Company Quick10K Filing
Quick10K
Veeco Instruments
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$14.24 49 $693
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-03 Earnings, Shareholder Vote, Exhibits
8-K 2019-02-11 Earnings, Exhibits
8-K 2019-02-11 Other Events
8-K 2019-01-14 Regulation FD, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-11-01 Other Events
8-K 2018-08-29 Officers, Exhibits
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-02-12 Earnings, Exhibits
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ABR Arbor Realty Trust 1,110
CCF Chase 922
ADTN Adtran 785
CPLG Corepoint Lodging 784
GPX GP Strategies 218
INSE Inspired Entertainment 162
FLL Full House Resorts 60
LTBR Lightbridge 33
VECO 2019-03-31
Part I—Financial Information
Item 1. Financial Statements
Note 1 — Basis of Presentation
Note 2 — Income (Loss) per Common Share
Note 3 — Assets
Note 4 — Liabilities
Note 5 — Commitments and Contingencies
Note 6 — Derivative Financial Instruments
Note 7 — Equity
Note 8 — Share-Based Compensation
Note 9 — Income Taxes
Note 10 — Segment Reporting and Geographic Information
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii—Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 veco-20190331ex101629dff.htm
EX-10.2 veco-20190331ex102789a41.htm
EX-10.3 veco-20190331ex1038a7c7b.htm
EX-10.4 veco-20190331ex104d337f0.htm
EX-10.5 veco-20190331ex105580360.htm
EX-31.1 veco-20190331ex311b0f1c7.htm
EX-31.2 veco-20190331ex312d3b418.htm
EX-32.1 veco-20190331ex3216ab807.htm
EX-32.2 veco-20190331ex32253e41f.htm

Veeco Instruments Earnings 2019-03-31

VECO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 veco-20190331x10q.htm 10-Q veco_Current_Folio_10Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-16244


VEECO INSTRUMENTS INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

    

11-2989601

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

Terminal Drive
Plainview, New York

 

11803

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:

(516) 677-0200

 

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 ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).Yes ☒  No ☐

 

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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☒

    

 

    

Accelerated filer ☐

Non-accelerated filer ☐

 

 

 

Smaller reporting company ☐

 

 

 

 

Emerging growth company ☐

 

 

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. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

 

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

 

As of April 25, 2019, there were 48,675,196 shares of the registrant’s common stock outstanding.

 

 

 

 

 

 


 

 


 

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 and planned actions to be undertaken in the future, they may ultimately differ from actual results. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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, the following:

 

·

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

 

·

We are exposed to the risks of operating a global business;

 

·

International trade disputes could result in increases in tariffs and other trade restrictions and protectionist measures that could negatively impact our operations;

 

·

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;

·

The price of our common shares is volatile, has declined significantly, and could further decline;

 

·

We may be required to take additional impairment charges on assets;

·

We face significant competition;

·

We operate in industries characterized by rapid technological change;

·

Our sales to manufacturers are highly dependent on sales of consumer electronics applications, which can experience significant volatility due to seasonal and other factors;

·

We have a concentrated customer base, located primarily in a limited number of regions, which operate in highly concentrated industries;

·

The cyclicality of the industries we serve directly affects our business;

1


 

·

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 may be unable to obtain required export licenses for the sale of our products;

·

Our operating results may be adversely affected by tightening credit markets;

·

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;

·

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;

 

·

We rely on a limited number of suppliers, some of whom are our sole source for particular components;

·

Our inability to attract, retain, and motivate employees could have a material adverse effect on our business;

·

We are exposed to risks associated with business combinations, acquisitions, and strategic investments;

·

We are subject to internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act and any delays or difficulties 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 may change;

·

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;

·

We are subject to foreign currency exchange risks;

·

Our previously announced share repurchase program could affect the price of our common stock and increase volatility and may be suspended or terminated at any time, which may result in a decrease in the trading price of our common stock;

·

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 exposed to various risks associated with global regulatory requirements;

 

2


 

·

We may be exposed to liabilities under the Foreign Corrupt Practices Act and other similar laws;

·

We are subject to risks of non-compliance with environmental, health, and safety regulations; and

·

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.

