2023 | | 2022 | | | | (in thousands) | Land | | $ | 5,061 | | $ | 5,061 | Building and improvements | | | 64,151 | | | 64,198 | Machinery and equipment (1) | | | 166,764 | | | 155,533 | Leasehold improvements | | | 55,008 | | | 54,764 | Gross property, plant, and equipment | | | 290,984 | | | 279,556 | Less: accumulated depreciation and amortization | | | 178,991 | | | 172,275 | Net property, plant, and equipment | | $ | 111,993 | | $ | 107,281 |
| (1) | Machinery and equipment also includes software, furniture and fixtures |
(1) Machinery and equipment also includes software, furniture and fixtures
For the three and ninesix months ended SeptemberJune 30, 2017,2023, depreciation expense was $4.2$4.0 million and $10.6$8.2 million, respectively, and $3.5$4.0 million and $10.2$7.7 million, respectively, for the comparable 20162022 periods. Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) Goodwill Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. The following table presents the changes in goodwill balances for the ninesix months ended SeptemberJune 30, 2017:2023: | | Gross carrying | | Accumulated | | | | | | amount | | impairment | | Net amount | | | | (in thousands) | | Balance at December 31, 2016 | | $ | 238,108 | | $ | 123,200 | | $ | 114,908 | | Acquisition | | 193,621 | | — | | 193,621 | | Balance at September 30, 2017 | | $ | 431,729 | | $ | 123,200 | | $ | 308,529 | |
| | | | | | | | | | | | Gross carrying | | Accumulated | | | | | amount | | impairment | | Net amount | | | (in thousands) | Balance at December 31, 2022 | | $ | 430,331 | | $ | 248,388 | | $ | 181,943 | Acquisition | | | 33,021 | | | — | | | 33,021 | Balance at June 30, 2023 | | $ | 463,352 | | $ | 248,388 | | $ | 214,964 |
Intangible assetsAssets Intangible assets consist of purchased technology, customer-related intangible assets, in-process researchcustomer relationships, patents, trademarks and development, trademarks (both long-livedtradenames, licenses, and indefinite-lived), patents, backlog, and licenses and are initially recorded at fair value. Long-lived intangiblesintangible assets are amortized over their estimated useful lives in a method reflecting the pattern in which the economic benefits are consumed or amortized on a straight-line basis if such pattern cannot be reliably determined. The Company continues to assess potential triggering events related to the value of its intangible assets and concluded that there were no indicators of impairment during the three and six months ended June 30, 2023. The components of purchased intangible assets were as follows: | | | | September 30, 2017 | | December 31, 2016 | | | | Weighted | | | | Accumulated | | | | | | Accumulated | | | | | | Average Remaining | | Gross | | Amortization | | | | Gross | | Amortization | | | | | | Amortization | | Carrying | | and | | Net | | Carrying | | and | | Net | | | | Period | | Amount | | Impairment | | Amount | | Amount | | Impairment | | Amount | | | | (in years) | | (in thousands) | | Technology | | 7.5 | | $ | 307,588 | | $ | 125,154 | | $ | 182,434 | | $ | 149,198 | | $ | 113,904 | | $ | 35,294 | | Customer relationships | | 11.6 | | 164,595 | | 35,653 | | 128,942 | | 47,885 | | 28,659 | | 19,226 | | In-process R&D | | — | | 43,340 | | — | | 43,340 | | — | | — | | — | | Trademarks and tradenames | | 6.6 | | 28,010 | | 3,272 | | 24,738 | | 2,590 | | 1,948 | | 642 | | Indefinite-lived trademark | | — | | 2,900 | | — | | 2,900 | | 2,900 | | — | | 2,900 | | Other | | 0.5 | | 3,686 | | 2,444 | | 1,242 | | 2,026 | | 1,710 | | 316 | | Total | | 9.0 | | $ | 550,119 | | $ | 166,523 | | $ | 383,596 | | $ | 204,599 | | $ | 146,221 | | $ | 58,378 | |
| | | | | | | | | | | | | | | | | | | | | June 30, 2023 | | December 31, 2022 | | | | | | Accumulated | | | | | | | | Accumulated | | | | | | Gross | | Amortization | | | | Gross | | Amortization | | | | | Carrying | | and | | Net | | Carrying | | and | | Net | | | Amount | | Impairment | | Amount | | Amount | | Impairment | | Amount | | | | (in thousands) | Technology | | $ | 355,928 | | $ | 319,420 | | $ | 36,508 | | $ | 327,908 | | $ | 316,918 | | $ | 10,990 | Customer relationships | | | 146,925 | | | 136,528 | | | 10,397 | | | 146,465 | | | 135,415 | | | 11,050 | Trademarks and tradenames | | | 30,910 | | | 29,666 | | | 1,244 | | | 30,910 | | | 29,063 | | | 1,847 | Other | | | 3,746 | | | 3,703 | | | 43 | | | 3,686 | | | 3,686 | | | — | Total | | $ | 537,509 | | $ | 489,317 | | $ | 48,192 | | $ | 508,969 | | $ | 485,082 | | $ | 23,887 |
Other intangible assets primarily consist of patents, backlog,licenses, and licenses.backlog. Table of Contents Veeco Instruments Inc. and Subsidiaries Other assets
Veeco has an ownership interest of less than 20% in a non-marketable investment, Kateeva, Inc. (“Kateeva”). Veeco does not exert significant influence over Kateeva and therefore the investment is carried at cost. There was no changeNotes to the $21.0 million carrying value of the investment during the nine months ended September 30, 2017. The investment is included in “Other assets” on the Consolidated Balance Sheets. The investment is subject to a periodic impairment review; as there are no open-market valuations, the impairment analysis requires judgment. The analysis includes assessments of Kateeva’s financial condition, the business outlook for its products and technology, its projected results and cash flow, business valuation indications from recent rounds of financing, the likelihood of obtaining subsequent rounds of financing, and the impact of equity preferences held by Veeco relative to other investors. Fair value of the investment is not estimated unless there are identified events or changes in circumstances that could have a significant adverse effect on the fair value of the investment. No such events or circumstances are present.
Also included within Other assets at September 30, 2017 are deferred compensation plan assets of approximately $3.3 million representing the cash surrender value of life insurance policies held by the Company related to an executive non-qualified deferred compensation plan that was assumed from Ultratech that allows qualifying executives to defer cash compensation. The related plan liability of approximately $4.5 million is included in “Other liabilities” on the Consolidated Balance Sheet.
Financial Statements - continued (unaudited) Note 5 -— Liabilities Accrued expensesExpenses and other current liabilitiesOther Current Liabilities The components of accrued expenses and other current liabilities at SeptemberJune 30, 20172023 and December 31, 20162022 consist of: | | | | | | | | | | | June 30, | | December 31, | | | | 2023 | | 2022 | | | September 30, | | December 31, | | | | | 2017 | | 2016 | | | | | (in thousands) | | | | | | (in thousands) | Payroll and related benefits | | $ | 27,816 | | $ | 18,780 | | | $ | 21,358 | | $ | 30,044 | Merger consideration payable | | 17,844 | | — | | | Contingent consideration | | | | 9,791 | | | — | Warranty | | 6,555 | | 4,217 | | | | 8,577 | | | 8,601 | Operating lease liabilities | | | | 3,615 | | | 3,333 | Interest | | | | 1,351 | | | 2,853 | Professional fees | | 3,349 | | 1,827 | | | | 3,443 | | | 2,102 | Installation | | 1,418 | | 1,382 | | | Sales, use, and other taxes | | 1,961 | | 1,282 | | | | 2,708 | | | 2,027 | Restructuring liability | | 1,893 | | 1,796 | | | Interest | | 2,307 | | — | | | Other | | 2,585 | | 3,917 | | | | 10,980 | | | 7,071 | Total | | $ | 65,728 | | $ | 33,201 | | | $ | 61,823 | | $ | 56,031 |
Warranty Warranties are typically valid for one year from the date of system final acceptance, and Veecoacceptance. The Company estimates the costs that may be incurred under the warranty. Estimated warranty costswhich are determined by analyzing specific product and historical configuration statistics and regional warranty support costs and are affected by product failure rates, material usage, and labor costs incurred in correcting product failures during the warranty period. Unforeseen component failures or exceptional component performance can also result in changes to warranty costs. Changes in product warranty reserves for the ninesix months ended SeptemberJune 30, 20172023 include: | | (in thousands) | | Balance - December 31, 2016 | | $ | 4,217 | | Warranties issued | | 4,314 | | Addition from Ultratech acquisition | | 1,889 | | Consumption of reserves | | (4,741 | ) | Changes in estimate | | 876 | | Balance - September 30, 2017 | | $ | 6,555 | |
| | | | | | | (in thousands) | Balance - December 31, 2022 | | $ | 8,601 | Warranties issued | | | 3,084 | Addition from Epiluvac acquisition | | | 49 | Consumption of reserves | | | (3,484) | Changes in estimate | | | 327 | Balance - June 30, 2023 | | $ | 8,577 |
Restructuring accrualsCustomer Deposits and Deferred Revenue
During 2016, the Company undertook restructuring activities as part of its initiative to streamline operations, enhance efficiencies, and reduce costs, as well as reducing future investments in certain technology development, which together impacted approximately 75 employees. In addition, during 2017, the Company began the acquisition integration process to enhance efficiencies, resulting in additional employee terminations and other facility closing costs. Over the next few quarters, the Company expects to incur additional restructuring costs of $1 million to $5 million as it finalizes all of these activities.
| | Personnel | | | | | | | | Severance and | | Facility | | | | | | Related Costs | | Closing Costs | | Total | | | | (in thousands) | | Balance - December 31, 2016 | | $ | 1,796 | | $ | — | | $ | 1,796 | | Provision | | 3,628 | | 4,269 | | 7,897 | | Payments | | (3,531 | ) | (4,269 | ) | (7,800 | ) | Balance - September 30, 2017 | | $ | 1,893 | | $ | — | | $ | 1,893 | |
Included within restructuring expense in the Consolidated Statements of Operations for the nine months ended September 30, 2017 is approximately $1.7 million of non-cash charges related to accelerated share-based compensation for employee terminations.
