VEECO INSTRUMENTS INC [VECO] Filings

10-Q 1 veco-20240630x10q.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, 2024

☐

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 July 30, 2024, there were 56,784,837 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	28

Item 3. Quantitative and Qualitative Disclosures about Market Risk	37

Item 4. Controls and Procedures	37

PART II—OTHER INFORMATION	38

Item 1. Legal Proceedings	38

Item 1A. Risk Factors	38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3. Defaults Upon Senior Securities	38

Item 4. Mine Safety Disclosures	38

Item 5. Other Information	38

Item 6. Exhibits	39

SIGNATURES	39

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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 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, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 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 2023 Form 10-K, and the following:

Risks Associated with Operating a Global Business

●

We are exposed to risks of operating businesses outside the United States;

●

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 conditions;

●

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 Our Business and Industry

●

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;

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●

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;

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;

●

Our current debt facilities contain 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 research and development credits carryforwards in the future;

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●

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;

●

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,
	2024		2023
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	174,164	$	158,781
Restricted cash		289		339
Short-term investments		130,696		146,664
Accounts receivable, net		92,397		103,018
Contract assets		39,436		24,370
Inventories		245,108		237,635
Prepaid expenses and other current assets		36,105		35,471
Total current assets		718,195		706,278
Property, plant, and equipment, net		113,461		118,459
Operating lease right-of-use assets		27,332		24,377
Intangible assets, net		40,229		43,945
Goodwill		214,964		214,964
Deferred income taxes		117,901		117,901
Other assets		3,033		3,117
Total assets	$	1,235,115	$	1,229,041

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	46,850	$	42,383
Accrued expenses and other current liabilities		50,119		57,624
Contract liabilities		80,556		118,026
Current portion of long-term debt		26,448		—
Total current liabilities		203,973		218,033
Deferred income taxes		6,445		6,552
Long-term debt		249,105		274,941
Long-term operating lease liabilities		34,938		31,529
Other liabilities		25,641		25,544
Total liabilities		520,102		556,599
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; 56,773,294 shares issued and outstanding at June 30, 2024 and 56,364,131 shares issued and outstanding at December 31, 2023		569		564
Additional paid-in capital		1,208,348		1,202,440
Accumulated deficit		(495,371)		(532,169)
Accumulated other comprehensive income		1,467		1,607
Total stockholders' equity		715,013		672,442
Total liabilities and stockholders' equity	$	1,235,115	$	1,229,041

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,
	2024		2023		2024		2023
Net sales	$	175,879	$	161,641	$	350,363	$	315,145
Cost of sales		100,489		94,131		199,554		185,618
Gross profit		75,390		67,510		150,809		129,527
Operating expenses, net:
Research and development		31,696		27,384		61,338		54,945
Selling, general, and administrative		24,595		23,822		49,295		46,449
Amortization of intangible assets		1,825		2,123		3,716		4,235
Other operating expense (income), net		552		493		(2,307)		404
Total operating expenses, net		58,668		53,822		112,042		106,033
Operating income		16,722		13,688		38,767		23,494
Interest income		3,115		2,420		6,439		4,494
Interest expense		(2,766)		(3,052)		(5,385)		(5,928)
Other income (expense), net		—		(97,091)		—		(97,091)
Income (loss) before income taxes		17,071		(84,035)		39,821		(75,031)
Income tax expense		2,127		1,285		3,023		1,548
Net income (loss)	$	14,944	$	(85,320)	$	36,798	$	(76,579)

Income (loss) per common share:
Basic	$	0.27	$	(1.61)	$	0.66	$	(1.48)
Diluted	$	0.25	$	(1.61)	$	0.61	$	(1.48)

Weighted average number of shares:
Basic		56,277		52,861		56,160		51,764
Diluted		62,535		52,861		61,733		51,764

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,
	2024		2023		2024		2023
Net income (loss)	$	14,944	$	(85,320)	$	36,798	$	(76,579)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on available-for-sale securities		(10)		—		(105)		470
Change in currency translation adjustments		(2)		(39)		(35)		(33)
Total other comprehensive income (loss), net of tax		(12)		(39)		(140)		437

Total comprehensive income (loss)	$	14,932	$	(85,359)	$	36,658	$	(76,142)

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,
	2024		2023
Cash Flows from Operating Activities
Net income (loss)	$	36,798	$	(76,579)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		13,008		12,435
Non-cash interest expense		613		514
Deferred income taxes		(67)		778
Share-based compensation expense		17,315		14,959
Loss on extinguishment of debt		—		97,091
Provision for bad debts		—		490
Change in contingent consideration		(131)		—
Changes in operating assets and liabilities:
Accounts receivable and contract assets		(4,445)		(10,145)
Inventories		(6,680)		(44,540)
Prepaid expenses and other current assets		(1,160)		(5,633)
Accounts payable and accrued expenses		2,946		7,230
Contract liabilities		(37,470)		29,048
Other, net		(2,911)		(513)
Net cash provided by (used in) operating activities		17,816		25,135