 

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.

3


 

PART IFINANCIAL INFORMATION

Item 1. Financial Statements

Veeco Instruments Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2019

    

2018

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

169,439

 

$

212,273

Restricted cash

 

 

804

 

 

809

Short-term investments

 

 

67,215

 

 

48,189

Accounts receivable, net

 

 

74,860

 

 

66,808

Contract assets

 

 

10,479

 

 

10,397

Inventories

 

 

148,103

 

 

156,311

Deferred cost of sales

 

 

2,921

 

 

3,072

Prepaid expenses and other current assets

 

 

24,943

 

 

22,221

Total current assets

 

 

498,764

 

 

520,080

Property, plant, and equipment, net

 

 

77,737

 

 

80,284

Operating lease right-of-use assets

 

 

12,874

 

 

 —

Intangible assets, net

 

 

80,931

 

 

85,149

Goodwill

 

 

184,302

 

 

184,302

Deferred income taxes

 

 

1,869

 

 

1,869

Other assets

 

 

29,117

 

 

29,132

Total assets

 

$

885,594

 

$

900,816

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

36,315

 

$

39,611

Accrued expenses and other current liabilities

 

 

44,040

 

 

46,450

Customer deposits and deferred revenue

 

 

68,881

 

 

72,736

Income taxes payable

 

 

792

 

 

1,256

Total current liabilities

 

 

150,028

 

 

160,053

Deferred income taxes

 

 

5,675

 

 

5,690

Long-term debt

 

 

290,473

 

 

287,392

Operating lease long-term liabilities

 

 

8,382

 

 

 —

Other liabilities

 

 

9,238

 

 

9,906

Total liabilities

 

 

463,796

 

 

463,041

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; 48,675,196 and 48,547,417 shares issued at March 31, 2019 and December 31, 2018, respectively; 48,675,196 and 48,024,685 shares outstanding at March 31, 2019 and December 31, 2018, respectively.

 

 

487

 

 

485

Additional paid-in capital

 

 

1,058,179

 

 

1,061,325

Accumulated deficit

 

 

(638,726)

 

 

(619,983)

Accumulated other comprehensive income

 

 

1,858

 

 

1,820

Treasury stock, at cost, 522,732 shares at December 31, 2018.

 

 

 —

 

 

(5,872)

Total stockholders' equity

 

 

421,798

 

 

437,775

Total liabilities and stockholders' equity

 

$

885,594

 

$

900,816

 

See accompanying Notes to the Consolidated Financial Statements.

4


 

Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

 

    

2019

    

2018

    

Net sales

 

$

99,371

 

$

158,574

 

Cost of sales

 

 

64,655

 

 

101,894

 

Gross profit

 

 

34,716

 

 

56,680

 

Operating expenses, net:

 

 

 

 

 

 

 

Research and development

 

 

23,340

 

 

24,320

 

Selling, general, and administrative

 

 

19,902

 

 

26,383

 

Amortization of intangible assets

 

 

4,218

 

 

13,532

 

Restructuring

 

 

1,430

 

 

2,695

 

Acquisition costs

 

 

 —

 

 

1,342

 

Other, net

 

 

(34)

 

 

(157)

 

Total operating expenses, net

 

 

48,856

 

 

68,115

 

Operating income (loss)

 

 

(14,140)

 

 

(11,435)

 

Interest income

 

 

1,245

 

 

624

 

Interest expense

 

 

(5,445)

 

 

(5,246)

 

Income (loss) before income taxes

 

 

(18,340)

 

 

(16,057)

 

Income tax expense (benefit)

 

 

190

 

 

(230)

 

Net income (loss)

 

$

(18,530)

 

$

(15,827)

 

 

 

 

 

 

 

 

 

Income (loss) per common share:

 

 

 

 

 

 

 

Basic

 

$

(0.40)

 

$

(0.34)

 

Diluted

 

$

(0.40)

 

$

(0.34)

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

Basic

 

 

46,848

 

 

46,963

 

Diluted

 

 

46,848

 

 

46,963

 

 

See accompanying Notes to the Consolidated Financial Statements.

