| --- | --- | --- | --- | |----------------------------------------------------------------------------------------------------------|-------|-------|-------| | | | | | | | | | | | Veeco Instruments | | | | | Q3 2023 Financial Results Conference Call - November 6th, 2023 | | | | | | | | | | | | | | | | | | | | Q3 2023 Financial Results Conference Call Copyright © 2023 Veeco Instruments Inc. All Rights Reserved. 1 | | | | | --- | --- | --- | --- | |-------|---------------------------------------------------- ...

Financial Data and Key Metrics Changes - Veeco reported Q3 2023 revenue of $177 million, a 10% increase from Q2 2023, with non-GAAP EPS of $0.53, exceeding guidance [7][27] - Gross margin improved to approximately 44%, up from 43% in the previous quarter, driven by higher volume and a favorable product mix [29] - Net income for the quarter was $31 million, with a diluted share count of 59 million shares [30] Business Line Data and Key Metrics Changes - Semiconductor business revenue was $98 million, accounting for 56% of total revenue, while data storage revenue increased to $34 million, representing 19% of total revenue [27] - Revenue from the compound semiconductor market declined to 14% from the prior quarter [27] Market Data and Key Metrics Changes - Revenue from the United States increased to 33% of total revenue, up from 22% in the prior quarter, while revenue from Asia-Pacific declined to 29% from 36% [28] - Revenue from China decreased from 31% to 23% of total revenue, with expectations for an increase in Q4 [28] Company Strategy and Development Direction - The company is focused on expanding its laser annealing technology and has received significant orders for new applications, including automotive and EUV pellicle mask blank production [8][10] - Veeco is investing in GaN power and microLED markets, anticipating long-term growth opportunities [15] - The company aims to capitalize on the growing demand for data storage and AI chip manufacturing technologies [18][19] Management's Comments on Operating Environment and Future Outlook - Management noted that the data storage industry remains challenging due to excess inventory, but long-term growth projections for exabyte growth are positive [52] - The company expects semiconductor business to outperform WFE and grow about 10% for the year [14] - Management expressed confidence in the potential for initial high-volume manufacturing orders for nanosecond annealing systems by late 2024 or 2025 [22] Other Important Information - The company ended the quarter with cash and short-term investments of $287 million, with accounts receivable declining to $122 million [31] - The projected annual effective tax rate was reduced from 14% to 11%, positively impacting net income [30] Q&A Session Summary Question: Context on NSA tool shipment and adoption - Management expressed excitement about the shipment of the first evaluation system to a Tier 1 logic customer, indicating it represents a significant milestone and a complementary technology to existing systems [44][45] Question: Timing for EUV pellicles and high-volume orders - Management clarified that pellicles are being introduced today, with expectations for production tools to be used for making pellicles over time [47] Question: Data storage segment outlook - Management indicated that the data storage industry is challenging but expects a long-term growth trajectory, with backlog extending into 2024 [51][53] Question: China market exposure and revenue expectations - Management noted strong current activity with customers in China, expecting a pickup in revenue in Q4 compared to Q3 [55][60] Question: High bandwidth memory opportunity - Management stated that the high bandwidth memory opportunity is significant, with potential incremental revenue from additional customers expected in mid-2025 [78][79]

[Safe Harbor Statement](index=4&type=section&id=Safe%20Harbor%20Statement) This section addresses forward-looking statements and outlines various business, financial, and operational risks [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section defines forward-looking statements, highlights inherent risks and uncertainties, and notes that financial estimates are based on management assumptions - Forward-looking statements are identified by words such as 'believes,' 'anticipates,' 'expects,' 'estimates,' 'targets,' 'plans,' 'intends,' 'will,' and similar expressions related to the future[9](index=9&type=chunk) - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts, which are subject to risks and uncertainties and may ultimately differ from actual results[10](index=10&type=chunk) [Risks and Uncertainties](index=4&type=section&id=Risks%20and%20Uncertainties) This section outlines various business, market, financial, and operational risks, including those related to trade policy, competition, and supply chain - Key business risks include changes in U.S. trade policy and export controls, unfavorable market conditions, significant competition, and operating in industries characterized by rapid technological change[12](index=12&type=chunk) - The company faces risks from a concentrated customer base, cyclical industries, reliance on a limited number of suppliers, and long/unpredictable sales cycles[12](index=12&type=chunk)[15](index=15&type=chunk) - Financial and capital markets risks include tightening credit markets, foreign currency exchange risks, potential impairment charges, and restrictions imposed by debt facilities[15](index=15&type=chunk) - Other general risks encompass the volatility of common stock price, inability to attract and retain employees, non-compliance with environmental, health, and safety regulations, and increased attention to ESG matters[20](index=20&type=chunk) [PART I—FINANCIAL INFORMATION](index=9&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This part presents unaudited consolidated financial statements, notes, and management's discussion and analysis of financial condition [Item 1. Financial Statements](index=9&type=section&id=Item%201.%20Financial%20Statements) This section presents the company's unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, along with detailed explanatory notes Consolidated Balance Sheets (September 30, 2023 vs. December 31, 2022) | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Total Assets | $1,246,233 | $1,128,183 | $118,050 | 10.46% | | Total Liabilities | $601,753 | $550,359 | $51,394 | 9.34% | | Total Stockholders' Equity | $644,480 | $577,824 | $66,656 | 11.54% | Consolidated Statements of Operations (Three Months Ended September 30, 2023 vs. 2022) | Metric | Q3 2023 (in thousands) | Q3 2022 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Net Sales | $177,366 | $171,913 | $5,453 | 3.17% | | Gross Profit | $76,877 | $69,951 | $6,926 | 9.90% | | Operating Income | $22,263 | $17,564 | $4,699 | 26.75% | | Net Income | $24,574 | $15,041 | $9,533 | 63.38% | | Basic EPS | $0.44 | $0.30 | $0.14 | 46.67% | | Diluted EPS | $0.42 | $0.27 | $0.15 | 55.56% | Consolidated Statements of Operations (Nine Months Ended September 30, 2023 vs. 2022) | Metric | 9M 2023 (in thousands) | 9M 2022 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Net Sales | $492,511 | $492,338 | $173 | 0.04% | | Gross Profit | $206,404 | $200,229 | $6,175 | 3.08% | | Operating Income | $45,757 | $46,904 | $(1,147) | -2.45% | | Net Income (Loss) | $(52,005) | $38,026 | $(90,031) | * | | Basic