Cash Flows from Investing Activities
Capital expenditures		(8,943)		(10,836)
Acquisition of businesses, net of cash acquired		—		(30,373)
Proceeds from the sale of investments		81,695		112,895
Payments for purchases of investments		(64,004)		(69,320)
Proceeds from sale of productive assets		2,033		—
Net cash provided by (used in) investing activities		10,781		2,366

Cash Flows from Financing Activities
Restricted stock tax withholdings		(14,588)		(8,801)
Contingent consideration payment		(1,818)		—
Proceeds (net of tax withholdings) from option exercises and employee stock purchase plan		3,186		2,619
Proceeds from issuance of 2029 Notes, net of issuance costs		—		223,202
Extinguishment of convertible notes		—		(218,991)
Net cash provided by (used in) financing activities		(13,220)		(1,971)
Effect of exchange rate changes on cash and cash equivalents		(44)		(41)
Net increase (decrease) in cash, cash equivalents, and restricted cash		15,333		25,489
Cash, cash equivalents, and restricted cash - beginning of period		159,120		155,472
Cash, cash equivalents, and restricted cash - end of period	$	174,453	$	180,961

Supplemental Disclosure of Cash Flow Information
Interest paid	$	4,679	$	6,628
Income taxes paid, net of refunds received		2,531		2,983
Non-cash activities
Capital expenditures included in accounts payable and accrued expenses		590		3,938
Net transfer of inventory to property, plant and equipment		—		4,328
Right-of-use assets obtained in exchange for lease obligations		4,695		630

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, 2023 (“2023 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 2024 interim quarters end on March 31, June 30, and September 29, and the 2023 interim quarters ended on April 2, July 2, and October 1. 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 advanced payments on system transactions. The timing of the transfer of goods or services related to the advanced payments is either at the discretion of the customer or generally expected to be within one year from the advanced 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; finished goods; and evaluation inventory at customer facilities. 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.

Recent Accounting Standards Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07: Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures. This standard primarily enhances disclosures about significant segment expenses. The standard requires interim and annual disclosure of significant segment expenses that are regularly provided to the chief operating decision-maker (“CODM”) and included within the reported measure of a segment’s profit or loss, requires interim disclosures about a reportable segment’s profit and loss and assets that are currently required annually, requires disclosure of the position and title of the CODM, clarifies circumstances in which an entity can disclose multiple

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Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

segment measures of profit or loss and contains other disclosure requirements. This authoritative guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the effect of this new guidance on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09: Improvements to Income Tax Disclosures (Topic 740). This amendment requires public entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and for income taxes paid. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This authoritative guidance will be effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the effect of this new guidance on its consolidated financial statements.

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.

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Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

The computations of basic and diluted income per share for the three and six months ended June 30, 2024 and 2023 are as follows:


	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023

	(in thousands, except per share amounts)
Numerator:
Net income (loss)	$	14,944	$	(85,320)	$	36,798	$	(76,579)
Interest expense associated with convertible notes		512		—		1,026		—
Net income (loss) available to common shareholders	$	15,456	$	(85,320)	$	37,824	$	(76,579)

Denominator:
Basic weighted average shares outstanding		56,277		52,861		56,160		51,764
Effect of potentially dilutive share-based awards		1,316		—		1,118		—
Dilutive effect of convertible notes		4,942		—		4,455		—
Diluted weighted average shares outstanding		62,535		52,861		61,733		51,764

Net income per common share:
Basic	$	0.27	$	(1.61)	$	0.66	$	(1.48)
Diluted	$	0.25	$	(1.61)	$	0.61	$	(1.48)

Common share equivalents excluded from the diluted weighted average shares outstanding since the Company incurred a net loss and their effect would be antidilutive		N/A		838		N/A		674
Potentially dilutive shares excluded from the diluted calculation as their effect would be antidilutive		226		743		26		763
Potential shares to be issued for settlement of the convertible notes excluded from the diluted calculation as their effect would be antidilutive		N/A		8,868		N/A		11,722

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. Acquisition date fair value totaled $56.4 million, which included $30.4 million of cash and $26.1 million of contingent consideration.

The purchase agreement included performance milestones that, if achieved, could trigger additional payments to the original selling shareholders. 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

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Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

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. The aggregate fair value of the contingent consideration arrangement at the acquisition date was $26.1 million. 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.

The Company updates its estimate of fair value of the contingent consideration each reporting period, utilizing the same methodologies described above. The discount rate used was 5.9% at June 30, 2024 for the strategic target and order value related contingent payments. During the three months ended June 30, 2024, the Company recognized approximately $0.5 million of additional contingent consideration, included within “Other operating expense (income) net” in the Consolidated Statement of Operations. During the six months ended June 30, 2024, the Company recognized approximately $0.1 million reduction to contingent consideration, included within “Other operating expense (income) net” in the Consolidated Statement of Operations. Additionally, during the six months ended June 30, 2024, the Company paid $1.8 million to the original selling shareholders associated with the settlement of a strategic target milestone. Total contingent consideration liability as of June 30, 2024 was $22.3 million, included within “Other liabilities” on the Consolidated Balance Sheet.