Customer deposits
Customer deposits totaled $27.6$136.6 million and $22.2$110.2 million at SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively. Deferred revenue represents amounts billed, other than deposits, in excess of the revenue that can be recognized on a particular contract at the balance sheet date. Changes in deferred revenue were as follows: | | | | | | (in thousands) | Balance - December 31, 2022 | | $ | 16,990 | Deferral of revenue | | | 8,241 | Recognition of unearned revenue | | | (5,111) | Balance - June 30, 2023 | | $ | 20,120 |
Table of Contents Mortgage PayableVeeco Instruments Inc. and Subsidiaries
Notes to the Consolidated Financial Statements - continued At December 31, 2016,(unaudited)
As of June 30, 2023, the Company had a mortgage note payable associatedhas approximately $274.8 million of remaining performance obligations on contracts with its property in St. Paul, Minnesota,an original estimated duration of one year or more, of which during the third quarter of 2017 was fully extinguished in connectionapproximately 66% is expected to be recognized within one year, with the sale of the building. The carrying value of the property exceeded the carrying value of the mortgage note of $1.2 million at December 31, 2016. The annual interest rate on the note was 7.91%.remaining amounts expected to be recognized between one to three years. The Company determined the mortgage was a Level 3 liability in the fair-value hierarchy and, using a discounted cash flow model, estimated its fair value as $1.2 million at December 31, 2016.has elected to exclude disclosures regarding remaining performance obligations that have an original expected duration of one year or less. Convertible Senior Notes 2023 Notes On January 10, 2017, the Company issued $345.0 million of 2.70% convertible senior unsecured notes due 2023 (the “Convertible Senior“2023 Notes”). The Company received net proceeds, after deducting underwriting discounts and fees and expenses payable by the Company, of approximately $335.8 million. The Convertible Senior2023 Notes bear interest at a rate of 2.70% per year, payable semiannually in arrears on January 15 and July 15 of each year, commencing on July 15, 2017. The Convertible Senior2023 Notes mature onhad a maturity date of January 15, 2023, unless earlier purchased by the Company, redeemed, or converted. On May 18, 2020, in connection with the completion of a private offering of $125.0 million aggregate principal amount of 3.75% convertible senior notes due 2027 described below, the Company repurchased and retired approximately $88.3 million in aggregate principal amount of its outstanding 2023 Notes, with a carrying amount of $78.1 million, for approximately $81.2 million of cash. Additionally, on November 11, 2020, the Company entered into a privately negotiated exchange agreement with a holder of its outstanding 2023 Notes, under which the Company agreed to retire $125.0 million in aggregate original principal amount of the 2023 Notes, with a carrying amount of $113.1 million, in exchange for the issuance of $132.5 million in aggregate principal amount of new 3.50% convertible senior notes due 2025 described below, which had a fair value that approximated the principal amount of new notes issued. Finally, on November 5, 2021, the Company entered into a privately negotiated note purchase agreement with a holder of its outstanding 2023 Notes, under which the Company agreed to repurchase and retire approximately $111.5 million in aggregate original principal amount of the 2023 Notes, with a carrying amount of $105.5 million, for cash consideration of approximately $115.6 million, and approximately $1.0 million of accrued and unpaid interest. The Convertible Senior2023 notes that remained outstanding matured on January 15, 2023 and were paid in cash and settled by the Company at that time. 2025 Notes On November 17, 2020, as part of the privately negotiated exchange agreement described above, the Company issued $132.5 million of 3.50% convertible senior notes due 2025 (the “2025 Notes”). The 2025 Notes bear interest at a rate of 3.50% per year, payable semiannually in arrears on January 15 and July 15 of each year, commencing on July 15, 2021. The 2025 Notes mature on January 15, 2025, unless earlier purchased by the Company, redeemed, or converted. On May 19, 2023, in connection with the completion of a private offering of $230.0 million aggregate principal amount of 2.875% convertible senior notes due 2029 described below, the Company repurchased and retired approximately $106.0 million in aggregate principal amount of its outstanding 2025 Notes, with a carrying amount of $105.4 million, for approximately $106.0 million of cash and 0.7 million shares of the Company’s common stock. The Company accounted for the partial settlement of the 2025 Notes as an extinguishment, and as such, recorded a loss on Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) extinguishment of approximately $16.5 million for the three and six months ended June 30, 2023, which is included in the “Other income (expense), net” in the Consolidated Statements of Operations. 2027 Notes On May 18, 2020, the Company completed a private offering of $125.0 million of 3.75% convertible senior notes due 2027 (the “2027 Notes”). The Company received net proceeds of approximately $121.9 million, after deducting underwriting discounts and fees and expenses payable by the Company. Additionally, the Company used approximately $10.3 million of cash to purchase capped calls, discussed below. The 2027 Notes bear interest at a rate of 3.75% per year, payable semiannually in arrears on June 1 and December 1 of each year, commencing on December 1, 2020. The 2027 Notes mature on June 1, 2027, unless earlier purchased by the Company, redeemed, or converted. On May 19, 2023, in connection with the completion of a private offering of $230.0 million aggregate principal amount of 2.875% convertible senior notes due 2029 described below, the Company repurchased and retired approximately $100.0 million in aggregate principal amount of its outstanding 2027 Notes, with a carrying amount of $98.5 million, for approximately $92.8 million of cash and 3.8 million shares of the Company’s common stock. The Company accounted for the partial settlement of the 2027 Notes as an extinguishment, and as such, recorded a loss on extinguishment of approximately $80.6 million for the three and six months ended June 30, 2023, which is included in the “Other income (expense), net” in the Consolidated Statements of Operations. 2029 Notes On May 19, 2023, the Company completed a private offering of $230.0 million of 2.875% convertible senior notes due 2029 (the “2029 Notes”). The Company received net proceeds of approximately $223.2 million, after deducting underwriting discounts and fees and expenses payable by the Company. Additionally, the Company used approximately $198.8 million of net proceeds from the offering to fund the cash portion of the 2025 Notes and 2027 Notes extinguishments described above and the remainder for general corporate purposes. The 2029 Notes bear interest at a rate of 2.875% per year, payable semiannually in arrears on June 1 and December 1 of each year, commencing on December 1, 2023. The 2029 Notes mature on June 1, 2029, unless earlier purchased by the Company, redeemed, or converted. The Company will settle any conversions of the 2029 Notes by paying cash up to the aggregate principal amount of the 2029 Notes to be converted, and paying or delivering either cash, shares of Company’s common stock, or a combination of cash and shares of common stock at the Company’s election, in respect of the remainder, if any, of the conversion obligation in excess of the aggregate principal amount of the 2029 Notes being converted. The 2025 Notes, 2027 Notes, and 2029 Notes (collectively, the “Notes”) are unsecured senior obligations of Veeco and rank senior in right of payment to any of Veeco’s subordinated indebtedness; equal in right of payment to all of Veeco’s unsecured indebtedness that is not subordinated; effectively subordinated in right of payment to any of Veeco’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally subordinated to all indebtedness and other liabilities (including trade payables) of Veeco’s subsidiaries. The Convertible Senior Notes are convertible into cash, sharesat the option of the Company’s common stock, or a combination thereof, at the Company’s election,holders upon the satisfaction of specified conditions and during certain periods as described below. The initial conversion rate is 24.9800rates are 41.6667, 71.5372, and 34.21852 shares of the Company’s common stock per $1,000 principal amount of Convertible Seniorthe 2025 Notes, 2027 Notes, and 2029 Notes, respectively, representing an initial effective conversion priceprices of $40.03$24.00, $13.98, and $29.22 per share of common stock.stock, respectively. The conversion raterates may be subject to adjustment upon the occurrence of certain specified events as provided in the indenture governing the Convertible Senior Notes, dated January 18, 2017 between the Company and U.S. Bank National Association, as trustee (the “Indenture”), but will not be adjusted for accrued but unpaid interest.events. Holders may convert all or any portion of their notes,Notes, in multiples of one thousand dollar principal amount, at their option at any time prior to the close of business on the business day immediately preceding October 15, 20222024, with Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) respect to the 2025 Notes, October 1, 2026, with respect to the 2027 Notes, and February 1, 2029 with respect to the 2029 Notes, only under the following circumstances: (i)
| (i) | During any calendar quarter (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; |
| (ii) | During the five consecutive business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per one thousand dollar principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Veeco’s common stock and the conversion rate on each such trading day; |
| (iii) | If the Company calls any or all of applicable series of the Notes for redemption at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or |
| (iv) | Upon the occurrence of specified corporate events. |
For the calendar quarter ended June 30, 2023, the last reported sales price of the common stock for at least 20 trading days (whether or not consecutive) during a period ofthe 30 consecutive trading days, endingbased on the last trading day of the immediately preceding calendar quarter iscriteria outlined in (i) above, was greater than or equal to 130% of the conversion price on each applicable trading day; (ii) During the five consecutive business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per one thousand dollar principal amount of Convertible Senior Notes for each trading day of the measurement period was less than 98% of2027 Notes, and as such the product of2027 Notes are convertible by the last reported sale price of Veeco’s common stock and the conversion rate on each such trading day;holders until September 30, 2023.
(iii) If the Company calls any or all of the Convertible SeniorHolders may convert their Notes for redemption at any time, priorregardless of the foregoing circumstances, on October 15, 2024 with respect to the close of business on2025 Notes, October 1, 2026, with respect to the scheduled trading day immediately preceding2027 Notes, and February 1, 2029, with respect to the redemption date; or
(iv) Upon the occurrence of specified corporate events.
On or after October 15, 2022,2029 Notes, until the close of business on the business day immediately preceding the Maturity Date, holders may convert their notes at any time, regardless of the foregoing circumstances.respective maturity date.
Upon conversion by the holders, the Company may elect to settle such conversion in shares of its common stock, cash, or a combination thereof. As a result of its cash conversion option, the Company segregated the liability component of the instrument from the equity component. The liability component was measured by estimating the fair value of a non-convertible debt instrument that is similar in its terms to the Convertible Senior Notes. The calculation of the fair value of the debt component required the use of Level 3 inputs, including utilization of convertible investors’ credit assumptions and high yield bond indices. Fair value was estimated through discounting future interest and principal payments, an income approach, due under the Convertible Senior Notes at a discount rate of 7.00%, an interest rate equal to the estimated borrowing rate for similar non-convertible debt. The excess of the aggregate face value of the Convertible Senior Notes over the estimated fair value of the liability component of $72.5 million was recognizedare recorded as a debt discountsingle unit within liabilities in the consolidated balance sheets as the conversion features within the Notes are not derivatives that require bifurcation and recorded as an increase to additional paid-in capital, and will be amortized over the expected life of the Convertible Senior Notes using the effective interest rate method. Amortization of the debt discount is recognized as non-cash interest expense.
The transactiondo not involve a substantial premium. Transaction costs of $9.2 million, $1.9 million, $3.1 million, and $6.8 million incurred in connection with the issuance of the Convertible Senior2023 Notes, 2025 Notes, 2027 Notes, and 2029 Notes, respectively, were allocated torecorded as direct deductions from the liability and equity components based on their relative values. Transaction costs allocated to the liability component are being amortized using the effective interest rate methodrelated debt liabilities and recognized as non-cash interest expense using the effective interest method over the expected termterms of the Convertible Senior Notes. Transaction costs allocated to the equity component of $1.9 million reduced the value of the equity component recognized in stockholders’ equity.
The carrying value of the Convertible Senior2023 Notes, is2025 Notes, 2027 Notes, and 2029 Notes are as follows: | | | | | | | | | | | | | | | | | | | | | | June 30, 2023 | | | December 31, 2022 | | | | Principal Amount | | | Unamortized
transaction costs | | | Net carrying value | | | Principal Amount | | | Unamortized
debt discount/
transaction costs | | | Net carrying value | | | | | (in thousands) | 2023 Notes | | $ | — | | $ | — | | $ | — | | $ | 20,173 | | $ | (4) | | $ | 20,169 | 2025 Notes | | | 26,500 | | | (149) | | | 26,351 | | | 132,500 | | | (990) | | | 131,510 | 2027 Notes | | | 25,000 | | | (358) | | | 24,642 | | | 125,000 | | | (2,019) | | | 122,981 | 2029 Notes | | | 230,000 | | | (6,657) | | | 223,343 | | | — | | | — | | | — | Net carrying value | | $ | 281,500 | | $ | (7,165) | | $ | 274,335 | | $ | 277,673 | | $ | (3,013) | | $ | 274,660 |
Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) | | September 30, | | | | 2017 | | | | (in thousands) | | Principal amount | | $ | 345,000 | | Unamortized debt discount | | (65,570 | ) | Unamortized transaction costs | | (6,605 | ) | Net carrying value | | $ | 272,825 | |
Total interest expense related to the Convertible Senior2023 Notes, 2025 Notes, 2027 Notes, and 2029 Notes is as follows: | | Three months ended
September 30, | | Nine months ended
September 30, | | | | 2017 | | 2017 | | | | (in thousands) | | Cash Interest Expense | | | | | | Coupon interest expense | | $ | 2,329 | | $ | 6,573 | | Non-Cash Interest Expense | | | | | | Amortization of debt discount | | 2,502 | | 6,942 | | Amortization of transaction costs | | 252 | | 699 | | Total Interest Expense | | $ | 5,083 | | $ | 14,214 | |
| | | | | | | | | | | | | | | | Three months ended June 30, | | Six months ended June 30, | | | | 2023 | | 2022 | | 2023 | | 2022 | | | | | (in thousands) | | Cash Interest Expense | | | | | | | | | | | | | | Coupon interest expense - 2023 Notes | | $ | — | | $ | 136 | | $ | 23 | | $ | 272 | | Coupon interest expense - 2025 Notes | | | 737 | | | 1,159 | | | 1,896 | | | 2,318 | | Coupon interest expense - 2027 Notes | | | 745 | | | 1,172 | | | 1,917 | | | 2,344 | | Coupon interest expense - 2029 Notes | | | 753 | | | — | | | 753 | | | — | | Non-cash Interest Expense | | | | | | | | | | | | | | Amortization of debt discount/transaction costs- 2023 Notes | | | — | | | 24 | | | 4 | | | 48 | | Amortization of debt discount/transaction costs- 2025 Notes | | | 77 | | | 114 | | | 194 | | | 226 | | Amortization of debt discount/transaction costs- 2027 Notes | | | 70 | | | 101 | | | 175 | | | 202 | | Amortization of debt discount/transaction costs- 2029 Notes | | | 141 | | | — | | | 141 | | | — | | Total Interest Expense | | $ | 2,523 | | $ | 2,706 | | $ | 5,103 | | $ | 5,410 | |
The Company determined the Convertible Senior2025 Notes, is a2027 Notes, and 2029 Notes are Level 2 liabilityliabilities in the fair value hierarchy and had an estimated its fair value as $330.9at June 30, 2023 of $31.9 million, at September 30, 2017.$49.3 million, and $257.0 million, respectively. Capped Call Transactions In connection with the offering of the 2027 Notes, on May 13, 2020, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”), pursuant to capped call confirmations, covering the total principal amount of the 2027 Notes for an aggregate premium of $10.3 million. The Capped Call Transactions are expected generally to reduce the potential dilution to the Company’s common stock upon any conversion of the 2027 Notes and/or offset any cash payments the Company is required to make in excess of the aggregate principal amount of converted 2027 Notes, as the case may be, with such reduction and/or offset subject to a cap based on the capped price of the Capped Call Transactions. The Capped Call Transactions exercise price is equal to the initial conversion price of the 2027 Notes, and the capped price of the Capped Call Transactions is approximately $18.46 per share and is subject to certain adjustments under the terms of the capped call confirmations. The Capped Call Transactions are separate transactions entered into by the Company with the capped call counterparties, are not part of the terms of the 2027 Notes and do not change the holders’ rights under the 2027 Notes. Holders of the 2027 Notes do not have any rights with respect to the Capped Call Transactions. The cost of the Capped Call Transactions is not expected to be tax-deductible as the Company did not elect to integrate the Capped Call Transactions into the 2027 Notes for tax purposes. The Company used a portion of the net proceeds from the offering of the 2027 Notes to pay for the Capped Call Transactions, and the cost of the Capped Call Transactions was recorded as a reduction of the Company’s additional paid-in capital in the accompanying consolidated financial statements. Revolving Credit Facility On December 16, 2021, the Company entered into a loan and security agreement providing for a senior secured revolving credit facility in an aggregate principal amount of $150 million (the “Credit Facility”), including a $15 million letter of credit sublimit. The Credit Facility is guaranteed by the Company’s direct material U.S. subsidiaries, subject to customary exceptions. Borrowings under the Credit Facility are secured by a first-priority lien on substantially all of the assets of the Company, subject to customary exceptions. The Credit Facility has a term of five years, maturing on December 16, 2026, or earlier if certain liquidity measures are not met prior to the 2025 Notes maturing. Subject to certain conditions and the receipt of commitments from the lenders, the Loan and Security Agreement allows for revolving commitments under the Credit Facility to be increased by up to $75 million. The existing lenders under the Credit Facility are entitled, but not obligated, to provide such incremental commitments. Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) Borrowings will bear interest at a floating rate which can be, at the Company’s option, either (a) an alternate base rate plus an applicable rate ranging from 0.50% to 1.25% or (b) a Secured Overnight Financing Rate (“SOFR”) (with a floor of 0.00%) for the specified interest period plus an applicable rate ranging from 1.50% to 2.25%, in each case, depending on the Company’s Secured Net Leverage Ratio (as defined in the Loan and Security Agreement). The Company will pay an unused commitment fee ranging from 0.25% to 0.35% based on unused capacity under the Credit Facility and the Company’s Secured Net Leverage Ratio. The Company may use the proceeds of borrowings under the Credit Facility to pay transaction fees and expenses, provide for its working capital needs and reimburse drawings under letters of credit and for other general corporate purposes. The Loan and Security Agreement contains customary affirmative covenants for transactions of this type, including, among others, the provision of financial and other information to the administrative agent, notice to the administrative agent upon the occurrence of certain material events, preservation of existence, maintenance of properties and insurance, compliance with laws, including environmental laws, the provision of additional guarantees, and an affiliate transactions covenant, subject to certain exceptions. The Loan and Security Agreement contains customary negative covenants, including, among others, restrictions on the ability to merge and consolidate with other companies, incur indebtedness, refinance our existing convertible notes, grant liens or security interests on assets, make investments, acquisitions, loans, or advances, pay dividends, and sell or otherwise transfer assets. The Loan and Security Agreement contains financial maintenance covenants that require the Borrower to maintain an Interest Coverage Ratio (as defined in the Loan and Security Agreement) of not less than 3.00 to 1.00, a Total Net Leverage Ratio (as defined in the Loan and Security Agreement) of not more than 4.50 to 1.00, and a Secured Net Leverage Ratio (as defined in the Loan and Security Agreement) of not more than 2.50 to 1.00, in each case, tested at the end of each fiscal quarter commencing with the fiscal quarter ending June 30, 2022. The Loan and Security Agreement also provides for a number of customary events of default, including, among others: payment defaults to the lenders; voluntary and involuntary bankruptcy proceedings; covenant defaults; material inaccuracies of representations and warranties; certain change of control events; material money judgments; and other customary events of default. The occurrence of an event of default could result in the acceleration of obligations and the termination of lending commitments under the Loan and Security Agreement. No amounts were outstanding under the Credit Facility as of June 30, 2023 or December 31, 2022. Other Liabilities Other liabilities at SeptemberJune 30, 20172023 and December 31, 2022 included deferred compensation(i) medical and dental benefits for former executives of $4.5$1.9 million and $2.0 million, respectively; (ii) asset retirement obligations of $3.3 million, medical and dental benefits of $2.5$0.9 million and acquisition related accruals$0.7 million, respectively; and (iii) contingent consideration of $0.7 million. At December 31, 2016, other liabilities primarily consisted$16.6 million as of a non-current income tax payable of $4.9 million.June 30, 2023. Note 6 -— Commitments and Contingencies MinimumLeases
The Company’s operating leases primarily include real estate leases for properties used for manufacturing, R&D activities, sales and service, and administration, as well as certain equipment leases. Some leases may include options to renew for a period of up to 5 years, while others may include options to terminate the lease. The weighted average remaining lease commitments At Septemberterm of the Company’s operating leases as of June 30, 2017, Veeco’s total2023 was 12 years, and the weighted average discount rate used in determining the present value of future minimum lease payments under non-cancelablewas 5.6%.
Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) The following table provides the maturities of lease liabilities at June 30, 2023: | | | | | | Operating | | | Leases | | | (in thousands) | Payments due by period: | | | | 2023 | | $ | 1,748 | 2024 | | | 4,599 | 2025 | | | 4,086 | 2026 | | | 4,060 | 2027 | | | 3,629 | Thereafter | | | 34,245 | Total future minimum lease payments | | | 52,367 | Less: Imputed interest | | | (15,914) | Total | | $ | 36,453 | | | | | Reported as of June 30, 2023 | | | | Accrued expenses and other current liabilities | | $ | 3,615 | Long-term operating lease liabilities | | | 32,838 | Total | | $ | 36,453 |
Operating lease cost for the three and six months ended June 30, 2023 were $1.2 million and $2.6 million, respectively, and $1.8 million and $3.7 million, respectively, for the comparable 2022 periods. Variable lease cost for the three and six months ended June 30, 2023 were $0.2 million and $0.5 million respectively, and $0.5 million and $1.0 million, respectively, for the comparable 2022 periods. Additionally, the Company has an immaterial amount of short-term leases. Operating cash outflows from operating leases (exclusivefor the six months ended June 30, 2023 and 2022 were $3.0 million and $3.8 million, respectively. Receivable Purchase Agreement The Company entered into a receivable purchase agreement with a financial institution to sell certain of renewal options) are payableits trade receivables from customers without recourse, up to $20.0 million at any point in time. Pursuant to this agreement, the Company sold $9.9 million of receivables during the three months ended June 30, 2023, all of which remained outstanding as follows:of June 30, 2023 as defined in the receivable purchase agreement, and $10.1 million was available under the agreement for additional sales of receivables. The Company did not sell any receivables under this agreement for the six months ended June 30, 2022. The net sale of accounts receivable under the agreement is reflected as a reduction of accounts receivable in the Company’s Consolidated Balance Sheet at the time of sale and any fees for the sale of trade receivables were not material for the periods presented. | | Operating
Leases | | | | (in thousands) | | Payments due by period: | | | | 2017 | | $ | 1,678 | | 2018 | | 5,474 | | 2019 | | 5,002 | | 2020 | | 4,763 | | 2021 | | 1,807 | | Thereafter | | 4,505 | | Total | | $ | 23,229 | |
Purchase commitmentsCommitments Veeco has purchase commitments of $151.7$235.5 million at SeptemberJune 30, 2017,2023, substantially all of which become due within one year. Bank guaranteesGuarantees Veeco has bank guarantees and letters of credit issued by a financial institution on its behalf as needed. At SeptemberJune 30, 2017,2023, outstanding bank guarantees and standby letters of credit totaled $3.7$19.3 million, and unused bank guarantees and letters of credit of $67.9$12.6 million were available to be drawn upon. Table of Contents Legal proceedings
On September 21, 2017, Blueblade Capital Opportunities LLC et al., on behalf of purported beneficial owners of 440,100 shares of Ultratech common stock, filed an action against Ultratech in Delaware Court of Chancery requesting an appraisal of the value of their Ultratech stock pursuant to 8 Del. C. §262. The Company believes that the merger price, which was the product of arms-length negotiations, was fair and reasonable, and intends to contest the appraisal claim. Discovery in the matter has commenced.
On April 12, 2017, the Company filed a patent infringement complaint in the U.S. District Court for the Eastern District of New York against SGL Carbon, LLC and SGL Carbon SE (collectively, “SGL”), alleging infringement of patents relating to wafer carrier technology used in MOCVD equipment. The complaint alleges that SGL infringes Veeco’s patents by making and selling certain wafer carriers to Veeco’s competitor, Advanced Micro-Fabrication Equipment, Inc. (“AMEC”). On November 2, 2017, the U.S. District Court granted the Company’s motion for a preliminary injunction prohibiting SGL from shipping wafer carriers using the Company’s patented technology without the Company’s express authorization. The Company continues to seek a post-trial permanent injunction and monetary damages against SGL.
On July 13, 2017, AMEC filed a patent infringement complaint against Veeco Instruments Shanghai Co., Ltd. (“Veeco Shanghai”) with the Fujian High Court in China, alleging that the Company’s MOCVD products infringed a Chinese utility model patent relatingInc. and Subsidiaries
Notes to the synchronous movement engagement mechanism in a chemical vapor deposition reactor and seeking injunctive relief and monetary damages against Veeco Shanghai. The Company believes this complaint is without merit and intends to vigorously defend against these allegations. The Company has filed a petition for invalidation of this patent with the Chinese Patent Reexamination Board (“PRB”). The Fujian High Court has suspended the infringement case against Veeco pending the outcome of the invalidation proceeding at the PRB.Consolidated Financial Statements - continued (unaudited) Legal Proceedings The Company is involved in various other legal proceedings arising in the normal course of business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows. Note 7 -— Equity Statement of Stockholders’ Equity The following tables present the changes in Stockholders’ Equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | Additional | | | | | Other | | | | | | Common Stock | | Paid-in | | Accumulated | | Comprehensive | | | | | | Shares | | Amount | | Capital | | Deficit | | Income | | Total | | | | (in thousands) | Balance at December 31, 2022 | | 51,660 | | $ | 517 | | $ | 1,078,180 | | $ | (501,801) | | $ | 928 | | $ | 577,824 | Net income | | — | | | — | | | — | | | 8,741 | | | — | | | 8,741 | Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | 476 | | | 476 | Share-based compensation expense | | — | | | — | | | 7,027 | | | — | | | — | | | 7,027 | Net issuance under employee stock plans | | 33 | | | — | | | (8,509) | | | — | | | — | | | (8,509) | Balance at March 31, 2023 | | 51,693 | | $ | 517 | | $ | 1,076,698 | | $ | (493,060) | | $ | 1,404 | | $ | 585,559 | Net income | | — | | | — | | | — | | | (85,320) | | | — | | | (85,320) | Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | (39) | | | (39) | Share-based compensation expense | | — | | | — | | | 7,932 | | | — | | | — | | | 7,932 | Partial extinguishment of 2025 and 2027 Notes | | 4,460 | | | 45 | | | 102,095 | | | | | | | | | 102,140 | Net issuance under employee stock plans | | 185 | | | 2 | | | 2,326 | | | — | | | — | | | 2,328 | Balance at June 30, 2023 | | 56,338 | | $ | 564 | | $ | 1,189,051 | | $ | (578,380) | | $ | 1,365 | | $ | 612,600 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | Additional | | | | | Other | | | | | | Common Stock | | Paid-in | | Accumulated | | Comprehensive | | | | | | Shares | | Amount | | Capital | | Deficit | | Income | | Total | | | | (in thousands) | Balance at December 31, 2021 | | 50,653 | | $ | 507 | | $ | 1,116,921 | | $ | (681,283) | | $ | 1,483 | | $ | 437,628 | Cumulative effect of change in accounting principle - adoption of ASU 2020-06 | | — | | | — | | | (56,801) | | | 12,541 | | | — | | | (44,260) | Net income | | — | | | — | | | — | | | 13,330 | | | — | | | 13,330 | Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | (822) | | | (822) | Share-based compensation expense | | — | | | — | | | 4,481 | | | — | | | — | | | 4,481 | Net issuance under employee stock plans | | 590 | | | 6 | | | (6,793) | | | — | | | — | | | (6,787) | Balance at March 31, 2022 | | 51,243 | | $ | 513 | | $ | 1,057,808 | | $ | (655,412) | | $ | 661 | | $ | 403,570 | Net income | | — | | | — | | | — | | | 9,655 | | | — | | | 9,655 | Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | (272) | | | (272) | Share-based compensation expense | | — | | | — | | | 6,278 | | | — | | | — | | | 6,278 | Net issuance under employee stock plans | | 182 | | | 2 | | | 1,504 | | | — | | | — | | | 1,506 | Balance at June 30, 2022 | | 51,425 | | $ | 515 | | $ | 1,065,590 | | $ | (645,757) | | $ | 389 | | $ | 420,737 |
Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) Accumulated Other Comprehensive Income (“AOCI”) The following table presents the changes in the balances of each component of AOCI, net of tax: | | | | Unrealized | | | | | | Foreign Currency | | Gains (Losses) on
Available for Sale | | | | | | Translation | | Securities | | Total | | | | (in thousands) | | Balance - December 31, 2016 | | $ | 1,797 | | $ | (20 | ) | $ | 1,777 | | Other comprehensive income (loss) | | 25 | | 10 | | 35 | | Balance - September 30, 2017 | | $ | 1,822 | | $ | (10 | ) | $ | 1,812 | |
| | | | | | | | | | | | | | Unrealized | | | | | | | | Gains (Losses) | | | | | | Foreign | | on Available | | | | | | Currency | | for Sale | | | | | | Translation | | Securities | | Total | | | | (in thousands) | Balance - December 31, 2022 | | $ | 1,773 | | $ | (845) | | $ | 928 | Other comprehensive income (loss) | | | (33) | | | 470 | | | 437 | Balance - June 30, 2023 | | $ | 1,740 | | $ | (375) | | $ | 1,365 |
There were minimal reclassifications from AOCI into net income for the ninethree and six months ended SeptemberJune 30, 2017.2023 and 2022. For the nine months ended September 30, 2017, Additional Paid-in Capital increased approximately $228.8 million related to 7.2 million shares issued for the Ultratech merger consideration, $47.5 million related to the issuance of the Convertible Senior Notes including deferred tax impact, and $11.4 million related to on-going share-based compensation activities.