EPS | $(0.98) | $0.76 | $(1.74) | -228.95% | | Diluted EPS | $(0.98) | $0.70 | $(1.68) | -240.00% | Consolidated Statements of Cash Flows (Nine Months Ended September 30, 2023 vs. 2022) | Metric | 9M 2023 (in thousands) | 9M 2022 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Net cash provided by (used in) operating activities | $32,189 | $75,374 | $(43,185) | -57.29% | | Net cash provided by (used in) investing activities | $(27,180) | $(21,161) | $(6,019) | 28.44% | | Net cash provided by (used in) financing activities | $(3,630) | $(4,909) | $1,279 | -26.05% | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $1,325 | $49,196 | $(47,871) | -97.31% | [Note 1 — Basis of Presentation](index=15&type=section&id=Note%201%20%E2%80%94%20Basis%20of%20Presentation) This note outlines the basis for preparing interim financial statements, revenue recognition policies, and inventory valuation methods - Interim financial statements are prepared in accordance with U.S. GAAP and SEC Regulation S-X, serving as an update to the information presented in Veeco's 2022 Annual Report on Form 10-K[33](index=33&type=chunk) - Revenue is recognized upon the transfer of control of promised products or services to the customer, with most revenue recognized at a point in time, typically upon system delivery after contractual acceptance provisions are met[36](index=36&type=chunk)[38](index=38&type=chunk) - Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis, and are assessed quarterly for obsolescence[44](index=44&type=chunk) [Note 2 — Income Per Common Share](index=18&type=section&id=Note%202%20%E2%80%94%20Income%20Per%20Common%20Share) This note details the calculation of basic and diluted income per common share, including the impact of outstanding options and convertible notes - Basic income per share is calculated by dividing net income by the weighted average number of shares outstanding, while diluted income per share includes the dilutive effect of outstanding options, share-based awards, and convertible notes[45](index=45&type=chunk) Income (Loss) Per Common Share (Three Months Ended September 30, 2023 vs. 2022) | Metric | Q3 2023 | Q3 2022 | | :-------------------------------- | :------ | :------ | | Basic EPS | $0.44 | $0.30 | | Diluted EPS | $0.42 | $0.27 | | Basic Weighted Average Shares Outstanding (in thousands) | 55,352 | 49,887 | | Diluted Weighted Average Shares Outstanding (in thousands) | 59,636 | 65,151 | Income (Loss) Per Common Share (Nine Months Ended September 30, 2023 vs. 2022) | Metric | 9M 2023 | 9M 2022 | | :-------------------------------- | :------ | :------ | | Basic EPS | $(0.98) | $0.76 | | Diluted EPS | $(0.98) | $0.70 | | Basic Weighted Average Shares Outstanding (in thousands) | 52,978 | 49,831 | | Diluted Weighted Average Shares Outstanding (in thousands) | 52,978 | 65,090 | [Note 3 — Business Combination (Epiluvac)](index=20&type=section&id=Note%203%20%E2%80%94%20Business%20Combination) This note details the acquisition of Epiluvac AB, including the consideration paid, goodwill generated, and intangible assets acquired - On January 31, 2023, Veeco acquired Epiluvac AB, a manufacturer of chemical vapor deposition (CVD) epitaxy systems for silicon carbide (SiC) applications, to accelerate penetration into the emerging, high-growth SiC equipment market[47](index=47&type=chunk) Epiluvac Acquisition Consideration (January 31, 2023) | Metric | Amount (in thousands) | | :---------------------- | :-------------------- | | Cash paid, net of cash acquired | $30,373 | | Contingent consideration | $26,055 | | Acquisition date fair value | $56,428 | - Goodwill of **$33.0 million** was generated from the acquisition, primarily attributed to expected synergies from future growth and strategic advantages[51](index=51&type=chunk) Intangible Assets Acquired (January 31, 2023) | Category | Amount (in thousands) | Useful life | | :---------------------- | :-------------------- | :---------- | | Technology | $28,020 | 15 years | | Customer relationships | $460 | 5 years | | Backlog | $60 | 1.5 years | | Intangible assets acquired | $28,540 | | [Note 4 — Assets](index=23&type=section&id=Note%204%20%E2%80%94%20Assets) This note provides details on the company's assets, including short-term investments, fair value measurements, inventories, goodwill, and other intangible assets - 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[54](index=54&type=chunk) Fair Value Measurement of Assets (September 30, 2023) | Asset Type | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :-------------------------------- | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Cash equivalents | $99,506 | $4,718 | $0 | $104,224 | | Short-term investments | $23,886 | $106,231 | $0 | $130,117 | Inventories (September 30, 2023 vs. December 31, 2022) | Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | Change (%) | | :---------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Materials | $156,485 | $134,940 | $21,545 | 15.97% | | Work-in-process | $86,349 | $68,765 | $17,584 | 25.57% | | Finished goods | $9,286 | $3,203 | $6,083 | 189.91% | | Total Inventories | $252,120 | $206,908 | $45,212 | 21.85% | Goodwill (Nine Months Ended September 30, 2023) | Metric | Amount (in thousands) | | :-------------------------- | :-------------------- | | Balance at December 31, 2022 | $181,943 | | Acquisition | $33,021 | | Balance at September 30, 2023 | $214,964 | Intangible Assets (September 30, 2023 vs. December 31, 2022) | Category | Sep 30, 2023 Net (in thousands) | Dec 31, 2022 Net (in thousands) | Change (in thousands) | Change (%) | | :---------------------- | :------------------------------ | :------------------------------ | :-------------------- | :--------- | | Technology | $35,257 | $10,990 | $24,267 | 220.81% | | Customer relationships | $9,837 | $11,050 | $(1,213) | -10.98% | | Trademarks and tradenames | $942 | $1,847 | $(905) | -49.00% | | Other | $33 | $0 | $33 | N/A | | Total Intangible Assets | $46,069 | $23,887 | $22,182 | 92.86% | [Note 5 — Liabilities](index=28&type=section&id=Note%205%20%E2%80%94%20Liabilities) This note details the company's liabilities, including accrued expenses, customer deposits, performance obligations, convertible senior notes, and credit facilities Accrued Expenses and Other Current Liabilities (September 30, 2023 vs. December 31, 2022) | Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Payroll and related benefits | $27,809 | $30,044 | $(2,235) | -7.44% | | Contingent consideration | $7,279 | $0 | $7,279 | N/A | | Warranty | $8,552 | $8,601 | $(49) | -0.57% | | Operating lease liabilities | $3,825 | $3,333 | $492 | 14.76% | | Interest | $3,007 | $2,853 | $154 | 5.40% | | Professional fees | $2,047 | $2,102 | $(55) | -2.62% | | Sales, use, and other taxes | $5,995 | $2,027 | $3,968 | 195.76% | | Other | $7,085 | $7,071 | $14 | 0.20% | | Total | $65,599 | $56,031 | $9,568 | 17.08% | - Customer deposits increased to **$118.7 million** at September 30, 2023, from **$110.2 million** at December 31, 2022[70](index=70&type=chunk) - The company has approximately **$244.5 million** of remaining performance obligations on contracts with an original estimated duration of one year or more, with approximately **83%** expected to be recognized within one year[71](index=71&type=chunk) - The company issued **$230.0 million** of 2.875% convertible senior notes due 2029 and repurchased and retired **$106.0 million** of 2025 Notes