VEECO INSTRUMENTS INC [VECO] Filings

10-Q 1 veco-20230630x10q.htm 10-Q

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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 June 30, 2023

☐

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

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 ☒ 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 ☒

As of August 1, 2023, there were 56,345,525 shares of the registrant’s common stock outstanding.

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VEECO INSTRUMENTS INC.

INDEX


Safe Harbor Statement	1

PART I—FINANCIAL INFORMATION	4

Item 1. Financial Statements	4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3. Quantitative and Qualitative Disclosures about Market Risk	38

Item 4. Controls and Procedures	39

PART II—OTHER INFORMATION	39

Item 1. Legal Proceedings	39

Item 1A. Risk Factors	40

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3. Defaults Upon Senior Securities	41

Item 4. Mine Safety Disclosures	41

Item 5. Other Information	41

Item 6. Exhibits	42

SIGNATURES	43

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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 three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 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 heading “Risk Factors” in Part 1, Item 1A of our 2022 Form 10-K, and the following:

Risks Related to 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;

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●

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;

Risks 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 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;

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;

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●

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;

General Risk Factors

●

The price of our common shares is volatile and could decrease;

●

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 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.

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.

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PART 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

See accompanying Notes to the Consolidated Financial Statements.

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Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)


	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

See accompanying Notes to the Consolidated Financial Statements.

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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.

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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.

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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, 2022 (“2022 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 2023 interim quarters end on April 2, July 2, and October 1, and the 2022 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 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

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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 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 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, 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 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 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 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 written 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 would be reflected in cost of sales in the period the revision is made. Inventory acquired as part of a business combination is recorded at fair value on the date of acquisition.

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Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

Note 2 — Income Per Common Share

Basic 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 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 if the performance targets have been 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 per share for the three and six months ended June 30, 2023 and 2022 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

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Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

Note 3 — Business Combination

Epiluvac

On January 31, 2023, the Company acquired Epiluvac AB, a privately held manufacturer of chemical vapor deposition (CVD) epitaxy systems that enable silicon carbide (SiC) applications in the electric vehicle market. This acquisition is expected to accelerate penetration into the emerging, high-growth SiC equipment market. The results of Epiluvac’s operations have been included in the consolidated financial statements since the date of acquisition.

The acquisition date fair value of the consideration totaled $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.

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Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:


	Acquisition Date
	(January 31, 2023)
	(in thousands)
Accounts receivable	$	247
Inventories		391
Prepaid expense and other current assets		381
Property, plant, and equipment		736
Intangible assets		28,540
Total identifiable assets acquired		30,295

Accounts payable and accrued expenses		656
Customer deposits and deferred revenue		429
Deferred income taxes		5,723
Other liabilities		80
Total liabilities assumed		6,888

Net identifiable assets acquired		23,407
Goodwill		33,021
Net assets acquired	$	56,428

The gross contractual value of the acquired accounts receivable is the amount expected to be collected by the Company, and therefore is also considered its fair value. Goodwill generated from the acquisition is primarily attributed 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 classes of intangible assets acquired, and the estimated useful life of each class is presented in the table below:


	Acquisition Date
	(January 31, 2023)
	Amount		Useful life
	(in thousands)
Technology	$	28,020	15	years
Customer relationships		460	5	years
Backlog		60	1.5	years
Intangible assets acquired	$	28,540

The Company determined the estimated fair value of the identifiable intangible assets based on various factors including cost, discounted cash flow, income method, loss-of-revenue/income method, and relief-from-royalty method in determining the purchase price allocation.

For the three and six months ended June 30, 2023, the Company incurred approximately $0.2 million and $0.9 million, respectively, of acquisition related costs, included within “Selling, general, and administrative” in the Consolidated Statement of Operations. Epiluvac’s results of operations were immaterial to the Company’s Consolidated Statement of Operations for the three and six months ended June 30, 2023. Additionally, the pro forma Consolidated Statement of Operations as if Epiluvac had been acquired as of January 1, 2022 would not be materially different from the Company’s actual Consolidated Statement of Operations for the three and six months ended June 30, 2023 or 2022.

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the 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 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 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 June 30, 2023 and December 31, 2022:


	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 six months ended June 30, 2023.

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

At June 30, 2023 and December 31, 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

	(in thousands)
June 30, 2023
U.S. treasuries	$	12,133	$	—	$	(92)	$	12,041
Government agency securities		60,262		—		(208)		60,054
Corporate debt		13,108		—		(88)		13,020
Commercial paper		20,760		—		—		20,760
Total	$	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 June 30, 2023 and December 31, 2022 consist of:


	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)

The contractual maturities of securities classified as available-for-sale at June 30, 2023 were as follows:


	June 30, 2023
	Amortized		Estimated
	Cost		Fair Value

		(in thousands)
Due in one year or less	$	99,537