Note 8 -— Share-based compensationCompensation Restricted share awards are issued to employees and to members of our board of directors that are subject to specified restrictions and a risk of forfeiture. The restrictions typically lapse over one to fivefour years and may entitle holders to dividends and voting rights. Other types of share-based compensation include performance share awards, performance share units, and restricted share units (collectively with restricted share awards, “restricted shares”), as well as options to purchase common stock. Share-based compensation expense was recognized in the following line items in the Consolidated Statements of Operations for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022: | | | | | | | | | | | | | | | | | | Three months ended June 30, | | Six months ended June 30, | | | | | 2023 | | 2022 | | 2023 | | 2022 | | | | Three months ended September 30, | | Nine months ended September 30, | | | | | 2017 | | 2016 | | 2017 | | 2016 | | | | | (in thousands) | | | | | | (in thousands) | | Cost of sales | | $ | 740 | | $ | 607 | | $ | 1,898 | | $ | 1,639 | | | $ | 1,572 | | $ | 1,251 | | $ | 3,023 | | $ | 2,189 | | Research and development | | 849 | | 993 | | 1,986 | | 3,032 | | | | 2,568 | | | 1,863 | | | 4,657 | | | 3,120 | | Selling, general, and administrative | | 3,714 | | 2,143 | | 10,182 | | 7,462 | | | | 3,792 | | | 3,164 | | | 7,279 | | | 5,450 | | Restructuring | | 867 | | — | | 1,707 | | — | | | Acquisition costs | | — | | — | | 4,203 | | — | | | Total | | $ | 6,170 | | $ | 3,743 | | $ | 19,976 | | $ | 12,133 | | | $ | 7,932 | | $ | 6,278 | | $ | 14,959 | | $ | 10,759 | |
For the ninesix months ended SeptemberJune 30, 2017,2023, equity activity related to stock options was as follows: | | Number of | | Weighted
Average | | | | Shares | | Exercise Price | | | | (in thousands) | | | | | Balance - December 31, 2016 | | 1,576 | | $ | 35.18 | | Granted | | — | | — | | Exercised | | (18 | ) | 30.03 | | Expired or forfeited | | (129 | ) | 37.03 | | Balance - September 30, 2017 | | 1,429 | | 35.07 | |
| | | | | | | | | | Weighted | | | Number of | | Average | | | Shares | | Exercise Price | | | (in thousands) | | | | Balance - December 31, 2022 | | 177 | | $ | 30.94 | Expired | | (62) | | | 30.47 | Balance - June 30, 2023 | | 115 | | | 31.18 |
Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the Consolidated Financial Statements - continued (unaudited) For the ninesix months ended SeptemberJune 30, 2017,2023, equity activity related to non-vested restricted shares and performance shares was as follows: | | | | Weighted
Average | | | | | Number of | | Grant Date | | | | | Shares | | Fair Value | | | | | (in thousands) | | | | | Balance - December 31, 2016 | | 1,949 | | $ | 23.85 | | | | | | | | | | | | | | | Weighted | | | | | | Average | | | | Number of | | Grant Date | | | | Shares | | Fair Value | | | | (in thousands) | | | | Balance - December 31, 2022 | | | 2,496 | | $ | 23.83 | Granted | | 642 | | 29.35 | | | 1,076 | | | 22.79 | Assumed from Ultratech | | 338 | | 31.75 | | | Performance award adjustments | | | 183 | | | 10.59 | Vested | | (695 | ) | 27.12 | | | (1,113) | | | 16.47 | Forfeited | | (173 | ) | 26.39 | | | (50) | | | 28.01 | Balance - September 30, 2017 | | 2,061 | | 25.85 | | | | Balance - June 30, 2023 | | | 2,592 | | | 25.66 |
Note 9 -— Income Taxes Income taxes are estimated for each of the jurisdictions in which the Company operates. Deferred income taxes 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. Realization of net deferred tax assets is dependent on future taxable income. At September 30, 2017, the Company’s U.S. deferred tax assets are fully offset by a valuation allowance since the Company cannot conclude that it is more likely than not that these future benefits will be realized. At the end of each interim reporting period, the effective tax rate is aligned with expectations for the full year. This estimate is used to determine the income tax provision on a year-to-date basis and may change in subsequent interim periods. If necessary, the year-to-date tax benefit for interim period losses is limited to the amount that could be recognizable at the end of the fiscal year. Income (loss) before income taxes and income tax expense (benefit) for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 were as follows: | | | | | | | | | | | | | | | | | | Three months ended June 30, | | Six months ended June 30, | | | | | 2023 | | 2022 | | 2023 | | 2022 | | | | Three months ended September 30, | | Nine months ended September 30, | | | | | 2017 | | 2016 | | 2017 | | 2016 | | | | | (in thousands) | | | | | | | | | | (in thousands, except percentages) | | Income (loss) before income taxes | | $ | (23,674 | ) | $ | (68,462 | ) | $ | (64,146 | ) | $ | (114,535 | ) | | $ | (84,035) | | $ | 10,188 | | $ | (75,031) | | $ | 23,902 | | Income tax expense (benefit) | | $ | (1,790 | ) | $ | 1,136 | | $ | (24,969 | ) | $ | 2,677 | | | $ | 1,285 | | $ | 533 | | $ | 1,548 | | $ | 917 | | Effective tax rate | | | | (1.53)% | | | 5.23% | | | (2.06)% | | | 3.84% | |
The netCompany’s tax expense for the three and six months ended June 30, 2023 was $1.3 million and $1.5 million respectively, compared to $0.5 million and $0.9 for the comparable prior periods. For the three and six months ended June 30, 2023, the Company’s income tax expense primarily related to pre-tax income from operations excluding the loss on extinguishment of the 2025 and 2027 Notes. Pursuant to the limitation on losses from extinguishment of convertible notes under Section 249 of the Internal Revenue Code of 1986, as amended (Section 249), the Company recognized a benefit of $0.9 million associated with this loss for the three and six months ended June 30, 2023. Additionally, the income tax expense for the three and six months ended June 30, 2023 was favorably impacted by the tax benefits related to Foreign-Derived Intangible Income and research and development tax credits, as well as discrete income tax benefit for the three months ended September 30, 2017 was comprised of a net benefit of $2.2 million related to the Company’s U.S. operations, and a net tax expense of $0.4 million related to the Company’s non-U.S. operations. The net income tax benefit for the nine months ended September 30, 2017 was comprised of a net benefit of $21.6 million and $3.4 million related to the Company’s U.S. and non-U.S. operations, respectively. The net income tax benefit from the Company’s U.S. operations was primarily attributable to a tax benefit of $2.2 million and $23.5 million for losses incurred during the three and nine months ended September 30, 2017, respectively. Under the intraperiod tax allocation rules, the deferred tax liability created upon the issuance of the Convertible Senior Notes and recorded through Additional Paid-in Capital is treated as a source of income, which enables the Company to recognize a benefit for the U.S. loss before income taxes through operations during fiscal 2017. The tax benefit related to the issuance of the Convertible Senior Notes will not recur in future years. This benefit was partially offset by a deferred provision of approximately $1.9 million related to tax amortization on indefinite-lived intangible assets for the nine months ended September 30, 2017.
The net income tax benefit of $3.4 million for the nine months ended September 30, 2017, from the Company’s non-U.S. operations was primarily attributable to the Company’s determination in the first quarter of 2017 that it was more likely than not that it will meet the requirements of an existing foreign tax incentive agreement. As a result, the Company remeasured this uncertain tax position and recognized a $6.3 million benefit during the first quarter, which is comprised of a reversal of a $4.9 million tax liability established in previous periods and the recognition of a deferred tax benefit of $1.4 million related to certain foreign net operating losses generated in prior years that are now determined to be realizable. This benefit was partially offset by a current year tax expense of approximately $3.1 million attributed to the profitable non-U.S. operations, of which approximately $0.4 million was recorded during the three months ended September 30, 2017.
share-based compensation windfall. For the three and ninesix months ended SeptemberJune 30, 2016,2022, the Company did not provide a currenteffective tax benefit onrate was lower than the U.S. pre-tax losses since the Company could not conclude that it is more likely than not that the benefits would be realized. Thestatutory tax expense israte primarily related to indefinite-lived intangiblechanges in the valuation allowance of deferred tax assets that are amortized for tax purposes but not for financial reporting purposes, as well as taxes attributedin the U.S. Table of Contents Veeco Instruments Inc. and Subsidiaries Notes to the profitable non-U.S. operations. The deferred tax liability created by the tax deductible expense cannot be used to offset existing deferred tax assets. Consolidated Financial Statements - continued (unaudited) Note 10 -— Segment Reporting and Geographic Information Veeco operates and measures its results in one operating segment and continues to do so with the integration of Ultratech’s business activities. As a result, the Companytherefore hasone reportable segment: the design, development, manufacture, sales, and support of semiconductor and thin film process equipment primarily sold to make electronic devices.
Veeco categorizes its revenue byserves the key markets intofollowing four end-markets: Semiconductor The Semiconductor market refers to early process steps in logic and memory applications where silicon wafers are processed. There are many different process steps in forming patterned wafers, such as deposition, etching, masking, and doping, where the microchips are created but remain on the silicon wafer. This market includes mask blank production for extreme ultraviolet (“EUV”) lithography, as well as Advanced Packaging, which it sells. Asrefers to a resultportfolio of the acquisitionwafer-level assembly technologies that enable improved performance of Ultratech, the Company’s four key markets are now: LED Lighting, Display &electronic products, such as smartphones, high-end servers, and graphical processors. Compound Semiconductor The Compound Semiconductor (formerly Lighting, Display & Power Electronics); Advanced Packaging, MEMS & RF; Scientific & Industrial, which now includes Data Storage, which was formerly a separate category; and Front-End Semiconductor, which was formerly included in the Scientific & Industrial market category. LED Lighting, Display & Compound Semiconductor
LED Lighting refers to Light Emitting Diode (“LED”) and semiconductor illumination sources used in various applications including, but not limited to, displays such as backlights, general lighting, automotive running lights, and headlamps. Display refers to LEDs used for displays and Organic Light Emitting Diode (“OLED”) displays found in outdoor display/signage applications, TVs, smartphones, wearable devices, and tablets. Compound Semiconductor includes Photonics, Power Electronics, RF Filters and Radio Frequency (“RF”) Devices.Amplifiers, and Solar applications. Photonics refers to light source technologies and laser-based solutions for 3D sensing, datacom and telecom applications. This includes micro-LED, laser diodes, Vertical Cavity Surface Emitting Lasersedge emitting lasers and vertical cavity surface emitting lasers (“VCSEL”VCSELs”) in 3D sensing and communications, and various other optical devices.. Power Electronics refers to semiconductor devices such as rectifiers, inverters and converters for the control and conversion of electric power. RF devices refers to radio frequency emitting and receiving devices that enable wireless communications. Such devices include power amplifiers, switches, and transceivers forin applications such as mobilefast or wireless charging of consumer electronics and automotive applications. RF power amplifiers and filters (including handsetssurface acoustic wave (“SAW”) and base stations), defense, automotive, and the internet of things.
Advanced Packaging, MEMS & RF Filters
Advanced Packaging includes a portfolio of wafer-level assembly technologies that enable the miniaturization and performance improvement of electronic products, such as smartphones, smartwatches, tablets, and laptops. Micro-Electro Mechanical Systemsbulk acoustic wave (“MEMS”BAW”) includes tiny mechanical devices such as sensors, switches, mirrors, and actuators embedded in semiconductor chipsfilters) are used in vehicles, smartphones, tablets, and games. RF Filters refers to RF filters used in5G communications infrastructure, smartphones, tablets, and mobile devices. They make use of radio waves for wireless broadcasting and/or communications. Solar refers to power obtained by harnessing the energy of the sun through the use of compound semiconductor devices such as photovoltaics.
Data Storage Data Storage refers to the Hard Disk Drive (“HDD”) market, for which our systems enable customers to manufacture thin film magnetic heads for hard disk drives as part of large capacity storage applications. Scientific & IndustrialOther Scientific & Other refers to advanced materials research at university research institutions, industry research institutions, industry consortiums, and government research agencies. Industrial refers to large-scale producta range of manufacturing applications including data storageoptical coatings (laser mirrors, optical filters, and optical coatings: thin layersanti-reflective coatings). Table of material deposited on a lens or mirror that alters how light reflectsContents Veeco Instruments Inc. and transmits.Subsidiaries Front-End Semiconductor
Front-End Semiconductor refersNotes to the early steps in the process of integrated circuit fabrication where the microchips are created but still remain on the silicon wafer. This category includes Laser Spike Anneal, Ion Beam etch for front-end semiconductor applications, and Ion Beam deposition for EUV mask blanks.Consolidated Financial Statements - continued
(unaudited) Sales by end-market and geographic region for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 were as follows: | | Three months ended September 30, | | Nine months ended September 30, | | | | 2017 | | 2016 | | 2017 | | 2016 | | | | (in thousands) | | Sales by end-market | | | | | | | | | | LED Lighting, Display & Compound Semiconductor | | $ | 59,721 | | $ | 49,427 | | $ | 170,546 | | $ | 97,985 | | Advanced Packaging, MEMS & RF | | 22,775 | | 12,092 | | 55,756 | | 52,400 | | Scientific & Industrial | | 33,145 | | 20,997 | | 86,917 | | 82,726 | | Front-End Semiconductor | | 16,231 | | 2,966 | | 28,105 | | 5,731 | | Total | | $ | 131,872 | | $ | 85,482 | | $ | 341,324 | | $ | 238,842 | | Sales by geographic region | | | | | | | | | | United States | | $ | 34,723 | | $ | 19,104 | | $ | 73,256 | | $ | 66,550 | | China | | 15,197 | | 21,238 | | 81,811 | | 54,621 | | EMEA(1) | | 17,243 | | 19,703 | | 57,312 | | 61,999 | | Rest of World | | 64,709 | | 25,437 | | 128,945 | | 55,672 | | Total | | $ | 131,872 | | $ | 85,482 | | $ | 341,324 | | $ | 238,842 | |
| | | | | | | | | | | | | | | | Three months ended June 30, | | Six months ended June 30, | | | | 2023 | | 2022 | | 2023 | | 2022 | | | | | (in thousands) | | Sales by end-market | | | | | | | | | | | | | | Semiconductor | | $ | 106,275 | | $ | 97,521 | | $ | 199,382 | | $ | 175,141 | | Compound Semiconductor | | | 24,066 | | | 31,122 | | | 45,225 | | | 68,231 | | Data Storage | | | 13,945 | | | 21,548 | | | 35,459 | | | 43,143 | | Scientific & Other | | | 17,355 | | | 13,808 | | | 35,079 | | | 33,910 | | Total | | $ | 161,641 | | $ | 163,999 | | $ | 315,145 | | $ | 320,425 | | Sales by geographic region | | | | | | | | | | | | | | United States | | $ | 35,739 | | $ | 57,940 | | $ | 66,750 | | $ | 105,410 | | EMEA(1) | | | 17,511 | | | 27,234 | | | 40,458 | | | 48,660 | | China | | | 49,986 | | | 28,497 | | | 110,733 | | | 58,878 | | Rest of APAC | | | 58,320 | | | 49,345 | | | 97,065 | | | 106,267 | | Rest of World | | | 85 | | | 983 | | | 139 | | | 1,210 | | Total | | $ | 161,641 | | $ | 163,999 | | $ | 315,145 | | $ | 320,425 | |
(1) EMEA consists of Europe, the Middle East, and Africa
| (1) | EMEA consists of Europe, the Middle East, and Africa |
For geographic reporting, sales are attributed to the location in which the customer facility is located. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward Looking Statements Our discussion below constitutes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “targets,” “plans,” “intends,” “will,” and similar expressions related to the future are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made. Executive Summary On May 26, 2017, we completed the acquisitionWe are an innovative manufacturer of Ultratech. Ultratech designs, manufactures, and markets lithography,semiconductor process equipment. Our proven ion beam, laser annealing, and inspection equipment for manufacturers of semiconductor devices, including front-end semiconductor manufacturing and advanced packaging. Ultratech also designs, manufactures, and markets atomic layer deposition (“ALD”) equipment for scientific and industrial applications. Ultratech’s customers are primarily located throughout the United States, EMEA, China, Japan, Taiwan, Singapore, and Korea. The results of Ultratech’s operations have been included in the consolidated financial statements since the date of acquisition.
Together with Ultratech, we design, manufacture, and market semiconductor process equipment aligned to meet the demands of key global trends such as energy conservation, mobility, and connectivity. Ourlithography, MOCVD, lithography, laser annealing, ion beam,CVD, and single wafer etch and& clean technologies play an integral role in producing LEDs for solid-state lightingthe fabrication and displays and in the fabricationpackaging of advanced semiconductor devices. With equipment designed to optimize performance, yield and cost of ownership, we holdVeeco holds leading technology leadership positions in the markets we serve. To learn more about Veeco’s systems and service offerings, visit www.veeco.com.