and **$100.0 million** of 2027 Notes, resulting in a total loss on extinguishment of approximately **$97.1 million** for the nine months ended September 30, 2023[78](index=78&type=chunk)[79](index=79&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[165](index=165&type=chunk) Convertible Senior Notes Carrying Value (September 30, 2023 vs. December 31, 2022) | Note Type | Sep 30, 2023 Net Carrying Value (in thousands) | Dec 31, 2022 Net Carrying Value (in thousands) | Change (in thousands) | Change (%) | | :---------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :--------- | | 2023 Notes | $0 | $20,169 | $(20,169) | -100.00% | | 2025 Notes | $26,376 | $131,510 | $(105,134) | -79.94% | | 2027 Notes | $24,664 | $122,981 | $(98,317) | -79.95% | | 2029 Notes | $223,606 | $0 | $223,606 | N/A | | Total | $274,646 | $274,660 | $(14) | -0.01% | - The company has a **$150 million** senior secured revolving credit facility, which was undrawn as of September 30, 2023, and December 31, 2022[94](index=94&type=chunk)[100](index=100&type=chunk) [Note 6 — Commitments and Contingencies](index=37&type=section&id=Note%206%20%E2%80%94%20Commitments%20and%20Contingencies) This note outlines the company's operating lease liabilities, purchase commitments, and outstanding bank guarantees and letters of credit - The weighted average remaining lease term for the company's operating leases as of September 30, 2023, was **12 years**, with a weighted average discount rate of **5.6%**[104](index=104&type=chunk) Operating Lease Liabilities Maturities (September 30, 2023) | Period | Operating Leases (in thousands) | | :-------------------------- | :------------------------------ | | Payments due by period: | | | 2023 | $65 | | 2024 | $4,604 | | 2025 | $4,095 | | 2026 | $4,071 | | 2027 | $3,633 | | Thereafter | $34,245 | | Total future minimum lease payments | $50,713 | | Less: Imputed interest | $(14,734) | | Total | $35,979 | - Veeco has purchase commitments of **$216.2 million** at September 30, 2023, with substantially all becoming due within one year[107](index=107&type=chunk) - Outstanding bank guarantees and standby letters of credit totaled **$18.7 million** at September 30, 2023, with **$13.0 million** of unused capacity available[108](index=108&type=chunk) [Note 7 — Equity](index=41&type=section&id=Note%207%20%E2%80%94%20Equity) This note details the changes in the company's stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit Changes in Stockholders' Equity (Nine Months Ended September 30, 2023) | Metric | Dec 31, 2022 (in thousands) | Sep 30, 2023 (in thousands) | Change (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Common Stock | $517 | $564 | $47 | | Additional Paid-in Capital | $1,078,180 | $1,196,224 | $118,044 | | Accumulated Deficit | $(501,801) | $(553,806) | $(52,005) | | Accumulated Other Comprehensive Income | $928 | $1,498 | $570 | | Total Stockholders' Equity | $577,824 | $644,480 | $66,656 | [Note 8 — Share-based Compensation](index=42&type=section&id=Note%208%20%E2%80%94%20Share-based%20Compensation) This note provides details on the company's share-based compensation expense, including its allocation across cost of sales, R&D, and SG&A - Share-based compensation expense for the nine months ended September 30, 2023, was **$22.4 million**, an increase from **$17.0 million** in the comparable prior period[114](index=114&type=chunk) Share-based Compensation Expense (Nine Months Ended September 30, 2023 vs. 2022) | Category | 9M 2023 (in thousands) | 9M 2022 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Cost of sales | $4,579 | $3,384 | $1,195 | 35.31% | | Research and development | $6,815 | $4,939 | $1,876 | 37.98% | | Selling, general, and administrative | $10,985 | $8,646 | $2,339 | 27.05% | | Total | $22,379 | $16,969 | $5,410 | 31.89% | [Note 9 — Income Taxes](index=43&type=section&id=Note%209%20%E2%80%94%20Income%20Taxes) This note details the company's income tax expense or benefit and effective tax rates, highlighting the impact of R&D tax credits and debt extinguishment - The company reported an income tax benefit of **$2.1 million** for the three months ended September 30, 2023, and **$0.5 million** for the nine months ended September 30, 2023, primarily due to previously unrecognized R&D tax credits and tax benefits from the loss on extinguishment of convertible notes[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) Income Tax Expense (Benefit) and Effective Tax Rate (Three Months Ended September 30, 2023 vs. 2022) | Metric | Q3 2023 (in thousands) | Q3 2022 (in thousands) | | :-------------------------- | :--------------------- | :--------------------- | | Income (loss) before income taxes | $22,510 | $15,249 | | Income tax expense (benefit) | $(2,064) | $208 | | Effective tax rate | (9.17)% | 1.36% | Income Tax Expense (Benefit) and Effective Tax Rate (Nine Months Ended September 30, 2023 vs. 2022) | Metric | 9M 2023 (in thousands) | 9M 2022 (in thousands) | | :-------------------------- | :--------------------- | :--------------------- | | Income (loss) before income taxes | $(52,521) | $39,151 | | Income tax expense (benefit) | $(516) | $1,125 | | Effective tax rate | 0.98% | 2.87% | [Note 10 — Segment Reporting and Geographic Information](index=45&type=section&id=Note%2010%20%E2%80%94%20Segment%20Reporting%20and%20Geographic%20Information) This note provides details on the company's single operating segment, its four end-markets, and sales performance by end-market and geographic region - Veeco operates and measures its results in one operating segment: the development, manufacture, sales, and support of semiconductor and thin film process equipment primarily sold to make electronic devices[121](index=121&type=chunk) - The company serves four end-markets: Semiconductor, Compound Semiconductor, Data Storage, and Scientific & Other[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) Sales by End-Market (Three Months Ended September 30, 2023 vs. 2022) | End-Market | Q3 2023 (in thousands) | Q3 2022 (in thousands) | Change (in thousands) | Change (%) | | :--------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Semiconductor | $98,155 | $100,387 | $(2,232) | -2.22% | | Compound Semiconductor | $25,666 | $28,094 | $(2,428) | -8.64% | | Data Storage | $33,957 | $27,702 | $6,255 | 22.58% | | Scientific & Other | $19,588 | $15,730 | $3,858 | 24.53% | | Total | $177,366 | $171,913 | $5,453 | 3.17% | Sales by Geographic Region (Three Months Ended September 30, 2023 vs. 2022) | Geographic Region | Q3 2023 (in thousands) | Q3 2022 (in thousands) | Change (in thousands) | Change (%) | | :---------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | United States | $58,337 | $53,747 | $4,590 | 8.54% | | EMEA | $25,874 | $17,562 | $8,312 | 47.33% | | China | $40,823 | $36,193 | $4,630 | 12.79% | | Rest of APAC | $52,223 | $64,259 | $(12,036) | -18.73% | | Rest of World | $109 | $152 | $(43) | -28.29% | | Total | $177,366 | $171,913 | $5,453 | 3.17% | Sales by End-Market (Nine Months Ended September 30, 2023 vs. 2022) | End-Market | 9M 2023 (in thousands) | 9M 2022 (in thousands) | Change (in thousands) | Change (%) | | :--------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Semiconductor | $297,537 | $275,528 | $22,009 | 7.99% | | Compound Semiconductor | $70,891 | $96,325 | $(25,434) | -26.40% | | Data Storage | $69,416 | $70,845 | $(1,429) | -2.02% | | Scientific & Other | $54,667 | $49,640 | $5,027 | 10.13% | | Total | $492,511 | $492,338 | $173 | 0.04% | Sales by Geographic Region (Nine Months Ended September 30, 2023 vs. 2022) | Geographic Region | 9M 2023 (in thousands) | 9M 2022 (in thousands) | Change (in thousands) | Change (%) | | :---------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | United States | $125,087 | $159,157 | $(34,070) | -21.41% | | EMEA | $66,332 | $66,221 | $111 | 0.17% | | China | $151,556 | $95,071 | $56,485 | 59.41% | | Rest of APAC | $149,288 | $170,526 | $(21,238) | -12.45% | | Rest of World | $248 | $1,363 | $(1,115) | -81.80% | | Total | $492,511 | $492,338 | $173 | 0.04% | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of financial condition and results of operations, covering macroeconomic factors, business updates, and detailed financial performance - Macroeconomic challenges include supply chain constraints, an inflationary and high-interest rate environment, heightened China export regulations, and a forecasted decline in semiconductor and related markets[130](index=130&type=chunk) - The supply chain is improving with a significant decline in lead times, though some material lead times remain higher than pre-pandemic levels[131](index=131&type=chunk) - Reduced demand for certain products like advanced packaging lithography, spare parts, and upgrades is observed due to low customer utilization rates, leading to order cancellations or delayed shipments/payments[132](index=132&type=chunk) - The Semiconductor business is expected to be up about **10%** in 2023, outpacing wafer fab equipment spending growth, driven by laser annealing solutions in advanced node logic and High Bandwidth Memory (HBM) DRAM devices[136](index=136&type=chunk) - Veeco acquired SiC technology on January 31, 2023, to accelerate its entry into the high-growth SiC power epitaxy equipment market, with initial revenue expected in 2024[137](index=137&type=chunk) - Total 2023 revenue is expected to be in the range of **$648 million** to **$668 million**[140](index=140&type=chunk) [Executive Summary](index=47&type=section&id=Executive%20Summary) This section provides an overview of Veeco's business as an innovative manufacturer of semiconductor process equipment and its core technologies - Veeco is an innovative manufacturer of semiconductor process equipment, utilizing ion beam, laser annealing, lithography, MOCVD, CVD, and single wafer etch & clean technologies for advanced semiconductor devices[129](index=129&type=chunk) [Business Update](index=47&type=section&id=Business%20Update) This section discusses macroeconomic challenges, supply chain improvements, demand trends, regulatory impacts, and market performance across key end-markets - Macroeconomic challenges include supply chain constraints, an inflationary and high-interest rate environment, heightened China export regulations, and a forecasted decline in semiconductor markets[130](index=130&type=chunk) - Supply chain conditions are improving with declining lead times, though some material lead times remain above pre-pandemic levels[131](index=131&type=chunk) - Demand for advanced packaging lithography, spare parts, and upgrades has decreased due to low customer utilization rates, leading to order cancellations or delays[132](index=132&type=chunk) - New US export regulations (October 17, 2023) are not expected to materially impact the business, but the regulatory landscape is dynamic[133](index=133&type=chunk) - Semiconductor market sales declined **8%** sequentially in Q3 but are expected to be up **10%** for 2023, driven by advanced node logic and memory applications (HBM DRAM, EUV lithography)[135](index=135&type=chunk)[136](index=136&type=chunk) - Compound Semiconductor market sales increased quarter-over-quarter but declined year-over-year, with continued investment in power electronics (GaN, SiC) and Micro-LED[137](index=137&type=chunk) - Data Storage market sales increased significantly quarter-over-quarter and year-over-year, driven by cloud-based storage and increased capital intensity in HDD manufacturing[138](index=138&type=chunk) - Total 2023 revenue is projected to be between **$648 million** and **$668 million**[140](index=140&type=chunk) [Results of Operations (Three Months Ended September 30, 2023 and 2022)](index=50&type=section&id=Results%20of%20Operations%20(Three%20Months%20Ended%20September%2030%2C%202023%20and%202022)) This section analyzes the company's financial performance for the three months ended September 30, 2023, focusing on net sales, gross profit, operating expenses, and net income Key Financials (Three Months Ended September 30, 2023 vs. 2022) | Metric | Q3 2023 (in thousands) | Q3 2022 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Net sales | $177,366 | $171,913 | $5,453 | 3% | | Cost of sales | $100,489 | $101,962 | $(1,473) | -1% | | Gross profit | $76,877 | $69,951 | $6,926 | 10% | | Operating expenses, net | $54,614 | $52,387 | $2,227 | 4% | | Operating income | $22,263 | $17,564 | $4,699 | 27% | | Net income | $24,574 | $15,041 | $9,533 | 63% | - Gross profit increased by **10%** due to an increase in sales volume and improved gross margins, primarily driven by product mix and favorable spending[146](index=146&type=chunk) - Research and development expenses increased by **6%** due to personnel-related expenses as the company invests in new R&D and additional applications for its technology[147](index=147&type=chunk) - Net interest income improved by **$2.5 million**, shifting from a net expense of **$2.3 million** in Q3 2022 to a net income of **$0.2 million** in Q3 2023, primarily due to higher interest rates[150](index=150&type=chunk) - Income tax benefit for Q3 2023 was **$2.1 million**, compared to a **$0.2 million** tax expense in Q3 2022, mainly due to a **$2.0 million** tax benefit from previously unrecognized research and development tax credits[153](index=153&type=chunk) [Results of Operations (Nine Months Ended September 30, 2023 and 2022)](index=54&type=section&id=Results%20of%20Operations%20(Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022)) This section analyzes the company's financial performance for the nine months ended September 30, 2023, focusing on net sales, gross profit, operating expenses, and net income Key Financials (Nine Months Ended September 30, 2023 vs. 2022) | Metric | 9M 2023 (in thousands) | 9M 2022 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Net sales | $492,511 | $492,338 | $173 | 0% | | Cost of sales | $286,107 | $292,109 | $(6,002) | -2% | | Gross profit | $206,404 | $200,229 | $6,175 | 3% | | Operating expenses, net | $160,647 | $153,325 | $7,322 | 5% | | Operating income | $45,757 | $46,904 | $(1,147) | -2% | | Net income (loss) | $(52,005) | $38,026 | $(90,031) | * | - Net sales remained flat year-over-year, with increases in the Semiconductor and Scientific & Other markets offset by decreases in the Compound Semiconductor and Data Storage markets[157](index=157&type=chunk) - Gross profit increased by **3%** due to higher gross margins, driven by product mix of sales and favorable spending[158](index=158&type=chunk) - Research and development expenses increased by **8%** due to personnel-related investments in new R&D and additional applications for technology[159](index=159&type=chunk)[160](index=160&type=chunk) - Net interest expense decreased by **$6.6 million**, primarily due to an increase in interest income from higher interest rates[164](index=164&type=chunk) - A