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.

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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, 2024 and December 31, 2023:


	Level 1		Level 2		Level 3		Total

	(in thousands)
June 30, 2024
Cash equivalents
Certificate of deposits and time deposits	$	80,127	$	—	$	—	$	80,127
U.S. treasuries		19,971		—		—		19,971
Money market cash		18,148		—		—		18,148
Total	$	118,246	$	—	$	—	$	118,246
Short-term investments
U.S. treasuries	$	58,438	$	—	$	—	$	58,438
Government agency securities		—		18,068		—		18,068
Corporate debt		—		54,190		—		54,190
Total	$	58,438	$	72,258	$	—	$	130,696

December 31, 2023
Cash equivalents
Certificate of deposits and time deposits	$	74,262	$	—	$	—	$	74,262
Corporate debt		—		1,988		—		1,988
Money market cash		21,587		—		—		21,587
Total	$	95,849	$	1,988	$	—	$	97,837
Short-term investments
U.S. treasuries	$	59,493	$	—	$	—	$	59,493
Government agency securities		—		41,818		—		41,818
Corporate debt		—		35,409		—		35,409
Commercial paper		—		9,944		—		9,944
Total	$	59,493	$	87,171	$	—	$	146,664

There were no transfers between fair value measurement levels during the three and six months ended June 30, 2024.

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Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

At June 30, 2024 and December 31, 2023, 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, 2024
U.S. treasuries	$	58,541	$	—	$	(103)	$	58,438
Government agency securities		18,095		—		(27)		18,068
Corporate debt		54,307		—		(117)		54,190
Total	$	130,943	$	—	$	(247)	$	130,696

December 31, 2023
U.S. treasuries	$	59,541	$	3	$	(51)	$	59,493
Government agency securities		41,843		6		(31)		41,818
Corporate debt		35,447		9		(47)		35,409
Commercial paper		9,944		—		—		9,944
Total	$	146,775	$	18	$	(129)	$	146,664

Available-for-sale securities in a loss position at June 30, 2024 and December 31, 2023 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, 2024
U.S. treasuries	$	58,438	$	(103)	$	—	$	—
Government agency securities		11,345		(23)		6,723		(4)
Corporate debt		53,604		(117)		—		—
Total	$	123,387	$	(243)	$	6,723	$	(4)

December 31, 2023
U.S. treasuries	$	43,118	$	(50)	$	—	$	—
Government agency securities		34,885		(31)		—		—
Corporate debt		23,262		(33)		2,618		(15)
Total	$	101,265	$	(114)	$	2,618	$	(15)

The contractual maturities of securities classified as available-for-sale at June 30, 2024 were as follows:


	June 30, 2024
	Amortized		Estimated
	Cost		Fair Value

		(in thousands)
Due in one year or less	$	129,427	$	129,190
Due after one year through two years		1,516		1,506
Total	$	130,943	$	130,696

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Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

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, or unrealized losses from declines in fair value that are other than temporary, for the six months ended June 30, 2024 and 2023.

Accounts Receivable

Accounts receivable is presented net of an allowance for doubtful accounts of $1.0 million at June 30, 2024 and December 31, 2023. The Company considers its current expectations of future economic conditions when estimating its allowance for doubtful accounts.

Inventories

Inventories at June 30, 2024 and December 31, 2023 consist of the following:


	June 30,		December 31,
	2024		2023

	(in thousands)
Materials	$	140,977	$	139,884
Work-in-process		76,481		71,278
Finished goods		4,844		6,183
Evaluation inventory		22,806		20,290
Total	$	245,108	$	237,635

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, prepaid software and maintenance, and other receivables. The Company had deposits with its suppliers of $17.3 million and $19.4 million at June 30, 2024 and December 31, 2023, respectively.

Property, Plant, and Equipment

Property, plant, and equipment at June 30, 2024 and December 31, 2023 consist of the following:


	June 30,		December 31,
	2024		2023

	(in thousands)
Land	$	5,061	$	5,061
Building and improvements		61,431		61,679
Machinery and equipment ⁽¹⁾		184,009		181,180
Leasehold improvements		53,009		52,913
Gross property, plant, and equipment		303,510		300,833
Less: accumulated depreciation and amortization		190,049		182,374
Net property, plant, and equipment	$	113,461	$	118,459

(1)	Machinery and equipment also includes software, furniture and fixtures

For the three and six months ended June 30, 2024, depreciation expense was $4.8 million and $9.3 million, respectively and $4.0 million and $8.2 million, respectively, for the comparable 2023 period.

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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. There were no changes to goodwill during the six months ended June 30, 2024.