5


 

Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

 

    

2019

    

2018

    

Net income (loss)

 

$

(18,530)

 

$

(15,827)

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

 

27

 

 

(8)

 

Foreign currency translation

 

 

11

 

 

32

 

Total other comprehensive income (loss), net of tax

 

 

38

 

 

24

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

$

(18,492)

 

$

(15,803)

 

 

See accompanying Notes to the Consolidated Financial Statements.

6


 

Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

 

    

2019

    

2018

    

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net income (loss)

 

$

(18,530)

 

$

(15,827)

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,796

 

 

17,726

 

Non-cash interest expense

 

 

3,081

 

 

2,859

 

Deferred income taxes

 

 

(15)

 

 

(269)

 

Share-based compensation expense

 

 

3,157

 

 

4,537

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable and contract assets

 

 

(8,134)

 

 

(11,177)

 

Inventories and deferred cost of sales

 

 

8,489

 

 

4,555

 

Prepaid expenses and other current assets

 

 

(2,457)

 

 

3,824

 

Accounts payable and accrued expenses

 

 

(12,260)

 

 

2,009

 

Customer deposits and deferred revenue

 

 

(3,855)

 

 

(17,559)

 

Income taxes receivable and payable, net

 

 

(463)

 

 

(2,283)

 

Other, net

 

 

(100)

 

 

(202)

 

Net cash provided by (used in) operating activities

 

 

(22,291)

 

 

(11,807)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Capital expenditures

 

 

(2,180)

 

 

(2,259)

 

Proceeds from the sale of investments

 

 

22,500

 

 

34,000

 

Payments for purchases of investments

 

 

(41,258)

 

 

(54,300)

 

Net cash provided by (used in) investing activities

 

 

(20,938)

 

 

(22,559)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

Cash withholdings for employee stock purchase plan

 

 

1,021

 

 

1,136

 

Restricted stock tax withholdings

 

 

(642)

 

 

(427)

 

Purchases of common stock

 

 

 —

 

 

(592)

 

Net cash provided by (used in) financing activities

 

 

379

 

 

117

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

11

 

 

32

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

(42,839)

 

 

(34,217)

 

Cash, cash equivalents, and restricted cash - beginning of period

 

 

213,082

 

 

280,583

 

Cash, cash equivalents, and restricted cash - end of period

 

$

170,243

 

$

246,366

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

Interest paid

 

$

4,693

 

$

4,674

 

Income taxes paid

 

 

2,341

 

 

2,373

 

Non-cash operating and financing activities

 

 

 

 

 

 

 

Net transfer of property, plant and equipment to inventory

 

 

130

 

 

339

 

Right-of-use assets obtained in exchange for lease obligations

 

 

238

 

 

 —

 

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

7


 

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, 2018 (“2018 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.

 

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 2019 interim quarters end on March 31, June 30, and September 29, and the 2018 interim quarters ended on April 1, July 1, and September 30. These interim quarters are reported as March 31, June 30, and September 30 in Veeco’s interim consolidated financial statements.

 

Revenue Recognition

 

Revenue is recognized upon the transfer of control of the promised 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 variable consideration and determines what portion of that, if any, has a high probability of significant subsequent revenue reversal, and if so, that amount is excluded from the transaction price. The Company’s contracts with customers frequently contain multiple deliverables, such as systems, upgrades, components, spare parts, installation, maintenance, and service plans. Judgment is required to properly identify the performance obligations within a contract and to determine how the revenue should be allocated among the performance obligations. The Company also evaluates whether multiple transactions with the same customer or related parties should be considered part of a single contract 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.