significant 'Other income (expense), net' of **$(97.1) million** was recorded, primarily due to a **$97.1 million** loss on extinguishment of the 2025 and 2027 Convertible Senior Notes[165](index=165&type=chunk) - Income tax benefit for 9M 2023 was **$0.5 million**, compared to a **$1.1 million** tax expense in 9M 2022, driven by R&D tax credits and tax benefits from the debt extinguishment loss[167](index=167&type=chunk) [Liquidity and Capital Resources](index=58&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, changes in cash flows from operating, investing, and financing activities, and its ability to meet future obligations Cash, Cash Equivalents, and Short-term Investments (September 30, 2023 vs. December 31, 2022) | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Cash and cash equivalents | $156,419 | $154,925 | $1,494 | 0.96% | | Restricted cash | $378 | $547 | $(169) | -30.90% | | Short-term investments | $130,117 | $147,488 | $(17,371) | -11.78% | | Total | $286,914 | $302,960 | $(16,046) | -5.30% | - Net cash provided by operating activities decreased to **$32.2 million** for 9M 2023 from **$75.4 million** for 9M 2022, primarily due to a net loss and changes in operating assets and liabilities[169](index=169&type=chunk) - Net cash used in investing activities increased to **$27.2 million** for 9M 2023 from **$21.2 million** for 9M 2022, mainly due to the acquisition of Epiluvac and capital expenditures[170](index=170&type=chunk) - Net cash used in financing activities decreased to **$3.6 million** for 9M 2023 from **$4.9 million** for 9M 2022, reflecting the issuance of 2029 Notes partially offsetting repurchases of 2025/2027 Notes and other payments[171](index=171&type=chunk) - The company believes its projected cash flow from operations, combined with cash and short-term investments, will be sufficient to meet working capital and contractual obligations for the next twelve months[169](index=169&type=chunk) - Veeco has access to a **$150.0 million** revolving credit facility (undrawn) with an option to increase by **$75.0 million**, maturing in December 2026[173](index=173&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=61&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the company's exposure to interest rate risk on its investment portfolio and currency exchange risk from global operations, noting that most foreign sales are USD-denominated - A **100 basis point** increase in interest rates would result in a decrease of **$0.6 million** in the fair value of the investment portfolio as of September 30, 2023[176](index=176&type=chunk) - Net sales to customers outside the United States represented approximately **67%** and **75%** of total net sales for the three and nine months ended September 30, 2023, respectively[179](index=179&type=chunk) - Most of the company's sales outside the United States are denominated in U.S. dollars, resulting in an immaterial impact on consolidated results from a **10%** change in foreign exchange rates[180](index=180&type=chunk) [Item 4. Controls and Procedures](index=61&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures and notes the ongoing integration of the acquired Epiluvac business into internal control over financial reporting - The company's principal executive and financial officers evaluated and concluded that disclosure controls and procedures were effective as of September 30, 2023[181](index=181&type=chunk) - The acquired Epiluvac AB business is being integrated into the overall internal control over financial reporting process, with management assessing and implementing necessary controls[184](index=184&type=chunk) [PART II—OTHER INFORMATION](index=63&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This part covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings](index=63&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the normal course of business, not expecting a material adverse effect on its financial position or results - The company is involved in various legal proceedings in the normal course of business, but does not believe their ultimate resolution will have a material adverse effect on its consolidated financial position, results of operations, or cash flows[109](index=109&type=chunk)[186](index=186&type=chunk) [Item 1A. Risk Factors](index=63&type=section&id=Item%201A.%20Risk%20Factors) This section refers to previously disclosed risk factors, confirming no material changes since the Safe Harbor Statement and 2022 Form 10-K - There have been no material changes from the risk factors previously disclosed in the Safe Harbor Statement and the 2022 Form 10-K[187](index=187&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=63&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no unregistered sales of equity securities or use of proceeds occurred during the reported fiscal quarter - There were no unregistered sales of equity securities and use of proceeds during the fiscal quarter ended September 30, 2023[188](index=188&type=chunk) [Item 3. Defaults Upon Senior Securities](index=63&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section reports no defaults upon senior securities occurred during the fiscal quarter - There were no defaults upon senior securities during the fiscal quarter ended September 30, 2023[189](index=189&type=chunk) [Item 4. Mine Safety Disclosures](index=63&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that Mine Safety Disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to the company[190](index=190&type=chunk) [Item 5. Other Information](index=63&type=section&id=Item%205.%20Other%20Information) This section discloses the adoption of Rule 10b5-1 trading arrangements by the CEO and CFO during the quarter, detailing shares and trading periods - On August 23, 2023, CEO William J. Miller adopted a Rule 10b5-1 trading plan covering the sale of **84,201 shares** of common stock between November 27, 2023, and November 29, 2024[191](index=191&type=chunk) - On August 22, 2023, CFO John Kiernan adopted a Rule 10b5-1 trading plan covering the sale of **30,000 shares** of common stock between November 27, 2023, and November 29, 2024[192](index=192&type=chunk) [Item 6. Exhibits](index=65&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the SEC, including certifications from the CEO and CFO, and XBRL-related documents - Exhibits include certifications from the Chief Executive Officer (31.1, 32.1) and Chief Financial Officer (31.2, 32.2) as well as XBRL instance, schema, presentation, calculation, and label documents[196](index=196&type=chunk) [SIGNATURES](index=66&type=section&id=SIGNATURES) This section provides the official signatures of the Chief Executive Officer and Chief Financial Officer, confirming the report's submission - The report was signed on November 6, 2023, by William J. Miller, Ph.D., Chief Executive Officer, and John P. Kiernan, Senior Vice President and Chief Financial Officer[199](index=199&type=chunk)[200](index=200&type=chunk)

| --- | --- | --- | --- | |----------------------------------------------------------------------------------------------------------|------------------|-------|-------| | | | | | | | | | | | | | | | | Veeco Instruments | | | | | Q2 2023 Financial Results Conference Call - | August 7th, 2023 | | | | | | | | | | | | | | Q2 2023 Financial Results Conference Call Copyright © 2023 Veeco Instruments Inc. All Rights Reserved. 1 | | | | | --- ...