Business Update Macroeconomic challenges across the industry have been well publicized, including supply chain constraints, an inflationary and high-interest rate environment with a potential recession ahead, heightened China-export regulations, uncertainty in the banking industry, and a forecasted decline in the semiconductor and related markets due to softness in consumer, smartphone and PC applications, all these served markets.of which are contributing to a difficult environment with increased uncertainty. Longer lead times and parts shortages and allocations have required that we plan further ahead than usual, and we have undertaken efforts to increase our purchase commitments to secure critical components in a timely manner. Our supply chain continues to improve, as evidenced by a decline in lead times and a further improvement to suppliers on time deliveries; however, material lead times remain elevated and continue to be a challenge with respect to our supply chain, limiting our ability to fulfill some of our customers’ demands in a timely manner, as many of our peers have also been experiencing. While we expect lead times to further improve in the second half of the year, we expect supply shortages and related challenges to persist throughout 2023. We continue to monitor our supply chain and work with our suppliers to identify and mitigate potential gaps in an effort to ensure continuity of supply. We also continue to experience increasing labor and material costs, creating gross margin pressures. We categorizecontinue to see a slow-down in certain shorter lead time products such as advanced packaging lithography, spare parts, and upgrades, as well as instances where customers have requested order cancellations, delayed shipments, or delayed payments. Consequently, we are monitoring the situation very closely and have been taking early actions to limit the pace at which we increase spending while maintaining our revenuegrowth trajectory. Furthermore, the US Department of Commerce, Bureau of Industry and Security (“BIS”), issued China-export regulations on October 7, 2022 which broadened the requirements under which export licenses will be required, with a presumption of denial as to their issuance. In addition, certain China-based companies were added to the BIS Unverified List, and changes have been made to the BIS Entity List, further restricting sales to the named entities. Recent order activity has led to significant backlog in China, some of which may be subject to these regulations. While the export regulation landscape is fluid and evolving, we believe at this time that the substantial majority of this backlog will not be negatively affected by the key markets into whichnew regulations. While we sell. Ourwork to overcome these macroeconomic challenges, we continue to serve our customers in the following four key markets are: LED Lighting, Display &end markets: Semiconductor; Compound Semiconductor; Advanced Packaging, MEMS & RF;Data Storage; and Scientific & Industrial; and Front-End Semiconductor.Other. Sales in the LED Lighting, Display &Semiconductor market during the second quarter grew 9% year-over-year and 14% sequentially, driven by record laser annealing system revenue and shipment of two EUV chambers. We continue to build momentum for our laser annealing solutions in advanced node logic by winning application steps. We recently received orders from several Tier 1 advanced logic customers. While our growth strategy is predominately focused on shipping systems for advanced node logic and memory applications, we have also been receiving orders and shipping systems for trailing node applications in China and other regions. As it relates to the memory market, we recently announced that a Tier 1 memory customer placed several LSA orders for high volume production of DRAM devices following a successful evaluation program. The ongoing adoption of EUV Lithography for advanced node semiconductor manufacturing continues to drive demand for our Ion Beam mask blank systems. Additionally, our lithography systems for Advanced Packaging are aligned with packaging approaches such as fan out wafer level packaging and other advanced packaging applications, while our wet processing systems are used for Photoresist Strip, Solvent Cleans, and flux removal. Overall, our technology and market strategy are well aligned with trends such as artificial intelligence, mobile connectivity and high-performance computing that drive the Semiconductor market. Based on recent order activity and our current backlog in the Semiconductor market, we expect revenue growth in 2023, outpacing wafer fab equipment spending growth, which the prevailing consensus view has forecasted to be down in 2023. We address the Compound Semiconductor market were driven by the continued shipment of MOCVD and PSP systems to customers in Europe, China, and Southeast Asia, along with a large MBE system shipment in the Solar application space. The largest applications for LEDs are solid state lighting, followed by TV displays. Over the past few quarters, demand has increased for larger LCD TV displays, which require relatively more LEDs to backlight than smaller display sizes. We have also seen an increase in LED demand for fine-pitch digital signage. These trends have driven an increase in demand for our MOCVD equipment and build-up in our MOCVD backlog. Our broad portfolio of technologies, including Wet Processing and MOCVD, technologies hasalong with MBE and Ion Beam, all of which have been developed to support emerging applications such as 5G driven RF device/filter manufacturing, GaN power electronics, and photonics applications including edge-emitting lasers, specialty LEDs and micro-LEDs. Sales in the most significant industry trends, including developing mid-power LEDs, utilizing larger wafer sizes,Compound Semiconductor market in Q2 2023 increased as compared to the prior quarter and optimizing cost-of-ownership. Our TurboDisc® EPIK™ 700declined as compared to prior year quarter. In Q2 2023, we shipped several systems for photonics applications. We continue to invest for future growth in the Compound Semiconductor market in areas like power electronics and Micro-LED. Power electronics markets are served by GaN MOCVDequipment, and also by SiC epitaxy equipment. We are working to penetrate the GaN power market, which is driven by applications such as wireless charging in consumer electronics. In addition to our GaN system continuesofferings, on January 31, 2023 Veeco acquired SiC technology to win new business for blue LEDs. Our TurboDisc K475i™ AsP MOCVD system targets red-orange-yellow LEDs, laser diodes,address the high-growth SiC power epitaxy equipment market, which is primarily driven by adoption of electric vehicles. With this acquisition, Veeco is accelerating its entry into this market, and high-efficiency triple junction photovoltaic solar cells and continues to gain market momentum. During the quarter we released our latest MOCVD system, the EPIK868, offering a lower cost and higher productivity solution for our customers. The EPIK868 was designed to meet the needs of our customersexpects revenue starting in China, demonstrating our long-term commitment to this region. We believe that the expected profits from increased revenues may be partially offset by lower margins based on the current competitive environment.2024. Sales in the Advanced Packaging, MEMS & RF marketsData Storage market in Q2 2023 declined as compared to the prior quarter and the prior year quarter. Demand for our Ion Beam products is driven by cloud-based storage. Hard disk drive manufacturers are manufacturing drives with an increasing number of magnetic heads, in addition to introducing advanced technologies requiring increased capital intensity. As reported, the hard disk drive industry experienced contraction in exabyte shipments in 2022 and 2023 with uncertainty as to the timing of a recovery; however, recent analyst and industry forecasts predict nearline hard disk drive exabyte shipments to grow at an approximate 20 to 25% CAGR over the coming years. Despite these current industry challenges, we continue to be influenced byexpect revenue growth in 2023 based on the mobility trend and increasing functionalityship dates of orders in mobile devices and were driven by Ultratech and PSP sales in Advanced Packaging and continued PSP sales for MEMs and RF Filter applications. Sales into the Advanced Packaging market have slowed, largely tied to large Lithography system purchases in 2016 and early 2017, combined with delays in FOWLP (Fan Out Wafer Level Packaging) adoption by some smartphone manufacturers and weak smartphone sales. We remain well positioned for growth as FOWLP and other advance packaging applications grow over the longer term. Our versatile PSP product architecture has allowed us to continue to generate solid business in the MEMs and RF Filter portion of this category.our backlog. Sales in the Scientific & Industrial markets wereOther 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, & IBD/IBE, which support scientific, optical coating and other applications, such as Micro-Electromechanical Systems (MEMS) applications. Sales in this market increased as compared to the quarter in the prior year, while declining as compared to the first quarter of this year. We expect sales in this market to grow in the long run, in line with GDP. Overall, based on our current visibility supported by shipments of AD&E systems for optical coatings and data storage applications, as well as shipments of MBE systemsour backlog, we continue to universities and laboratories. While equipment demand from each individual market may fluctuate quarterexpect total 2023 revenue to quarter, the diverse customer base has historically provided a relatively stable revenue stream for the company on a combined basis.
Salesbe in the Front-End Semiconductor market were primarily driven by Ultratech’s Laser Annealing systems and AD&E’s Photomask systems.range of $630 million to $670 million.
Results of Operations For the three months ended SeptemberJune 30, 20172023 and 20162022 The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for 2017the indicated periods in 2023 and 20162022 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, including the Ultratech business acquired.segment. | | Three months ended September 30, | | Change | | | | 2017 | | 2016 | | Period to Period | | | | (dollars in thousands) | | Net sales | | $ | 131,872 | | 100% | | $ | 85,482 | | 100% | | $ | 46,390 | | 54% | | Cost of sales | | 78,811 | | 60% | | 52,027 | | 61% | | 26,784 | | 51% | | Gross profit | | 53,061 | | 40% | | 33,455 | | 39% | | 19,606 | | 59% | | Operating expenses, net: | | | | | | | | | | | | | | Research and development | | 24,061 | | 18% | | 19,892 | | 23% | | 4,169 | | 21% | | Selling, general, and administrative | | 29,771 | | 23% | | 18,396 | | 22% | | 11,375 | | 62% | | Amortization | | 12,500 | | 9% | | 5,261 | | 6% | | 7,239 | | 138% | | Restructuring | | 5,010 | | 4% | | 1,798 | | 2% | | 3,212 | | 179% | | Acquisition costs | | 783 | | 1% | | — | | 0% | | 783 | | * | | Asset impairment | | 2 | | 0% | | 56,035 | | 66% | | (56,033 | ) | (100)% | | Other, net | | (140 | ) | (0)% | | 795 | | 1% | | (935 | ) | (118)% | | Total operating expenses, net | | 71,987 | | 55% | | 102,177 | | 120% | | (30,190 | ) | (30)% | | Operating income (loss) | | (18,926 | ) | (14)% | | (68,722 | ) | (80)% | | 49,796 | | * | | Interest income (expense), net | | (4,748 | ) | (4)% | | 260 | | 0% | | (5,008 | ) | * | | Income (loss) before income taxes | | (23,674 | ) | (18)% | | (68,462 | ) | (80)% | | 44,788 | | * | | Income tax expense (benefit) | | (1,790 | ) | (1)% | | 1,136 | | 1% | | (2,926 | ) | * | | Net income (loss) | | $ | (21,884 | ) | (17)% | | $ | (69,598 | ) | (81)% | | $ | 47,714 | | * | |
| | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Change | | | | 2023 | | | 2022 | | | Period to Period | | | | | (dollars in thousands) | | Net sales | | $ | 161,641 | | 100% | | | $ | 163,999 | | 100% | | | $ | (2,358) | | (1)% | | | Cost of sales | | | 94,131 | | 58% | | | | 99,732 | | 61% | | | | (5,601) | | (6)% | | | Gross profit | | | 67,510 | | 42% | | | | 64,267 | | 39% | | | | 3,243 | | 5% | | | Operating expenses, net: | | | | | | | | | | | | | | | | | | | | Research and development | | | 27,384 | | 17% | | | | 26,016 | | 16% | | | | 1,368 | | 5% | | | Selling, general, and administrative | | | 23,822 | | 15% | | | | 22,950 | | 14% | | | | 872 | | 4% | | | Amortization of intangible assets | | | 2,123 | | 1% | | | | 2,505 | | 2% | | | | (382) | | (15)% | | | Other operating expense (income), net | | | 493 | | - | | | | (27) | | - | | | | 520 | | * | | | Total operating expenses, net | | | 53,822 | | 33% | | | | 51,444 | | 31% | | | | 2,378 | | 5% | | | Operating income (loss) | | | 13,688 | | 8% | | | | 12,823 | | 8% | | | | 865 | | 7% | | | Interest income (expense), net | | | (632) | | (0)% | | | | (2,635) | | (2)% | | | | 2,003 | | (76)% | | | Other income (expense), net | | | (97,091) | | (60)% | | | | — | | 0% | | | | (97,091) | | * | | | Income (loss) before income taxes | | | (84,035) | | (52)% | | | | 10,188 | | 6% | | | | (94,223) | | * | | | Income tax expense (benefit) | | | 1,285 | | - | | | | 533 | | - | | | | 752 | | 141% | | | Net income (loss) | | $ | (85,320) | | (53)% | | | $ | 9,655 | | 6% | | | $ | (94,975) | | * | | |
* Not meaningful | Not meaningful |
Net Sales The following is an analysis of sales by market and by region: | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | Change | | | | | | 2023 | | | 2022 | | Period to Period | | | | | Three months ended September 30, | | Change | | | | | 2017 | | 2016 | | Period to Period | | | | | (dollars in thousands) | | | Sales by market | | | | | | | | | | | | | | | LED Lighting, Display & Compound Semiconductor | | $ | 59,721 | | 45% | | $ | 49,427 | | 58% | | $ | 10,294 | | 21% | | | Advanced Packaging, MEMS & RF | | 22,775 | | 17% | | 12,092 | | 14% | | 10,683 | | 88% | | | Scientific & Industrial | | 33,145 | | 25% | | 20,997 | | 25% | | 12,148 | | 58% | | | Front-End Semiconductor | | 16,231 | | 13% | | 2,966 | | 3% | | 13,265 | | 447% | | | | | | (dollars in thousands) | | | Sales by end-market | | | | | | | | | | | | | | | | | | | | Semiconductor | | | $ | 106,275 | | 65% | | | $ | 97,521 | | 60% | | $ | 8,754 | | 9% | | | Compound Semiconductor | | | | 24,066 | | 15% | | | | 31,122 | | 19% | | | (7,056) | | (23)% | | | Data Storage | | | | 13,945 | | 9% | | | | 21,548 | | 13% | | | (7,603) | | (35)% | | | Scientific & Other | | | | 17,355 | | 11% | | | | 13,808 | | 8% | | | 3,547 | | 26% | | | Total | | $ | 131,872 | | 100% | | $ | 85,482 | | 100% | | $ | 46,390 | | 54% | | | $ | 161,641 | | 100% | | | $ | 163,999 | | 100% | | $ | (2,358) | | (1)% | | | Sales by geographic region | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | United States | | $ | 34,723 | | 26% | | $ | 19,104 | | 22% | | $ | 15,619 | | 82% | | | $ | 35,739 | | 22% | | | $ | 57,940 | | 35% | | $ | (22,201) | | (38)% | | | EMEA | | | | 17,511 | | 11% | | | | 27,234 | | 17% | | | (9,723) | | (36)% | | | China | | 15,197 | | 12% | | 21,238 | | 25% | | (6,041 | ) | (28)% | | | | 49,986 | | 31% | | | | 28,497 | | 17% | | | 21,489 | | 75% | | | EMEA | | 17,243 | | 13% | | 19,703 | | 23% | | (2,460 | ) | (12)% | | | Rest of APAC | | | | 58,320 | | 36% | | | | 49,345 | | 30% | | | 8,975 | | 18% | | | Rest of World | | 64,709 | | 49% | | 25,437 | | 30% | | 39,272 | | 154% | | | | 85 | | - | | | | 983 | | 1% | | | (898) | | * | | | Total | | $ | 131,872 | | 100% | | $ | 85,482 | | 100% | | $ | 46,390 | | 54% | | | $ | 161,641 | | 100% | | | $ | 163,999 | | 100% | | $ | (2,358) | | (1)% | | |
Total sales increased across all market categoriesSales decreased for the three months ended SeptemberJune 30, 20172023 against the comparable prior year period drivenin the Data Storage and Compound Semiconductor markets, partially offset by ongoing improvementsan increase in LED industry conditions, as well as additional sales from the Ultratech business acquired in May 2017, spread across all markets. Pricing was not a significant driver of the change in total sales.Semiconductor market. By geography, sales increaseddecreased in the United States and Rest of WorldEMEA regions, partially offset by decreasesan increase in the China and EMEA. The most significant increase occurredregion. Sales in the Rest of WorldAPAC region which was attributable tofor the increasedthree months ended June 30, 2023 included sales in Singapore, Taiwan, and Japan of $22.9 million, $16.1 million, and $12.5 million respectively. Sales in the LED Lighting, Display & Compound Semiconductor market in Malaysia, as well as additional sales fromRest of APAC region for the Ultratech business acquired. Additionally, increasedthree months ended June 30, 2022 included sales in the United States were primarily attributable to increased sales in the Scientific & Industrial market, as well as additional sales from the Ultratech business acquired.Taiwan and Japan of $28.0 million and $11.0 million, respectively. We expect there will continue to be year-to-year variations in our future sales distribution across markets and geographies.
Orders increased to $161.9 million for In light of the three months ended September 30, 2017 from $118.0 million for the comparable prior year period. The increase in orders was primarily attributable to increasesglobal nature of our business, we are impacted by conditions in the LED Lighting, Display & Compound Semiconductorvarious countries in which we and Scientific & Industrial markets, including additional bookings from the Ultratech acquisition.our customers operate.
One of the performance measures we use as a leading indicator of the business is the book-to-bill ratio. The ratio is defined as orders recorded in a given period divided by revenue recognized in the same period. A ratio greater than one indicates we are adding orders faster than we are recognizing revenue. Gross Profit
For the three months ended September 30, 2017, the ratio was 1.2, compared to 1.4 for the comparable prior period. Our backlog at September 30, 2017 was $299.2 million, which was higher than the backlog at June 30, 2017 of $269.5 million. During the three months ended September 30, 2017, we recorded backlog adjustments of approximately $0.1 million relating to orders that no longer met our bookings criteria. Gross Profit
In the third quarter of 2017,2023, gross profit increased compared to the third quarter of 2016 due to a sharp increase in sales volume, including the acquisition of Ultratech. Gross margins remained relatively consistent for the three months ended September 30, 2017 against the comparable prior period as the increase indue to higher gross margins. Gross margins increased principally due to product and region mix of sales in the period was offset by an inventory fair value step-up that was recorded in connection with the purchase accounting relating to the Ultratech acquisition. Given the current competitive environment in MOCVD business, we may see a decline inand favorable spending. We expect our gross margins as we move beyond this calendar year.to fluctuate each period due to product mix and other factors.
Research and developmentDevelopment 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 June 30, 2023 against the comparable prior period primarily due to personnel-related expenses as we invest in the third quarter of 2017 compared to the third quarter of 2016 primarily as a result of the addition of the acquired Ultratech relatednew research and development projects, partially offset byand additional applications for our decisiontechnology in order to significantly reduce investmentsbe well-positioned to capitalize on emerging global megatrends and support longer term growth in certain technology, as well as decreases in other personnel-related expensesSemiconductor and professional fees as a result of our initiative to streamline operations, enhance efficiency,Compound Semiconductor markets. Selling, General, and reduce costs. Selling, general, and administrativeAdministrative
Selling, general, and administrative expenses increasedremained flat for the three months ended June 30, 2023 against the comparable prior period. Given the uncertainty regarding the impacts on our business resulting from the general macroeconomic environment, we are focused on the proactive management of expenses. Amortization Expense Amortization expense decreased compared to the comparable prior year period primarily due to the addition of the acquired Ultratech related selling, general and administrative costs, as well as increased professional and legal fees. Amortization expense
The increasechanges in amortization expense is a resultto reflect expected cash flows of the additional intangibles acquired as part of the acquisition of Ultratech, offset by the lower amortization resulting from the impairment of the certain technologyintangible assets, in the prior year as well as certain other intangible assets becoming fully amortized during 2016.in 2022.
Restructuring expense
During 2016, we undertook restructuring activities as part of our initiative to streamline operations, enhance efficiencies, and reduce costs, as well as reducing future investments in certain technology development, which together impacted
approximately 75 employees. In addition, during 2017, we began the acquisition integration process to enhance efficiencies, resulting in additional employee terminations and other facility closing costs. Over the next few quarters, we expect to incur additional restructuring costs of $1 million to $5 million as it finalizes all of these activities.
Acquisition costs
Acquisition costs are non-recurring charges incurred in connection with the acquisition of the Ultratech business.
Asset Impairment
During the third quarter of 2016 we decided to significantly reduce investments in certain technologies and recorded non-cash asset impairment charges of $57.6 million, partially offset by an adjustment to our assessment of the fair market value of an asset then held as available-for-sale of $1.6 million.
Interest Income (Expense) For the three months ended September 30, 2017, weWe recorded net interest expense of $4.7$0.6 million for the three months ended June 30, 2023, compared with net interest income of $0.3to $2.6 million infor the comparable prior year period. The changedecrease in net interest expense was primarily relatesrelated to an increase of interest income of approximately $2.4 million due to a more favorable interest rate environment for the Convertible Senior Notes issued in January 2017.three months ended June 30, 2023, against the comparable prior year period.
Other Income (Expense) On May 19, 2023, in connection with the completion of a private offering of $230.0 million aggregate principal amount of 2.875% convertible senior notes, we repurchased and retired approximately $106.0 million in aggregate principal amount of our outstanding 2025 Notes, with a carrying amount of $105.4 million, for approximately $106.0 million of cash and 0.7 million shares of our common stock for the 2025 Notes. Also, we repurchased and retired approximately $100.0 million in aggregate principal amount of our outstanding 2027 Notes; with a carrying amount of $98.5 million, for approximately $92.8 million of cash and 3.8 million shares of our common stock for the 2027 Notes. We accounted for the partial settlement of the 2025 Notes and 2027 Notes as an extinguishment, and as such, recorded a loss on extinguishment of approximately $16.5 million and $80.6 million, respectively, for the three months ended June 30, 2023. Income Taxes At the end of each interim reporting period, we estimate the effective income tax rate expected to be applicable for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods. Our tax benefitexpense for the three months ended SeptemberJune 30, 20172023 was $1.8$1.3 million, compared to a tax expense of $1.1$0.5 million for the comparable prior period. The 2017 tax benefit included a $2.2 million benefit relating to our domestic operations and a $0.4 million expense relating to our non-U.S. operations, compared to 2016 when our expense included $0.3 million related to domestic operations and $0.8 million related to our non-U.S. operations. The current period domestic tax benefit is primarily attributable to an income tax benefit for losses incurred duringFor the three months ended SeptemberJune 30, 2017, as2023, we incurred income tax expense primarily related to pre-tax income from operations excluding the deferred tax liability created by the issuanceloss on extinguishment of the Convertible Senior Notes is treated as2025 and 2027 Notes. Pursuant to Section 249 limitation on losses from extinguishment of convertible notes, we recognized a sourcebenefit of income in fiscal 2017, offset by a deferred provision related to tax amortization on indefinite-lived intangible assets. The current period non-U.S. tax expense is attributable to$0.9 million associated with this loss for the profitable non-U.S. operations. Thethree months ended June 30, 2023. Additionally, the $1.3 million of income tax expense for the comparable period is primarily attributable tothree months ended June 30, 2023 was favorably impacted by the tax amortizationbenefits related to Foreign-Derived Intangible Income and research and development tax credits. For the three months ended June 30, 2022, the effective tax rate was lower than the U.S. statutory tax rate primarily related to changes in the valuation allowance of indefinite-lived intangible assets that is not available to offset U.S. deferred tax assets.assets in the U.S. For the ninesix months ended SeptemberJune 30, 20172023 and 20162022 The following table presents operating results as a percentagerevenue and expense line items reported in our Consolidated Statements of net sales, as well asOperations for the indicated periods in 2023 and 2022 and the period-over-period dollar and percentage changes for those line items. Our results of operations are reported as one business segment, including the Ultratech business acquired. | | Nine months ended September 30, | | Change | | | | 2017 | | 2016 | | Period to Period | | | | (dollars in thousands) | | Net sales | | $ | 341,324 | | 100% | | $ | 238,842 | | 100% | | $ | 102,482 | | 43% | | Cost of sales | | 215,344 | | 63% | | 141,991 | | 59% | | 73,353 | | 52% | | Gross profit | | 125,980 | | 37% | | 96,851 | | 41% | | 29,129 | | 30% | | Operating expenses, net | | | | | | | | | | | | | | Research and development | | 57,669 | | 17% | | 63,545 | | 27% | | (5,876 | ) | (9)% | | Selling, general, and administrative | | 71,574 | | 21% | | 58,230 | | 24% | | 13,344 | | 23% | | Amortization | | 21,722 | | 6% | | 15,785 | | 7% | | 5,937 | | 38% | | Restructuring | | 9,605 | | 3% | | 3,993 | | 2% | | 5,612 | | 141% | | Acquisition costs | | 16,277 | | 5% | | — | | 0% | | 16,277 | | * | | Asset impairment | | 1,139 | | 0% | | 69,662 | | 29% | | (68,523 | ) | (98)% | | Other, net | | (228 | ) | (0)% | | 884 | | 0% | | (1,112 | ) | (126)% | | Total operating expenses, net | | 177,758 | | 52% | | 212,099 | | 89% | | (34,341 | ) | (16)% | | Operating income (loss) | | (51,778 | ) | (15)% | | (115,248 | ) | (48)% | | 63,470 | | * | | Interest income (expense), net | | (12,369 | ) | (4)% | | 713 | | 0% | | (13,082 | ) | * | | Income (loss) before income taxes | | (64,146 | ) | (19)% | | (114,535 | ) | (48)% | | 50,389 | | * | | Income tax expense (benefit) | | (24,969 | ) | (7)% | | 2,677 | | 1% | | (27,646 | ) | * | | Net income (loss) | | $ | (39,177 | ) | (11)% | | $ | (117,212 | ) | (49)% | | $ | 78,035 | | * | |
* Not Meaningfulrepresented by our single operating segment.
| | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, | | | Change | | | 2023 | | | 2022 | | | Period to Period | | | | (dollars in thousands) | Net sales | | $ | 315,145 | | 100% | | | $ | 320,425 | | 100% | | | $ | (5,280) | | (2)% | | Cost of sales | | | 185,618 | | 59% | | | | 190,146 | | 59% | | | | (4,528) | | (2)% | | Gross profit | | | 129,527 | | 41% | | | | 130,279 | | 41% | | | | (752) | | (1)% | | Operating expenses, net: | | | | | | | | | | | | | | | | | | | Research and development | | | 54,945 | | 17% | | | | 50,133 | | 16% | | | | 4,812 | | 10% | | Selling, general, and administrative | | | 46,449 | | 15% | | | | 45,844 | | 14% | | | | 605 | | 1% | | Amortization of intangible assets | | | 4,235 | | 1% | | | | 5,009 | | 2% | | | | (774) | | (15)% | | Other operating expense (income), net | | | 404 | | - | | | | (47) | | - | | | | 451 | | * | | Total operating expenses, net | | | 106,033 | | 34% | | | | 100,939 | | 32% | | | | 5,094 | | 5% | | Operating income (loss) | | | 23,494 | | 7% | | | | 29,340 | | 9% | | | | (5,846) | | (20)% | | Interest income (expense), net | | | (1,434) | | (0)% | | | | (5,438) | | (2)% | | | | 4,004 | | (74)% | | Other income (expense), net | | | (97,091) | | (31)% | | | | — | | 0% | | | | (97,091) | | * | | Income (loss) before income taxes | | | (75,031) | | (24)% | | | | 23,902 | | 7% | | | | (98,933) | | * | | Income tax expense (benefit) | | | 1,548 | | - | | | | 917 | | - | | | | 631 | | 69% | | Net income (loss) | | $ | (76,579) | | (24)% | | | $ | 22,985 | | 7% | | | $ | (99,564) | | * | |
Net Sales The following is an analysis of sales by market and by region: | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, | | Change | | | | 2023 | | 2022 | | Period to Period | | | Nine months ended September 30, | | Change | | | | | 2017 | | 2016 | | Period to Period | | | | | (dollars in thousands) | | | Sales by market | | | | | | | | | | | | | | | LED Lighting, Display & Compound Semiconductor | | $ | 170,546 | | 51% | | $ | 97,132 | | 41% | | $ | 73,414 | | 76% | | | Advanced Packaging, MEMS & RF | | 55,756 | | 16% | | 52,400 | | 22% | | 3,356 | | 6% | | | Scientific & Industrial | | 86,917 | | 25% | | 83,510 | | 35% | | 3,407 | | 4% | | | Front-End Semiconductor | | 28,105 | | 8% | | 5,800 | | 2% | | 22,305 | | 385% | | | | | | (dollars in thousands) | Sales by end-market | | | | | | | | | | | | | | | | | Semiconductor | | | $ | 199,382 | | 64% | | $ | 175,141 | | 55% | | $ | 24,241 | | 14% | Compound Semiconductor | | | | 45,225 | | 14% | | | 68,231 | | 21% | | | (23,006) | | (34)% | Data Storage | | | | 35,459 | | 11% | | | 43,143 | | 13% | | | (7,684) | | (18)% | Scientific & Other | | | | 35,079 | | 11% | | | 33,910 | | 11% | | | 1,169 | | 3% | Total | | $ | 341,324 | | 100% | | $ | 238,842 | | 100% | | $ | 102,482 | | 43% | | | $ | 315,145 | | 100% | | $ | 320,425 | | 100% | | $ | (5,280) | | (2)% | Sales by geographic region | | | | | | | | | | | | | | | | | | | | | | | | | | | | | United States | | $ | 73,256 | | 21% | | $ | 66,550 | | 28% | | $ | 6,706 | | 10% | | | $ | 66,750 | | 21% | | $ | 105,410 | | 33% | | $ | (38,660) | | (37)% | EMEA | | | | 40,458 | | 13% | | | 48,660 | | 15% | | | (8,202) | | (17)% | China | | 81,811 | | 24% | | 54,621 | | 23% | | 27,190 | | 50% | | | | 110,733 | | 35% | | | 58,878 | | 19% | | | 51,855 | | 88% | EMEA | | 57,312 | | 17% | | 61,999 | | 26% | | (4,687 | ) | (8)% | | | Rest of APAC | | | | 97,065 | | 31% | | | 106,267 | | 33% | | | (9,202) | | (9)% | Rest of World | | 128,945 | | 38% | | 55,672 | | 23% | | 73,273 | | 132% | | | | 139 | | - | | | 1,210 | | - | | | (1,071) | | * | Total | | $ | 341,324 | | 100% | | $ | 238,842 | | 100% | | $ | 102,482 | | 43% | | | $ | 315,145 | | 100% | | $ | 320,425 | | 100% | | $ | (5,280) | | (2)% |
Total sales increased across all market categoriesSales decreased for the ninesix months ended SeptemberJune 30, 20172023 against the comparable prior year period driven by ongoing improvements in LED industry conditions, as well as additional sales from the Ultratech business acquired in May 2017, spread across all markets. Pricing was not a significant driver of the change in total sales. Sales also increased across most geographical regions, primarily due to the increased sales in the LED Lighting, Display & Compound Semiconductor market, as well as additionaland Data Storage markets, partially offset by an increase in the Semiconductor market. By geography, sales fromdecreased in the Ultratech acquisition. Increased salesUnited States, Rest of APAC, and EMEA regions, partially offset by an increase in the China region. Sales in the Rest of WorldAPAC region was principally driven by a significant increasefor the six months ended June 30, 2023 included sales in Taiwan, Singapore, Japan, and Thailand of $34.1 million, $25.8 million, $16.9 million, and $10.4 million respectively. Sales in the Rest of APAC region for the six months ended June 30, 2022 included sales to customers located in Malaysia.Taiwan, Singapore and Japan of $45.2 million and $25.9 million, and $15.2 million, respectively. We expect there will continue to be year-to-year variations in our future sales distribution across markets and geographies.
Orders increased to $391.9 million for In light of the nineglobal nature of our business, we are impacted by conditions in the various countries in which we and our customers operate.
Gross Profit For the six months ended SeptemberJune 30, 2017 from $247.3 million for2023, gross profit remained flat against the comparable prior year period. The increase in ordersGross margins also remained flat, as favorable spending was primarily attributable to an increase of over 80% in orders in the LED Lighting, Display, & Compound Semiconductor market, as well as a 41% increase in the Scientific & Industrial market. One of the performance measures we use as a leading indicator of the business is the book-to-bill ratio. The ratio is defined as orders recorded in a given period dividedoffset by revenue recognized in the same period. A ratio greater than one indicates we are adding orders faster than we are recognizing revenue. For the nine months ended September 30, 2017 and September 30, 2016, the ratio was 1.1. Our backlog at September 30, 2017 was $299.2 million, which was higher than the backlog at December 31, 2016 of $209.2 million. During the nine months ended September 30, 2017, we increased backlog by approximately $41.6 million relating to backlog acquired from Ultratech, while adjusting for a decrease in backlog of approximately $1.7 million relating to orders that no longer met our bookings criteria.
Gross Profit
For the nine months ended September 30, 2017, gross profit increased compared to 2016 due to a sharp increase in sales volume including the addition of the Ultratech acquisition, partially offset by decreased gross margins. Gross margins decreased principally due to an inventory fair value step-up that was recorded in connection with the purchase accounting relating to the Ultratech acquisition as well asand product and region mix of sales in the period. Given the current competitive environment in MOCVD business, we may see a decline inWe expect our gross margins as we move beyond this calendar year.to fluctuate each period due to product mix and other factors.
Research and developmentDevelopment 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 decreasedincreased for the ninesix months ended SeptemberJune 30, 2017 compared2023 against the comparable prior period primarily due to 2016 primarily as a result of our decision to significantly reduce investments in certain technology, as well as decreases in other personnel-related expenses and professional fees as a result of our initiative to streamline operations, enhance efficiency, and reduce costs. These decreases were partially offset by the addition of the acquired Ultratech relatedwe invest in new research and development projects.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. Selling, general,General, and administrativeAdministrative Selling, general, and administrative expenses increasedremained flat for the ninesix months ended SeptemberJune 30, 20172023 against the comparable prior period. Given the uncertainty regarding the impacts on our business resulting from the general macroeconomic environment, we are focused on the proactive management of expenses. Amortization Expense Amortization expense decreased compared to 2016the comparable prior year period primarily due to the addition of the acquired Ultratech related selling, general and administrative costs. Amortization expense
The increasechanges in amortization expense is a result of the additional intangibles acquired as part of the acquisition of Ultratech, offset by the lower amortization resulting from the impairmentto reflect expected cash flows of certain technologyintangible assets, in the prior year as well as certain other intangible assets becoming fully amortized during 2016.in 2022.
Restructuring expense
During 2016, we undertook restructuring activities as part of our initiative to streamline operations, enhance efficiencies, and reduce costs, as well as reducing future investments in certain technology development, which together impacted approximately 75 employees. In addition, during 2017, we began the acquisition integration process to enhance efficiencies, resulting in additional employee terminations and other facility closing costs. Over the next few quarters, we expect to incur additional restructuring costs of $1 million to $5 million as it finalizes all of these activities.
Acquisition costs
Acquisition costs are non-recurring charges incurred in connection with the acquisition of the Ultratech business, which included $4.2 million on non-cash charges related to accelerated share-based compensation for employee terminations for the nine months ended September 30, 2017.
Asset Impairment expense
During the nine months ended September 30, 2016, we recorded non-cash impairment charges of $57.6 million relating to our decision to significantly reduce investments in certain technologies, $5.9 million relating to our assessments of the fair market value of assets held for sale, and $6.1 million relating to the disposal of certain lab equipment. Impairment charges for the nine months ended September 30, 2017 primarily relate to assessments of the fair market value of assets held for sale.
Interest Income (Expense) For the nine months ended September 30, 2017, weWe recorded net interest expense of $12.4$1.4 million for the six months ended June 30, 2023, compared with net interest income of $0.7to $5.4 million infor the comparable prior year period. The changedecrease in net interest expense was primarily relatesrelated to an increase of interest income of approximately $4.5 million due to a more favorable interest rate environment for the Convertible Senior Notes issued in January 2017.six months ended June 30, 2023, against the comparable prior year period.
Other Income (Expense) On May 19, 2023, in connection with the completion of a private offering of $230.0 million aggregate principal amount of 2.875% convertible senior notes, we repurchased and retired approximately $106.0 million in aggregate principal amount of our outstanding 2025 Notes; with a carrying amount of $105.4 million, for approximately $106.0 million of cash and 0.7 million shares of our common stock for the 2025 Notes. Also, we repurchased and retired approximately $100.0 million in aggregate principal amount of our outstanding 2027 Notes; with a carrying amount of $98.5 million, for approximately $92.8 million of cash and 3.8 million shares of our common stock for the 2027 Notes. We accounted for the partial settlement of the 2025 Notes and 2027 Notes as an extinguishment, and as such, recorded a loss on extinguishment of approximately $16.5 million and $80.6 million, respectively, for the six months ended June 30, 2023. Income Taxes At the end of each interim reporting period, we estimate the effective income tax rate expected to be applicable for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods. Our tax benefitexpense for the ninesix months ended SeptemberJune 30, 20172023 was $25.0$1.5 million, compared to a tax expense of $2.7$0.9 million for the comparable prior period. The 2017For the six months ended June 30, 2023, we incurred income tax benefit included $21.6 million relating to our domestic operations and $3.4 million relating to our non-U.S. operations, compared to 2016 when our expense included $1.2 millionprimarily related to domesticpre-tax income from operations excluding the loss on extinguishment of the 2025 and 2027 Notes. Pursuant to Section 249 limitation on losses from extinguishment of convertible notes, we recognized a benefit of $0.9 million with this loss for the six months ended June 30, 2023. Additionally, the $1.5 million of income tax expense for the six months ended June 30, 2023 was favorably impacted by the tax benefits related to our non-U.S. operations. The current period domesticForeign-Derived Intangible Income and research and development tax benefit is primarily attributable to ancredits, as well as a discrete income tax benefit for losses incurred duringshare-based compensation windfall. For the ninesix months ended SeptemberJune 30, 2017, as2022, the effective tax rate was lower than the U.S. statutory tax rate primarily related to changes in the valuation allowance of deferred tax liability created byassets in the issuance of the Convertible Senior Notes is treated as a source of income in fiscal 2017, offset by a deferred provision related to tax amortization on indefinite-lived intangible assets. The current period non-U.S. tax benefit is primarily attributable to the remeasurement of an uncertain tax position, which included the reversal of a previously established non-U.S. tax liability and the recognition of a deferred tax benefit related to certain foreign net operating losses generated in prior years that are now determined to be realizable, offset by tax expense attributed to the profitable non-U.S. operations. The tax expense for the comparable period is primarily attributable to the tax amortization of indefinite-lived intangible assets that is not available to offset U.S. deferred tax assets. Liquidity and Capital Resources Our cash and cash equivalents, restricted cash, and short-term investments and restricted cash are as follows: | | | | | | | | | | | June 30, | | December 31, | | | | 2023 | | 2022 | | | September 30, | | December 31, | | | | | 2017 | | 2016 | | | | | (in thousands) | | | | | | (in thousands) | Cash and cash equivalents | | $ | 235,268 | | $ | 277,444 | | | $ | 180,524 | | $ | 154,925 | Restricted cash | | | | 437 | | | 547 | Short-term investments | | 85,853 | | 66,787 | | | | 105,875 | | | 147,488 | Total | | $ | 321,121 | | $ | 344,231 | | | $ | 286,836 | | $ | 302,960 |
A portion of our cash and cash equivalents is held by our subsidiaries throughout the world, frequently in each subsidiary’s respective functional currency, which is typically the U.S. dollar. At SeptemberJune 30, 20172023 and December 31, 2016,2022, cash and cash equivalents of $194.7$38.8 million and $149.2$28.4 million, respectively, were held outside the United States. In orderAs of June 30, 2023, we had $19.8 million of accumulated undistributed earnings
generated by our non-U.S. subsidiaries for which the U.S. tax has previously been provided. Approximately $8.5 million of undistributed earnings will be subject to fund continued international growth, it is our current intention to permanently reinvest the cash and cash equivalent balances held in China, Taiwan, and Malaysia, and our current forecasts do not require repatriation of these fundsforeign withholding taxes if distributed back to the United States. At September 30, 2017,States and we had $143.9accrued $0.9 million in cash held outsidefor foreign withholding taxes for the United States on which we may have to pay significant U.S. income taxes to repatriate or utilize net operating loss carryforwards. Additionally, local government regulations may restrict our ability to move cash balances under certain circumstances. We currently do not expect such regulations and restrictions to impact our ability to make acquisitions, pay vendors, or conduct operations. undistributed earnings. We believe that our projected cash flow from operations, combined with our cash and short term 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 the scheduled interest payments on our Convertible Senior Notes issuedconvertible senior notes, purchase commitments, and payments in January 2017.respect of operating leases. A summary of the cash flow activity at Septemberfor the six months ended June 30, 20172023 and 20162022 is as follows: Cash Flows from Operating Activities | | | | | | | | | | | | Six Months Ended June 30, | | | | | 2023 | | 2022 | | | | Nine months ended September 30, | | | | | 2017 | | 2016 | | | | | (in thousands) | | | | | | (in thousands) | | Net income (loss) | | $ | (39,177 | ) | $ | (117,212 | ) | | $ | (76,579) | | $ | 22,985 | | Non-cash items: | | | | | | | | | | | | | Depreciation and amortization | | 32,295 | | 26,010 | | | | 12,435 | | | 12,749 | | Non-cash interest expense | | 7,641 | | — | | | | 514 | | | 477 | | Deferred income taxes | | (21,235 | ) | 1,529 | | | | 778 | | | (18) | | Share-based compensation expense | | 19,976 | | 12,133 | | | | 14,959 | | | 10,759 | | Asset impairment | | 1,139 | | 69,662 | | | Loss on extinguishment of debt | | | | 97,091 | | | — | | Provision for bad debts | | 99 | | 160 | | | | 490 | | | — | | Changes in operating assets and liabilities | | 14,538 | | (16,590 | ) | | | (24,553) | | | (18,783) | | Net cash provided by (used in) operating activities | | $ | 15,276 | | $ | (24,308 | ) | | $ | 25,135 | | $ | 28,169 | |
Net cash provided by operating activities was $15.3$25.1 million for the ninesix months ended SeptemberJune 30, 20172023 and was due to the net loss of $39.2$76.6 million plusand adjustments for non-cash items of $39.9$126.3 million, partially offset by an increasea decrease in cash flow from operating activities due to changes in operating assets and liabilities of $14.5$24.6 million. The changes in operating assets and liabilities were largely attributable to increases in inventories, accounts receivables, and contract assets; partially offset by increases in customer deposits, accounts payable, and accrued expenses. Cash Flows from Investing Activities | | | | | | | | | | | | Six Months Ended June 30, | | | | | 2023 | | 2022 | | | | Nine months ended September 30, | | | | | 2017 | | 2016 | | | | | (in thousands) | | | | | | (in thousands) | | Acquisitions of businesses, net of cash acquired | | $ | (399,478 | ) | $ | — | | | $ | (30,373) | | $ | — | | Capital expenditures | | (17,403 | ) | (10,717 | ) | | | (10,836) | | | (15,420) | | Changes in investments, net | | 27,812 | | 52,921 | | | | 43,575 | | | (10,541) | | Other | | 2,284 | | 463 | | | Net cash provided by (used in) investing activities | | $ | (386,785 | ) | $ | 42,667 | | | $ | 2,366 | | $ | (25,961) | |
The net cash used inprovided by investing activities during the ninesix months ended SeptemberJune 30, 20172023 was primarily attributable to net investment activity, partially offset by the net cash used in the acquisition of Ultratech as well asEpiluvac, and capital expenditures. As partThe cash used in investing activities during the six months ended June 30, 2022 was mainly due to a high level of capital expenditures during 2022 associated with the continued build-out of our efforts to streamline operations, enhance efficiency, and reduce costs, we are making certain investmentsnewly leased facility in our facilities to support the consolidation activities, and, in 2017, we expect to incur future capital expenditures related to these activities of approximately $2 million to $5 million.San Jose, California, which is substantially complete at this time. Cash Flows from Financing Activities | | Nine months ended September 30, | | | | 2017 | | 2016 | | | | (in thousands) | | Settlement of equity awards, net of withholding taxes | | $ | (5,251 | ) | $ | 8 | | Purchases of common stock | | — | | (13,349 | ) | Proceeds from long-term debt borrowings | | 335,752 | | — | | Repayments of long-term debt | | (1,193 | ) | (252 | ) | Net cash provided by (used in) financing activities | | $ | 329,308 | | $ | (13,593 | ) |
| | | | | | | | | | Six Months Ended June 30, | | | | 2023 | | 2022 | | | | | (in thousands) | | Proceeds from issuance of 2029 Notes, net of issuance costs | | $ | 223,202 | | $ | — | | Extinguishment of Convertible Notes | | | (218,991) | | | — | | Settlement of equity awards, net of withholding taxes | | | (6,182) | | $ | (4,986) | | Net cash provided by (used in) financing activities | | $ | (1,971) | | $ | (4,986) | |
The cash provided by financing activities for the nine months ended September 30, 2017 was primarily related to the net cash proceeds received from the issuance of the Convertible Senior Notes in January 2017.