   

When there are separate units of accounting, the Company allocates revenue to each performance obligation on a relative stand-alone selling price basis. The stand-alone selling prices are determined based on the prices 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 prices generally using an expected cost plus margin approach.

   

Most 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 and the nature of the customer’s post-delivery acceptance provisions. The Company’s system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For many of these arrangements, a customer source inspection of the system is performed in the Company’s facility, test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery, or other quality assurance testing is performed 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 the 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

8


 

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

 

delivery since there is no substantive contingency remaining related to the acceptance provisions at that date. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where the 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 deferred. The Company recognizes such revenue and costs upon obtaining objective evidence that the acceptance provisions can be achieved, assuming all other revenue recognition criteria have been met.

   

In certain cases the Company’s contracts with customers contain a billing retention, typically 10% of the sales price, which is billed by the Company and payable by the customer when field acceptance provisions are completed. Revenue recognized in advance of the amount that has been billed is recorded as a contract asset on the Consolidated Balance Sheets.

   

The Company recognizes revenue related to maintenance and service contracts over time based upon the respective contract term. Installation 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 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 since the expected amortization period is one year or less.

 

The Company has elected to treat shipping and handling costs as a fulfillment activity, and the Company includes such costs in cost of services 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.

 

Leases

 

At contract inception, the Company determines if an arrangement is a lease, or contains a lease, of an identified asset for which the Company has the right to obtain substantially all of the economic benefits from its use and the right to direct its use. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, while lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. The implicit discount rate in the Company’s leases generally cannot readily be determined, and therefore the Company uses its incremental borrowing rate based on information available at lease commencement date in determining the present value of future payments. The Company has options to renew or terminate certain leases. These options are included in the determination of lease term when it is reasonably certain that the Company will exercise such options. The Company does not separate lease and non-lease components in determining ROU assets or lease liabilities for real estate leases. Additionally, the Company does not recognize ROU assets or lease liabilities for leases with original terms or renewals of one year or less.

 

Recently Adopted Accounting Standards

 

In February 2016, the FASB issued ASU 2016-02: Leases, which, along with subsequent ASUs related to this topic, has been codified as Accounting Standards Codification 842 (“ASC 842”). ASC 842 generally requires operating lessee rights and obligations to be recognized as assets and liabilities on the balance sheet. The new standard, which the Company adopted effective January 1, 2019, offers a transition option whereby companies can recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The Company has adopted using this transition method, and therefore prior period balances have not been

9


 

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

 

adjusted. In addition, ASC 842 provides for a number of optional exemptions in transition. The Company has elected certain exemptions whereby prior conclusions regarding lease identification, lease classification, and initial direct costs were not reassessed under the new standard. The adoption of the standard impacted the Company’s Consolidated Balance Sheets through the recognition of ROU assets and lease liabilities of approximately $14.2 million each as of January 1, 2019, but did not have an impact on the Consolidated Statements of Operations, Statements of Comprehensive Income, or Statements of Cash Flows.

 

 

 

Note 2 — Income (Loss) Per Common Share

 

Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted income per share is calculated by dividing net income 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 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 periods the performance targets have been achieved. The computations of basic and diluted income (loss) per share for the three months ended March 31, 2019 and 2018 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

 

 

    

2019

    

2018

    

    

 

 

(in thousands, except per share amounts)

 

 

Net income (loss)

 

$

(18,530)

 

$

(15,827)

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.40)

 

$

(0.34)

 

 

Diluted

 

$

(0.40)

 

$

(0.34)

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

46,848

 

 

46,963

 

 

Effect of potentially dilutive share-based awards

 

 

 —

 

 

 —

 

 

Diluted weighted average shares outstanding

 

 

46,848

 

 

46,963

 

 

 

 

 

 

 

 

 

 

 

Common share equivalents excluded from the diluted weighted average shares outstanding since Veeco incurred a net loss and their effect would be antidilutive

 

 

320

 

 

169

 

 

Potentially dilutive shares excluded from the diluted calculation as their effect would be antidilutive

 

 

2,426

 

 

2,092

 

 

Maximum potential shares to be issued for settlement of the Convertible Senior Notes excluded from the diluted calculation as their effect would be antidilutive

 

 

8,618

 

 

8,618

 

 

 

 

Note 3 — 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 purchased. All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are included in “Other, net” in the Consolidated Statements of Operations.