Financial Data and Key Metrics Changes - Revenue in Q2 totaled $162 million, a 5% increase from Q1 and near the high end of guidance, with non-GAAP operating income reaching $24 million and non-GAAP diluted EPS at $0.36, both above guidance [7][27] - Gross margin was approximately 43%, up from 42% in the previous quarter, positively impacted by higher revenue and a favorable product mix [31] Business Line Data and Key Metrics Changes - Semiconductor revenue comprised 65% of total revenue, increasing 14% sequentially and 9% year-over-year, driven by record laser annealing shipments [27] - Compound semiconductor revenue increased slightly to 15% of total revenue, primarily from photonics applications [28] - Data storage business accounted for 9% of revenue, showing a decline from the prior quarter [28] Market Data and Key Metrics Changes - Revenue from the Asia Pacific region (excluding China) increased to 36% of total revenue, up from 25% in the prior quarter, due to significant semiconductor system sales [29] - Revenue from China decreased to 31% of total revenue, primarily due to lower LSA system shipments [29] Company Strategy and Development Direction - The company is focused on expanding its semiconductor growth strategy, particularly in advanced logic and memory applications, with significant opportunities in laser annealing and ion beam deposition [7][19] - The company aims to capitalize on the growing demand for epitaxy equipment in power electronics and photonics applications [12][43] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the semiconductor market, particularly in laser annealing and ion beam deposition technologies, as they are critical for advanced chip production [9][10] - The company anticipates continued demand for its products in AI applications, with expectations for significant revenue contributions from high bandwidth memory in the future [15][46] Other Important Information - The company completed a refinancing of convertible notes, strengthening its balance sheet and reducing cash interest payments [36][37] - Full-year 2023 revenue outlook is reiterated at $630 million to $670 million, with an increase in profitability expectations due to stronger gross margins and reduced interest expenses [40] Q&A Session Summary Question: AI opportunity and HVM exposure - Management estimates that approximately 10% of current revenue is attributable to AI, with expectations for significant growth in this area [46] Question: Gross margin improvements - The increase in gross margin is attributed to higher volumes, favorable product mix, and improved cost management [48] Question: Revenue expectations for Q3 - Guidance for Q3 revenue is approximately $165 million, with expectations for semiconductor revenue to be slightly down from Q2 [51] Question: High-bandwidth memory opportunity - Management sees potential for high bandwidth memory revenue to grow significantly, estimating a future comparable size to logic revenue [55] Question: Epitaxy tool market for silicon carbide - The estimated market size for the epitaxy tool market is currently $200 million to $300 million, with potential growth to $0.5 billion by 2027 [57] Question: MicroLED developments - MicroLED market developments are expected to materialize around 2025, with the company well-positioned to capture opportunities [58]

Safe Harbor Statement This statement outlines that the report includes forward-looking statements, subject to various risks and uncertainties, requiring management estimates - This report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially. The preparation of financial statements requires management to make estimates and assumptions based on current events, which may differ from actual results[9](index=9&type=chunk)[10](index=10&type=chunk) - The company identifies **several categories of risks**, including those related to its business and industry (e.g., U.S.-China trade policy, competition, technological change), global operations, intellectual property, cybersecurity, and financial markets[11](index=11&type=chunk)[14](index=14&type=chunk)[18](index=18&type=chunk) [PART I—FINANCIAL INFORMATION](index=9&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Financial Statements](index=9&type=section&id=Item%201.%20Financial%20Statements) The company reported a net loss of $85.3 million for Q2 2023, a significant decrease from a net income of $9.7 million in Q2 2022, primarily due to a $97.1 million loss on debt extinguishment. Total assets increased to $1.23 billion from $1.13 billion at year-end 2022, driven by an acquisition and changes in working capital. Cash flow from operations remained positive at $25.1 million for the first six months of 2023 [Consolidated Financial Statements](index=9&type=section&id=Consolidated%20Financial%20Statements) Consolidated Balance Sheet Highlights (unaudited) | Account | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $180,524 | $154,925 | | Inventories | $244,470 | $206,908 | | Goodwill | $214,964 | $181,943 | | Total Assets | $1,228,447 | $1,128,183 | | **Liabilities & Equity** | | | | Customer deposits and deferred revenue | $156,700 | $127,223 | | Long-term debt | $274,335 | $254,491 | | Total Liabilities | $615,847 | $550,359 | | Total Stockholders' Equity | $612,600 | $577,824 | Consolidated Statement of Operations Highlights (unaudited) | Metric | Q2 2023 (in thousands) | Q2 2022 (in thousands) | Six Months 2023 (in thousands) | Six Months 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $161,641 | $163,999 | $315,145 | $320,425 | | Gross profit | $67,510 | $64,267 | $129,527 | $130,279 | | Operating income | $13,688 | $12,823 | $23,494 | $29,340 | | Other income (expense), net | $(97,091) | $— | $(97,091) | $— | | Net income (loss) | $(85,320) | $9,655 | $(76,579) | $22,985 | | Diluted EPS | $(1.61) | $0.18 | $(1.48) | $0.43 | Consolidated Statement of Cash Flows Highlights (Six Months Ended June 30, unaudited) | Cash Flow Activity | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $25,135 | $28,169 | | Net cash provided by (used in) investing activities | $2,366 | $(25,961) | | Net cash provided by (used in) financing activities | $(1,971) | $(4,986) | | Net increase (decrease) in cash | $25,489 | $(2,829) | [Note 3 — Business Combination](index=19&type=section&id=Note%203%20%E2%80%94%20Business%20Combination) - On January 31, 2023, Veeco acquired **Epiluvac AB**, a manufacturer of **CVD epitaxy systems** for **silicon carbide (SiC) applications**, to accelerate its entry into the **high-growth SiC equipment market**[47](index=47&type=chunk) Epiluvac Acquisition Consideration (Jan 31, 2023) | Component | Fair Value (in thousands) | | :--- | :--- | | Cash paid, net of cash acquired | $30,373 | | Contingent consideration | $26,055 | | **Total Acquisition Date Fair Value** | **$56,428** | - The acquisition generated **$33.0 million in goodwill**, primarily attributed to expected synergies and strategic advantages, and **$28.5 million in intangible assets**, mainly technology with a 15-year useful life[50](index=50&type=chunk)[51](index=51&type=chunk) [Note 5 — Liabilities](index=27&type=section&id=Note%205%20%E2%80%94%20Liabilities) - On May 19, 2023, the company issued **$230.0 million of 2.875% Convertible Senior