The cash used in financing activities for the ninesix months ended SeptemberJune 30, 20162023 was primarily related to the sharepartial repurchase program, which commenced in November 2015. There were no share repurchases in 2017.of the 2025 Notes and 2027 Notes, repayment of the 2023 Notes, as well as cash used to settle taxes related to employee equity programs, partially offset by proceeds from issuance of 2029 Notes. Convertible Senior Notes On January 10, 2017, we issued $345.0We have $26.5 million outstanding principal balance of 2.70%3.50% convertible senior unsecured notes due (the “Convertible Senior Notes”). We received net proceeds, after deducting underwriting discounts and fees and expenses payable by the Company, of approximately $335.8 million. The Convertible Senior Notesthat bear interest at a rate of 2.70%3.50% per year, payable semiannually in arrears on January 15 and July 15 of each year, commencing on July 15, 2017. The Convertible Senior Notesand mature on January 15, 2023,2025, unless earlier purchased by the Company, redeemed, or converted. In addition, we have $25.0 million outstanding principal balance of 3.75% convertible senior notes that bear interest at a rate of 3.75% per year, payable semiannually in arrears on June 1 and December 1 of each year, and mature on June 1, 2027, unless earlier purchased by the Company, redeemed, or converted. The 2027 Notes are currently convertible by shareholders until June 30, 2023. In addition, we have $230.0 million outstanding principal balance of 2.875% 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.these debts. In addition, we have access to a $150.0 million revolving credit facility (including an ability to request an additional $75.0 million, for a total commitment of no more than $225.0 million) to provide for our working capital needs and reimburse drawings under letters of credit and for other general corporate purposes. The Company has no immediate plans to draw down on the facility, which expires in December of 2026. 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 150 to 225 basis points, if drawn. There is a yearly commitment fee of 25 to 35 basis points, based on the Company’s secured net leverage ratio, charged on the unused portion of the Facility. Business Combination
As discussed above, on May 26, 2017, the Company acquired 100% of Ultratech, Inc., a leading supplier of lithography, laser-processing, and inspection systems used to manufacture semiconductor devices and LEDs. The results of Ultratech’s operations have been included in the consolidated financial statements since the date of acquisition.
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. Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, expenses, and results of operations, liquidity, capital expenditures or capital resources other than operating leases, bank guarantees, and purchase commitments disclosed in the preceding footnotes.
Item 3. Quantitative and Qualitative Disclosures about Market Risk 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 $85.9$105.9 million at SeptemberJune 30, 2017.2023. These securities are subject to interest rate risk and, based on our investment portfolio at SeptemberJune 30, 2017,2023, a 100 basis point increase in interest rates would result in a decrease in the fair value of the portfolio of $0.2$0.6 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. FromChanges 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 we manage our risks and exposures to currency exchange rates throughwith the useintent of derivative financial instruments (e.g., forward contracts).mitigating a portion of this risk. We mainlyonly use derivative financial instruments in the context of hedging and generally do not use them for speculative purposes. During the third quarter of 2017, we had an immaterial amount ofpurposes and have not historically designated our foreign exchange derivatives designated as hedges. Accordingly, most foreign exchange derivatives are recorded in our Consolidated Balance Sheets at fair value and changes in fair value from these contracts are recorded inas “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 74%78% and 79% of our total net sales for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, 65% and 78% and 72%67% for the comparable 20162022 periods. 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 1% and 2%approximately 3% of total net sales infor both the three and ninesix months ended SeptemberJune 30, 2017, respectively,2023 and 2% and 4% for the comparable 2016 periods.2022. 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. Item 4. Controls and Procedures Management’s Report on Internal Control over Financial ReportingEvaluation 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 SeptemberJune 30, 2017.2023. 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 overOver Financial Reporting On May 26, 2017,January 31, 2023, we completed the acquisition of Ultratech, Inc.,Epiluvac AB and are integrating the acquired business into our overall internal control over financial reporting process. Management is in the process of assessing the internal control over financial reporting and is implementing or revising internal controls where necessary. See Note 3 to the Consolidated Financial Statements —– Business Combinations, for further details. There were no other changes in internal control for the quarter ended SeptemberJune 30, 20172023 that have materially affected or are reasonably likely to materially affect internal control over financial reporting. PART II—OTHER INFORMATION Item 1. Legal Proceedings On September 21, 2017, Blueblade Capital Opportunities LLC et al., on behalf of purported beneficial owners of 440,100 shares of Ultratech common stock, filed an action against Ultratech in Delaware Court of Chancery requesting an appraisal of the value of their Ultratech stock pursuant to 8 Del. C. §262. The Company believes that the merger price, which was the product of arms-length negotiations, was fair and reasonable, and intends to contest the appraisal claim. Discovery in the matter has commenced.
On April 12, 2017, the Company filed a patent infringement complaint in the U.S. District Court for the Eastern District of New York against SGL Carbon, LLC and SGL Carbon SE (collectively, “SGL”), alleging infringement of patents relating to wafer carrier technology used in MOCVD equipment. The complaint alleges that SGL infringes Veeco’s patents by making and selling certain wafer carriers to Veeco’s competitor, Advanced Micro-Fabrication Equipment, Inc. (“AMEC”). On November 2, 2017, the U.S. District Court granted the Company’s motion for a preliminary injunction prohibiting SGL from shipping wafer carriers using the Company’s patented technology without the Company’s express authorization. The Company continues to seek a post-trial permanent injunction and monetary damages against SGL.
On July 13, 2017, AMEC filed a patent infringement complaint against Veeco Instruments Shanghai Co., Ltd. (“Veeco Shanghai”) with the Fujian High Court in China, alleging that the Company’s MOCVD products infringed a Chinese utility model patent relating to the synchronous movement engagement mechanism in a chemical vapor deposition reactor and seeking injunctive relief and monetary damages against Veeco Shanghai. The Company believes this complaint is without merit and intends to vigorously defend against these allegations. The Company has filed a petition for invalidation of this patent with the Chinese Patent Reexamination Board (“PRB”). The Fujian High Court has suspended the infringement case against Veeco pending the outcome of the invalidation proceeding at the PRB.
The Company is involved in various other legal proceedings arising in the normal course of business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows. Item 1A. Risk Factors Information regarding risk factors appears in the Safe Harbor Statement at the beginning of this quarterly report on Form 10-Q and in Part I — Item 1A of our 20162022 Form 10-K.10-K. There have been no material changes from the risk factors previously disclosed, except as follows: Our current debt facilities, including our 3.50% Convertible Senior notes due 2025 (the “2025 Notes”), our 3.75% Convertible Notes due 2027 (the “2027 Notes”), and our 2.875% Convertible Notes due 2029 (the “2029 Notes”) (the 2025 Notes, 2027 Notes, and 2029 Notes together the “Notes”), and our revolving credit facility (the “Credit facility”), contains certain restrictions, covenants and repurchase provisions that may limit our ability to raise the funds necessary to meet our working capital needs, which may include the cash conversion of the Notes or repurchase of the Notes for Cash upon a fundamental change. As of June 30, 2023, 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 Notes. In addition, as of June 30, 2023 we had an undrawn senior secured revolving credit facility in an aggregate principal amount of $150.0 million, including a $15.0 million letter of credit sublimit. These debt facilities contain certain covenant and other restrictions that may limit our 2016 Form 10-K.ability to, among other things, incur additional debt or create liens, sell certain assets, and merge or consolidate with third parties, which may, in turn, preclude us from responding to changes in business and economic conditions, engaging in transactions that might otherwise be beneficial to us, or obtaining additional financing. Our ability to comply with some of these covenants is dependent on our future performance, which will be subject to many factors, some of which are beyond our control such as prevailing economic conditions. In addition, our failure to comply with these covenants could result in a default under the Notes or Credit Facility, which could accelerate the debt. If any of our debt is accelerated, we may not have sufficient funds available to repay such debt, which could materially and negatively affect our financial condition and results of operation. In addition, our ability to repurchase or to pay cash upon conversion of the Notes, or maturity of the Credit Facility, may be limited by law, by regulatory authority or by agreements governing our indebtedness that exist at the time of repurchase, conversion, or maturity. Our failure to settle the debt as required would constitute a default under the applicable debt facility and could also lead to a default under the other debt facilities. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness. 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 2025 Notes, 2027 Notes, and 2029 Notes are triggered (as is currently the case for the 2027 Notes through September 30, 2023), 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. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None. On October 28, 2015, our Board of Directors authorized a program to repurchase up to $100 million of our common stock to be completed through October 28, 2017. At September 30, 2017, $22.3 million of the $100 million had been utilized. No repurchases occurred after the first quarter of 2016. Repurchases may be made from time to time on the open market or in privately negotiated transactions in accordance with applicable federal securities laws. The timing and amount of future repurchases, if any, will depend upon market conditions, SEC regulations, and other factors. The repurchases would be funded using available cash balances and cash generated from operations. The program does not obligate us to acquire any particular amount of common stock and may be modified or suspended at any time at our discretion.
Item 3. Defaults uponUpon Senior Securities None. Item 4. Mine Safety Disclosures Not Applicable. Item 5. OtherInformation None. Item 6. Exhibits Unless otherwise indicated, each of the following exhibits has been filed with the Securities and Exchange Commission by Veeco under File No. 0-16244. Exhibit
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Furnished | Number | | Exhibit Description | | Form | | Exhibit | | Filing Date | | Herewith | | | | | | | | | | | | 4.1 | | Indenture, dated as of May 19, 2023, between Veeco Instruments Inc. and U.S. Bank Trust Company, National Association, as trustee. | | 8-K | | 4.1 | | 5/22/2023 | | | 4.2 | | Form of 2.875% Convertible Senior Notes due 2029 (included in Exhibit 4.1). | | 8-K | | 4.2 | | 5/22/2023 | | | 10.1 | | First Amendment to Loan and Security Agreement, dated as of May 19, 2023, by and among Veeco Instruments Inc., as borrower, the guarantors party thereto, the lenders from time to time party thereto and HSBC Bank USA, National Association, as administrative agent, collateral agent, joint lead arranger, and joint bookrunner, Barclays bank PLC, as joint lead arranger and joint bookrunner, and Santander Bank, N.A. | | 8-K | | 10.1 | | 5/22/2023 | | | 31.1 | | Certification of Chief Executive Officer pursuant to Rule 13a—14(a) or Rule 15d—14(a) of the Securities and Exchange Act of 1934. | | | | | | | | * | 31.2 | | Certification of Chief Financial Officer pursuant to Rule 13a—14(a) or Rule 15d—14(a) of the Securities and Exchange Act of 1934. | | | | | | | | * | 32.1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. | | | | | | | | * | 32.2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. | | | | | | | | * | 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | * | 101.XSD | | XBRL Schema. | | | | | | | | ** | 101.PRE | | XBRL Presentation. | | | | | | | | ** | 101.CAL | | XBRL Calculation. | | | | | | | | ** | 101.DEF | | XBRL Definition. | | | | | | | | ** | 101.LAB | | XBRL Label. | | | | | | | | ** | 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | | | | | | | ** |
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 3, 2017.August 7, 2023. | | | | Veeco Instruments Inc. | | | | | | | By:
| /S/ JOHN R. PEELER
| | | | John R. Peeler
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| Chairman and Chief Executive Officer
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| | | By: | /s/ SHUBHAM MAHESHWARIWILLIAM J. MILLER, Ph.D. | | | | Shubham MaheshwariWilliam J. Miller, Ph.D.
| | | Chief Executive Officer | | | | | By: | /s/ JOHN P. KIERNAN | | | John P. Kiernan | | |
| ExecutiveSenior Vice President and Chief Financial Officer
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