 

10


 

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

 

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 or estimation methodologies could have a significant effect on the estimated fair value amounts.

 

The following table presents the portion of Veeco’s assets that were measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

(in thousands)

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Certificate of deposits and time deposits

 

$

66,863

 

$

 —

 

$

 —

 

$

66,863

U.S. treasuries

 

 

19,917

 

 

 —

 

 

 —

 

 

19,917

Commercial paper

 

 

 —

 

 

11,257

 

 

 —

 

 

11,257

Total

 

$

86,780

 

$

11,257

 

$

 —

 

$

98,037

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

51,726

 

$

 —

 

$

 —

 

$

51,726

Government agency securities

 

 

 —

 

 

4,964

 

 

 —

 

 

4,964

Corporate debt

 

 

 —

 

 

1,999

 

 

 —

 

 

1,999

Commercial paper

 

 

 —

 

 

8,526

 

 

 —

 

 

8,526

Total

 

$

51,726

 

$

15,489

 

$

 —

 

$

67,215

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Certificate of deposits and time deposits

 

$

65,571

 

$

 —

 

$

 —

 

$

65,571

U.S. treasuries

 

 

3,990

 

 

 —

 

 

 —

 

 

3,990

Total

 

$

69,561

 

$

 —

 

$

 —

 

$

69,561

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

37,184

 

$

 —

 

$

 —

 

$

37,184

Corporate debt

 

 

 —

 

 

8,516

 

 

 —

 

 

8,516

Commercial paper

 

 

 —

 

 

2,489

 

 

 —

 

 

2,489

Total

 

$

37,184

 

$

11,005

 

$

 —

 

$

48,189

 

There were no transfers between fair value measurement levels during the three months ended March 31, 2019.

 

11


 

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

 

At March 31, 2019 and December 31, 2018, the amortized cost and fair value of available-for-sale securities consist of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

 

 

Cost

 

Gains

 

Losses

 

Fair Value

 

 

(in thousands)

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

51,715

 

$

11

 

$

 —

 

$

51,726

Government agency securities

 

 

4,964

 

 

 —

 

 

 —

 

 

4,964

Corporate debt

 

 

1,999

 

 

 —

 

 

 —

 

 

1,999

Commercial paper

 

 

8,526

 

 

 —

 

 

 —

 

 

8,526

Total

 

$

67,204

 

$

11

 

$

 —

 

$

67,215

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

37,191

 

$

 —

 

$

(7)

 

$

37,184

Corporate debt

 

 

8,525

 

 

 —

 

 

(9)

 

 

8,516

Commercial paper

 

 

2,489

 

 

 —

 

 

 —

 

 

2,489

Total

 

$

48,205

 

$

 —

 

$

(16)

 

$

48,189

 

There were no available-for-sale securities in a loss position at March 31, 2019. Available-for-sale securities in a loss position at December 31, 2018 consist of:

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

    

 

    

Gross

 

 

Estimated

 

Unrealized

 

 

Fair Value

 

Losses

 

 

(in thousands)

U.S. treasuries

 

$

37,184

 

$

(7)

Corporate debt

 

 

8,516

 

 

(9)

Total

 

$

45,700

 

$

(16)

 

At March 31, 2019 and December 31, 2018, there were no short-term investments that had been in a continuous loss position for more than 12 months.

 

The maturities of securities classified as available-for-sale at March 31, 2019 were all due in one year or less. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. There were no realized gains or losses for the three months ended March 31, 2019 and 2018.