Notes due 2029**[82](index=82&type=chunk) - Proceeds from the 2029 Notes were used to repurchase and retire approximately **$106.0 million of the 2025 Notes** and **$100.0 million of the 2027 Notes**. This resulted in a total **loss on debt extinguishment of $97.1 million**, recorded in "Other income (expense), net"[79](index=79&type=chunk)[81](index=81&type=chunk) Carrying Value of Convertible Notes (June 30, 2023) | Note Series | Principal Amount (in thousands) | Net Carrying Value (in thousands) | | :--- | :--- | :--- | | 2025 Notes | $26,500 | $26,351 | | 2027 Notes | $25,000 | $24,642 | | 2029 Notes | $230,000 | $223,343 | | **Total** | **$281,500** | **$274,335** | [Note 10 — Segment Reporting and Geographic Information](index=43&type=section&id=Note%2010%20%E2%80%94%20Segment%20Reporting%20and%20Geographic%20Information) - Veeco operates as a **single reportable segment**, developing and manufacturing semiconductor and thin film process equipment. The company serves four primary end-markets: **Semiconductor**, **Compound Semiconductor**, **Data Storage**, and **Scientific & Other**[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) Sales by End-Market (in thousands) | End-Market | Q2 2023 | Q2 2022 | Change YoY | | :--- | :--- | :--- | :--- | | Semiconductor | $106,275 | $97,521 | +9% | | Compound Semiconductor | $24,066 | $31,122 | -23% | | Data Storage | $13,945 | $21,548 | -35% | | Scientific & Other | $17,355 | $13,808 | +26% | | **Total** | **$161,641** | **$163,999** | **-1%** | Sales by Geographic Region (in thousands) | Region | Q2 2023 | Q2 2022 | Change YoY | | :--- | :--- | :--- | :--- | | United States | $35,739 | $57,940 | -38% | | EMEA | $17,511 | $27,234 | -36% | | China | $49,986 | $28,497 | +75% | | Rest of APAC | $58,320 | $49,345 | +18% | | **Total** | **$161,641** | **$163,999** | **-1%** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses ongoing macroeconomic challenges, including supply chain constraints, inflation, and China-export regulations. Despite a 1% YoY revenue decline in Q2 2023, the company saw strong growth in the Semiconductor market (up 9%) and in China (up 75%). A significant net loss was recorded due to a one-time charge for debt extinguishment. The company maintains its full-year 2023 revenue guidance of $630 million to $670 million, supported by its current backlog [Business Update](index=30&type=section&id=Business%20Update) - The company is navigating **macroeconomic challenges** including **supply chain constraints**, **inflation**, and heightened **China-export regulations**. While supply chain issues are improving, lead times remain elevated and are expected to persist through 2023[124](index=124&type=chunk)[125](index=125&type=chunk) - The Semiconductor market grew **9% YoY in Q2**, driven by record laser annealing system revenue. The company expects revenue growth in this market to outpace overall wafer fab equipment spending in 2023[130](index=130&type=chunk) - The company acquired **SiC technology in January 2023** to enter the **high-growth SiC power epitaxy equipment market**, driven by electric vehicles, with revenue expected to start in 2024[131](index=131&type=chunk) - Despite current industry challenges in Data Storage, the company expects **revenue growth in 2023** based on existing backlog[132](index=132&type=chunk) - The company reaffirms its **full-year 2023 revenue guidance** to be in the range of **$630 million to $670 million**[134](index=134&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Q2 2023 vs Q2 2022 Results of Operations (in thousands) | Line Item | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $161,641 | $163,999 | $(2,358) | (1)% | | Gross profit | $67,510 | $64,267 | $3,243 | 5% | | Gross Margin | 42% | 39% | +3pp | - | | Operating income | $13,688 | $12,823 | $865 | 7% | | Other income (expense), net | $(97,091) | $— | $(97,091) | N/A | | Net income (loss) | $(85,320) | $9,655 | $(94,975) | N/A | - Q2 2023 gross profit increased by **5% YoY to $67.5 million**, with gross margin improving to **42% from 39%**, primarily due to favorable product mix and spending[140](index=140&type=chunk) - Research and development expenses increased **5% YoY in Q2 2023** due to increased personnel-related costs for new initiatives in Semiconductor and Compound Semiconductor markets[141](index=141&type=chunk) - A **loss on debt extinguishment of $97.1 million** ($16.5 million for 2025 Notes and $80.6 million for 2027 Notes) was recorded in Q2 2023 following the repurchase and retirement of portions of these notes[145](index=145&type=chunk)[147](index=147&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity Position (in thousands) | Component | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $180,524 | $154,925 | | Short-term investments | $105,875 | $147,488 | | **Total** | **$286,836** | **$302,960** | - Net cash provided by operating activities was **$25.1 million** for the first six months of 2023, compared to **$28.2 million** in the prior year period. The change was mainly due to increases in inventories and accounts receivable, partially offset by higher customer deposits[166](index=166&type=chunk) - Cash from investing activities was a net inflow of **$2.4 million** in the first half of 2023, compared to a **$26.0 million outflow** in the same period of 2022. This was driven by net investment activity, partially offset by the **$30.4 million cash used for the Epiluvac acquisition**[167](index=167&type=chunk) - Financing activities used **$2.0 million in cash**, reflecting the net effect of issuing **$223.2 million in 2029 Notes** and using **$219.0 million for the extinguishment of other convertible notes**[168](index=168&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk exposures relate to interest rates on its investment portfolio and currency exchange rates. A 100 basis point increase in interest rates would decrease the fair value of its $105.9 million fixed-income portfolio by approximately $0.6 million. Currency exchange risk is considered immaterial as most international sales are denominated in U.S. dollars - The company's investment portfolio of fixed-income securities, valued at **$105.9 million**, is subject to interest rate risk. A hypothetical **100 basis point increase** in interest rates would result in a **$0.6 million decrease** in the portfolio's fair value[172](index=172&type=chunk) - Sales to customers outside the U.S. accounted for approximately **78% of total net sales in Q2 2023**. However, currency exchange risk is limited as only about **3% of total net sales** were denominated in currencies other than the U.S. dollar[176](index=176&type=chunk) [Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023. The company is currently integrating the newly acquired Epiluvac AB business into its overall internal control over financial reporting process - The company's principal executive and financial officers evaluated and concluded that **disclosure controls and procedures are effective** as of June 30, 2023[178](index=178&type=chunk) - Following the acquisition of **Epiluvac AB on January 31, 2023**, the company is in the process of integrating the acquired business into its internal control over financial reporting[179](index=179&type=chunk) [PART II—OTHER INFORMATION](index=39&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings arising in the normal course of business but does not believe their ultimate resolution will have a material adverse effect on its financial position, operations, or cash flows - The company does not expect that the resolution of various legal proceedings from the normal course of business will have a **material adverse effect** on its consolidated financial position, results of operations, or cash flows[181](index=181&type=chunk) [Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to risk factors previously disclosed, except for an update related to the company's debt facilities. The covenants and restrictions in the 2025, 2027, and 2029 Convertible Notes and the revolving credit facility may limit the company's ability to raise funds, respond to business changes, or make required cash payments upon conversion or repurchase, potentially impacting liquidity - A risk factor was updated to reflect the restrictions, covenants, and repurchase provisions of the company's current debt facilities (**2025, 2027, and 2029 Notes, and revolving credit facility**)[183](index=183&type=chunk) - These debt facilities contain covenants that may limit the ability to incur additional debt, sell assets, or merge, potentially precluding responses to changing business conditions. Failure to comply could result in **default and debt acceleration**[185](index=185&type=chunk) - The company may be required to make cash payments if holders elect to convert their notes (as is currently possible for the **2027 Notes**) or upon a fundamental change, which could adversely impact liquidity if sufficient cash is not available[187](index=187&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) None [Defaults Upon Senior Securities](index=41&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) None [Mine Safety Disclosures](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not Applicable [Other Information](index=41&type=section&id=Item%205.%20Other%20Information) None [Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the report, including the Indenture for the 2029 Notes, an amendment to the Loan and Security Agreement, CEO/CFO certifications, and XBRL data files

Financial Data and Key Metrics Changes - Revenue in Q1 2023 was $154 million, with non-GAAP operating income of $20 million and non-GAAP diluted EPS of $0.30, all exceeding the top end of guidance [9][27] - Gross margin was 41.5%, a slight decline from 42.3% in the previous quarter but above guidance [30] - Net income for the quarter was $17 million, with an effective tax rate of 15% [31] Business Line Data and Key Metrics Changes - Semiconductor products revenue increased by 20% year-over-year, contributing 60% of total revenue, primarily driven by laser annealing [9][27] - Compound semiconductor market revenue decreased to 14% from 16% in the prior quarter, with weak performance in wet processing due to smartphone market softness [28][18] - Data storage revenue increased to 14% from 11% in the prior quarter, with expectations for growth based on backlog orders [28][21] Market Data and Key Metrics Changes - Revenue from China accounted for 40% of total revenue in Q1, driven by LSA systems to trailing edge customers [29] - Asia Pacific region (excluding China) contributed 25%, the United States 20%, and EMEA 15% to total revenue [29] - The HDD industry is expected to see nearline hard disk drive exabyte shipments grow at approximately 25% CAGR over the next five years [21] Company Strategy and Development Direction - The company is focused on investing in semiconductor and compound semiconductor markets with differentiated solutions for long-term growth [10][11] - Key technologies include laser annealing, ion beam deposition for EUV, and advanced packaging lithography [12][14] - The company aims to outperform wafer fab equipment spend in 2023, particularly in the semiconductor sector [15][17] Management's Comments on Operating Environment and Future Outlook - Management noted improvements in supply chain management and expects material lead times to improve in the second half of the year [10] - The company anticipates growth in LSA and EUV mask point product lines to offset weaknesses in advanced packaging lithography due to weak consumer demand [17] - Management remains cautious about the macroeconomic environment but is optimistic about the second half of 2023 based on backlog visibility [34] Other Important Information - The company ended the quarter with cash and short-term investments of $253 million, a decrease of $50 million due to acquisitions and debt payments [32] - The company is committed to improving corporate culture, transparency, diversity, and environmental responsibility [23][24] Q&A Session Summary Question: Areas of improvement in product lead times - Management noted that higher revenue was driven by additional semiconductor and data storage systems, with no structural changes observed [36][37] Question: Data storage guidance amid market softness - Management acknowledged softness in the data storage market but expects revenue growth in the second half based on confirmed backlog orders [39][40] Question: Market size for DRAM memory space - Management estimates the market size for DRAM applications at $25 million to $35 million per customer over 12 to 24 months, with shipments expected in Q2 [43][44] Question: Update on MOCVD and GaN market - Management indicated that the evaluation system for GaN is running, with expectations for meaningful gains in 2024 [46][47] Question: Market opportunity in silicon carbide - The silicon carbide device market is projected to grow from $2 billion to $6 billion by 2027, with the epitaxy equipment market expected to reach $0.5 billion [50][51]

Q1 2023 Financial Performance - Revenue reached $154 million, exceeding the high-end of guidance[4] - Non-GAAP Operating Income was $20 million[5] - Diluted Non-GAAP EPS was $0.30[6] Revenue Breakdown by Market - Semiconductor revenue was $93 million, representing 60% of total revenue[12] - Data Storage revenue was $22 million, accounting for 14% of total revenue[12] - Compound Semiconductor revenue was $21 million, comprising 14% of total revenue[12] - Scientific & Other revenue was $18 million, making up 12% of total revenue[12] Revenue Breakdown by Region - EMEA accounted for 25% of revenue[12] - China contributed 20% of revenue[12] - United States represented 40% of revenue[12] - Rest of APAC made up 15% of revenue[12] Balance Sheet Highlights - Cash & Short-Term Investments totaled $253 million[16] - Long-Term Debt Including Current Portion was $255 million[16] Q2 2023 Guidance - Revenue is projected to be between $145 million and $165 million[17] - Non-GAAP EPS is expected to be in the range of $0.26 to $0.34[17] Full Year 2023 Outlook - The company reiterates its 2023 revenue outlook of $630 million to $670 million[17] - The company reiterates its 2023 Non-GAAP EPS outlook of $1.15 to $1.35[17]

Table of Contents 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, 2023 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 Incorporat ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 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 o ...