 

Accounts Receivable

 

Accounts receivable is presented net of an allowance for doubtful accounts of $0.2 million and $0.3 million at March 31, 2019 and December 31, 2018, respectively.

12


 

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

 

 

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 March 31, 2019 and December 31, 2018 consist of the following:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2019

    

2018

 

 

(in thousands)

Materials

 

$

84,711

 

$

90,816

Work-in-process

 

 

36,299

 

 

42,354

Finished goods

 

 

27,093

 

 

23,141

Total

 

$

148,103

 

$

156,311

 

Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets primarily consist of supplier deposits, prepaid value-added tax, lease deposits, prepaid insurance, and prepaid licenses. Veeco had deposits with its suppliers of $15.1 million and $12.8 million at March 31, 2019 and December 31, 2018, respectively.

 

Property, Plant, and Equipment

 

Property, plant, and equipment at March 31, 2019 and December 31, 2018 consist of the following:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2019

    

2018

 

 

(in thousands)

Land

 

$

5,669

 

$

5,669

Building and improvements

 

 

61,286

 

 

61,124

Machinery and equipment (1)

 

 

129,864

 

 

128,385

Leasehold improvements

 

 

7,041

 

 

9,033

Gross property, plant, and equipment

 

 

203,860

 

 

204,211

Less: accumulated depreciation and amortization

 

 

126,123

 

 

123,927

Net property, plant, and equipment

 

$

77,737

 

$

80,284

(1)

Machinery and equipment also includes software, furniture and fixtures

 

For the three months ended March 31, 2019 and 2018, depreciation expense was $4.6 million and $4.2 million, respectively.

 

Goodwill

 

Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. There were no changes to goodwill during the three months ended March 31, 2019.

 

Intangible Assets

 

Intangible assets consist of purchased technology, customer relationships, patents, trademarks and tradenames, and backlog, and are initially recorded at fair value. Long-lived intangible 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.

13


 

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

 

 

The components of purchased intangible assets were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

December 31, 2018

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Accumulated

 

 

 

 

    

Gross

    

Amortization

    

 

    

Gross

    

Amortization

    

 

 

 

Carrying

 

and

 

Net

 

Carrying

 

and

 

Net

 

 

Amount

 

Impairment

 

Amount

 

Amount

 

Impairment

 

Amount

 

 

(in thousands)

Technology

 

$

337,218

 

$

293,528

 

$

43,690

 

$

337,218

 

$

290,808

 

$

46,410

Customer relationships

 

 

164,595

 

 

137,257

 

 

27,338

 

 

164,595

 

 

136,126

 

 

28,469

In-process R&D

 

 

13,710

 

 

10,530

 

 

3,180

 

 

13,710

 

 

10,530

 

 

3,180

Trademarks and tradenames

 

 

30,910

 

 

24,239

 

 

6,671

 

 

30,910

 

 

23,899

 

 

7,011

Other

 

 

3,686

 

 

3,634

 

 

52

 

 

3,686

 

 

3,607

 

 

79

Total

 

$

550,119

 

$

469,188

 

$

80,931

 

$

550,119

 

$

464,970

 

$

85,149

 

Other intangible assets primarily consist of patents, licenses, and backlog.

 

 

 

 

 

Other Assets

 

The Company has a non-marketable investment in Kateeva, Inc. (“Kateeva”), with a carrying value of $21.0 million at March 31, 2019 and December 31, 2018. Additionally, the Company has a non-marketable investment in a separate entity, with a carrying value of $3.5 million at March 31, 2019 and December 31, 2018. The Company does not exert significant influence over these investments, and its ownership interest is less than 20%. Neither equity investment has a readily observable market price, and therefore the Company has elected to measure these investments at cost, adjusted for changes in observable market prices minus impairment. The investments are included in “Other assets” on the Consolidated Balance Sheets. There were no changes in observable market prices for either investment for the three months ended March 31, 2019. These investments are subject to periodic impairment reviews; as there are no open-market valuations, the impairment analyses require judgment. The analyses include assessments of the companies’ financial condition, the business outlooks for their products and technologies, their 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.

 

14


 

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

 

Note 4 — Liabilities

 

Accrued Expenses and Other Current Liabilities

 

The components of accrued expenses and other current liabilities at March 31, 2019 and December 31, 2018 consist of:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2019

    

2018

 

 

(in thousands)

Payroll and related benefits

 

$

17,722

 

$

20,486

Warranty

 

 

7,226

 

 

7,852

Operating lease liabilities

 

 

4,797

 

 

 —

Interest

 

 

1,992

 

 

4,321

Professional fees

 

 

3,059

 

 

2,897

Sales, use, and other taxes

 

 

1,256

 

 

2,670

Restructuring liability

 

 

1,720

 

 

2,213

Other

 

 

6,268

 

 

6,011

Total

 

$

44,040

 

$

46,450

 

Warranty

 

Warranties are typically valid for one year from the date of system final acceptance, and Veeco estimates the costs that may be incurred under the warranty. Estimated warranty costs 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 three months ended March 31, 2019 include:

 

 

 

 

 

 

    

(in thousands)

Balance - December 31, 2018

 

$

7,852

Warranties issued

 

 

1,427

Consumption of reserves

 

 

(1,978)

Changes in estimate

 

 

(75)

Balance - March 31, 2019

 

$

7,226

 

Restructuring Accruals

 

During the second quarter of 2018, the Company initiated plans to further reduce excess capacity associated with the manufacture and support of the Company's advanced packaging lithography and 3D wafer inspection systems by consolidating these operations into its San Jose, California facility. As a result of this and other cost saving initiatives, the Company announced headcount reductions of approximately 40 employees. During the three months ended March 31, 2019, additional accruals were recognized and payments were made related to these restructuring initiatives.

 

The Company continued to record restructuring charges in the first quarter of 2019 in an effort to streamline operations, enhance efficiencies, and reduce costs.

15


 

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

    

Personnel

    

Facility

    

 

 

 

 

Severance and

 

Related Costs

 

 

 

 

 

Related Costs

 

and Other

 

Total

 

 

(in thousands)

Balance - December 31, 2018

 

$

2,143

 

$

70

 

$

2,213

Provision

 

 

1,320

 

 

110

 

 

1,430

Payments

 

 

(1,743)

 

 

(180)

 

 

(1,923)

Balance - March 31, 2019

 

$

1,720

 

$

 —

 

$

1,720

 

Customer Deposits and Deferred Revenue

 

Customer deposits totaled $26.6 million and $28.3 million at March 31, 2019 and December 31, 2018, 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, 2018

 

$

44,415

Deferral of revenue

 

 

792

Recognition of previously deferred revenue

 

 

(2,887)

Balance - March 31, 2019

 

$

42,320

 

As of March 31, 2019, the Company has approximately $68.5 million of remaining performance obligations on contracts with an original estimated duration of one year or more, of which approximately 65% is expected to be recognized within one year, with the remaining amounts expected to be recognized between one to three years. The Company has elected to exclude disclosures regarding remaining performance obligations that have an original expected duration of one year or less.

 

Convertible Senior Notes

 

On January 10, 2017, the Company issued $345.0 million of 2.70% convertible senior unsecured notes (the “Convertible Senior 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 Senior 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 Senior Notes mature on January 15, 2023 (the “Maturity Date”), unless earlier purchased by the Company, redeemed, or converted.

 

The carrying value of the Convertible Senior Notes is as follows:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2019

    

2018

 

 

(in thousands)

Principal amount

 

$

345,000

 

$

345,000

Unamortized debt discount

 

 

(49,537)

 

 

(52,336)

Unamortized transaction costs

 

 

(4,990)

 

 

(5,272)

Net carrying value

 

$

290,473

 

$

287,392

 

16


 

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

 

Total interest expense related to the Convertible Senior Notes is as follows: