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| --- | --- | --- | --- | --- | --- | --- | |-------|--------------------------------------------------------------------------------------------------------|---------------------------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | Veeco Instruments | | | | | | | | | Q1 2024 Financial Results | | | | | | | May 7 th | Conference Call , 2024 | | | | | | | | | | | | | | 1 | Q1 2024 Financial Results Conference Call Copyright © 2024 Veeco Instruments Inc. All Rights Reserved. | | | | | | ...

Financial Data and Key Metrics Changes - Revenue for Q1 2024 totaled $174 million, up 14% year-over-year and flat sequentially [6][17] - Non-GAAP operating income was $29 million, with non-GAAP EPS at $0.45 [6][17] - Gross margin was approximately 44%, exceeding guidance [17] - Net income was approximately $26 million, with diluted EPS of $0.45 on 60 million shares [17][19] Business Line Data and Key Metrics Changes - Semiconductor revenue reached a record $120 million, up 29% year-over-year and 5% sequentially, comprising 69% of total revenue [17] - Revenue from the compound semiconductor market increased to $21 million, accounting for 12% of total revenue [17] - Data storage revenue contributed 10%, while scientific and other segments made up 9% [17] Market Data and Key Metrics Changes - Revenue from the Asia-Pacific region (excluding China) increased to 42%, up from 34% in the prior quarter [18] - Revenue from China remained at 37%, driven by mature node semiconductor customers [18] - Revenue from the United States was 16%, with EMEA contributing 5% [18] Company Strategy and Development Direction - The company is focused on expanding its served available market (SAM) for laser annealing from $600 million to over $1 billion [9] - Investment in advanced logic and memory has allowed the semiconductor business to outperform wafer fabrication equipment (WFE) growth for three consecutive years [8] - The company is targeting new applications in the compound semiconductor market, particularly in power electronics and photonics [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand for EUV lithography and next-generation high NA lithography [8] - The company anticipates initial high-volume manufacturing orders from logic customers in 2025 [12] - Management reiterated the 2024 revenue outlook between $680 million and $740 million, with diluted non-GAAP EPS targeted between $1.60 and $1.90 per share [20] Other Important Information - The company ended the quarter with cash and short-term investments of $297 million, a decline of $9 million sequentially [19] - Cash flow from operations was $9 million, with capital expenditures at $6 million [19] Q&A Session Summary Question: Clarification on the nanosecond anneal product and its relationship with laser anneal - Management clarified that nanosecond anneal (NSA) does not cannibalize laser spike anneal (LSA) but opens unique opportunities for applications like backside power distributions and 3D structures [24][26] Question: HBM opportunity and qualification status - Management confirmed that LSA is now qualified for high bandwidth memory (HBM) applications, expanding from logic chip qualification [28] Question: Backlog and leading-edge vs trailing-edge mix - Management indicated that the current backlog is more weighted towards trailing nodes, but expects a shift towards leading-edge engagements in the second half of 2024 [37] Question: Pricing uplift for NSA compared to LSA - Management expects a pricing uplift of 10% to 15% for NSA due to its additional capabilities [39] Question: Update on compound semiconductor business and GaN power - Management reported a transition from 6-inch to 8-inch wafers, with plans to ship a 300-millimeter evaluation system to a Tier 1 customer [42] Question: Data storage outlook and AI impact - Management expects the data storage business to be flat to up 10% compared to last year, with long-term growth driven by generative AI projected at a 20% CAGR [61][62]

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, 2024 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 ...

EXHIBIT 99.1 VEECO REPORTS FIRST QUARTER 2024 FINANCIAL RESULTS First Quarter 2024 Highlights: Plainview, N.Y., May 7, 2024 -- Veeco Instruments Inc. (Nasdaq: VECO) today announced financial results for its first quarter ended March 31, 2024. Results are reported in accordance with U.S. generally accepted accounting principles ("GAAP") and are also reported adjusting for certain items ("Non-GAAP"). A reconciliation between GAAP and Non-GAAP operating results is provided at the end of this press release. | U ...

[PART I](index=6&type=section&id=PART%20I) [Business](index=6&type=section&id=Item%201.%20Business) Veeco manufactures advanced semiconductor process equipment for four key end-markets, with **22% of 2023 net sales** from services and a year-end backlog of **$490.7 million** - Veeco manufactures advanced semiconductor process equipment for key devices enabling AI, 5G networks, mobile electronics, 3D sensing, and data storage[22](index=22&type=chunk) End-Markets and Applicable Veeco Technologies | Market | Description | Applicable Veeco Technologies | | :--- | :--- | :--- | | **Semiconductor** | Logic and memory applications on silicon wafers, including advanced packaging | Laser Annealing, Ion Beam Deposition (IBD), Ion Beam Etch (IBE), Wet Processing, Advanced Packaging Lithography | | **Compound Semiconductor** | Power Electronics, Photonics (micro-LEDs, lasers), RF Filters, and Solar | GaN MOCVD, As/P MOCVD, Wet Processing, MBE, ALD, IBE, SiC CVD | | **Data Storage** | Hard Disk Drives (HDD) for mass storage, particularly in Data Centers | IBD, IBE, Physical Vapor Deposition, Wet Processing | | **Scientific & Other** | Advanced materials research (e.g., quantum computing) and optical coatings | Ion Beam Sputtering, MBE, Wet Processing, ALD | Sales and Backlog Information | Metric | 2023 (%) | 2022 (%) | 2021 (%) | | :--- | :--- | :--- | :--- | | **Revenue from Parts, Upgrades, Service & Support** | 22% | 24% | 28% | | **Backlog (Year-End)** | $490.7M | $499.9M | N/A | - As of the end of 2023, Veeco had a global workforce of **1,215 employees**, with **890** in the United States, **267** in the Asia-Pacific region, and **58** in the EMEA region, with a 12-month rolling average voluntary turnover of approximately **7.2%**[56](index=56&type=chunk)[59](index=59&type=chunk) [Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from market volatility, intense competition, U.S.-China trade policies, cybersecurity threats, and financial structure [Risks Related to Our Business and Industry](index=19&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) - The company faces significant competition from established players with greater resources and smaller, specialized emerging companies, which could lead to lower profit margins[72](index=72&type=chunk) - The business is subject to the cyclicality of the semiconductor, compound semiconductor, and data storage industries, leading to volatile capital expenditures by customers[89](index=89&type=chunk) - A concentrated customer base, located in a limited number of geographic regions, accounts for a substantial portion of net sales, creating risk if principal customers discontinue their relationship or suffer economic setbacks[85](index=85&type=chunk)[86](index=86&type=chunk) - The company's sales cycle is long and unpredictable, often exceeding twelve months, which can cause fluctuations in operating results and requires significant upfront expense before revenue is generated[100](index=100&type=chunk) [Risks Associated with Operating a Global Business](index=31&type=section&id=Risks%20Associated%20with%20Operating%20a%20Global%20Business) Revenue from Non-U.S. Customers | Year | Percentage of Total Revenue (%) | | :--- | :--- | | 2023 | 76% | | 2022 | 69% | | 2021 | 62% | - Changes in U.S. trade policy and export controls, particularly new rules from the Bureau of Industry and Security (BIS) restricting China's access to advanced semiconductors, have negatively affected and may continue to adversely affect the company's ability to sell and service products in China[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - The company's laser annealing, MOCVD, MBE, SiC, and other systems are controlled for export under U.S. Export Administration Regulations (EAR), and the inability to obtain required licenses could prevent product shipments and servicing[122](index=122&type=chunk) [Risks Related to Intellectual Property and Cybersecurity](index=37&type=section&id=Risks%20Related%20to%20Intellectual%20Property%20and%20Cybersecurity) - The company is increasingly dependent on IT systems and is vulnerable to cybersecurity attacks, which are growing in frequency and sophistication, potentially leading to business disruption, loss of sensitive information, and reputational harm[125](index=125&type=chunk)[126](index=126&type=chunk) - Success depends on protecting intellectual property through patents, trademarks, and trade secrets, but these rights may be circumvented, invalidated, or difficult to enforce, especially in foreign countries[128](index=128&type=chunk) [Financial, Accounting and Capital Market Risks](index=39&type=section&id=Financial%2C%20Accounting%20and%20Capital%20Market%20Risks) - The company's debt facilities contain restrictions and covenants that may limit its ability to incur additional debt, sell assets, or merge, with failure to comply potentially resulting in default and debt acceleration[145](index=145&type=chunk)[148](index=148&type=chunk) - As of December 31, 2023, the company had outstanding principal amounts of **$26.5 million** in 2025 Notes, **$25.0 million** in 2027 Notes, and **$230.0 million** in 2029 Notes[146](index=146&type=chunk) - Changes in tax laws, such as the proposed "Tax Relief for American Families and Workers Act of 2024" and OECD's BEPS project, could materially affect the company's effective tax rate and financial results[141](index=141&type=chunk)[142](index=142&type=chunk) [General Risk Factors](index=45&type=section&id=General%20Risk%20Factors) - The company's stock price is volatile, with a closing high of **$31.65** and a low of **$17.81** in 2023, influenced by macroeconomic conditions, operational results, and analyst estimates[157](index=157&type=chunk) - The company's success depends on its ability to attract, retain, and motivate key employees in a competitive talent market, particularly for technical personnel in the semiconductor industry[161](index=161&type=chunk) - The company has adopted anti-takeover measures, such as a classified board and "blank check" preferred stock, which could make an acquisition more difficult[168](index=168&type=chunk)[169](index=169&type=chunk) [Unresolved Staff Comments](index=49&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[171](index=171&type=chunk) [Cybersecurity](index=49&type=section&id=ITEM%201C.%20Cybersecurity) The company's cybersecurity program, overseen by the Audit Committee, is integrated into enterprise risk management, with no material incidents identified - The cybersecurity program is based on the NIST framework and includes a cross-functional Information Security Leadership Group for governance and coordination[172](index=172&type=chunk)[178](index=178&type=chunk) - The Board's Audit Committee oversees cybersecurity risk management, receiving quarterly updates from management, including the Chief Information Security Officer[176](index=176&type=chunk) - The company is not aware of any current cybersecurity incidents or threats that are reasonably likely to materially affect its business strategy, results of operations, or financial condition[181](index=181&type=chunk) [Properties](index=53&type=section&id=Item%202.%20Properties) The company's principal owned and leased facilities, including corporate HQ and R&D, are deemed adequate to meet current needs Principal Owned and Leased Facilities | Location | Type | Size (sq. ft.) | Use | | :--- | :--- | :--- | :--- | | Plainview, NY | Owned | 80,000 | Corporate HQ, R&D, Sales & Service | | Somerset, NJ | Owned | 80,000 | R&D, Manufacturing, Sales & Service | | St. Paul, MN | Owned | 43,000 | R&D, Manufacturing, Sales & Service | | San Jose, CA | Leased | 100,000 | R&D, Manufacturing, Sales & Service | [Legal Proceedings](index=53&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal proceedings, not expecting a material adverse effect on its financial position or results - Information regarding legal proceedings is incorporated by reference from Note 10, "Commitments and Contingencies" in the Consolidated Financial Statements[183](index=183&type=chunk) [Mine Safety Disclosures](index=53&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[184](index=184&type=chunk) [PART II](index=54&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=54&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under "VECO," with no dividends paid, and future policy determined by the Board - The company's common stock is traded on The NASDAQ Global Select Market under the symbol "VECO"[186](index=186&type=chunk) - The company has not paid dividends on its common stock, and future dividend policy will be determined by the Board of Directors based on financial condition and other factors[186](index=186&type=chunk) Stock Performance Comparison (2018-2023) | Year | Veeco Instruments Inc. | S&P Smallcap 600 | RDG MidCap Technology | | :--- | :--- | :--- | :--- | | 2018 | 100.00 | 100.00 | 100.00 | | 2019 | 198.18 | 122.78 | 135.47 | | 2020 | 234.28 | 136.64 | 183.68 | | 2021 | 384.21 | 173.29 | 207.06 | | 2022 | 250.74 | 145.39 | 151.73 | | 2023 | 418.76 | 168.73 | 190.98 | [Reserved](index=55&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=56&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2023, Veeco achieved **3% revenue growth** to **$666.4 million**, with improved gross margin but a **$30.4 million net loss** due to debt extinguishment [Executive Summary & Business Update](index=56&type=section&id=Executive%20Summary%20%26%20Business%20Update) - Key achievements in 2023 include record revenue in the Semiconductor market (up **12% YoY**), shipment of next-generation evaluation systems to Tier 1 customers, and successful refinancing of convertible notes to strengthen the balance sheet[194](index=194&type=chunk) - The company faces macroeconomic challenges including inflation, high interest rates, and heightened China export regulations, which contribute to market uncertainty[193](index=193&type=chunk) - For 2024, the company expects revenue to be up in the Semiconductor market, to grow in the Compound Semiconductor market, and to be flat to up in the Data Storage market[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk) [Results of Operations](index=60&type=section&id=Results%20of%20Operations) Consolidated Results of Operations (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | **Net sales** | $666,435 | $646,137 | 3% | | **Gross profit** | $285,059 | $263,148 | 8% | | *Gross Margin* | *43%* | *41%* | - | | **Operating income** | $69,940 | $60,296 | 16% | | **Net income (loss)** | $(30,368) | $166,942 | Not meaningful | Net Sales by End-Market and Geography (2023 vs. 2022) | Category (in thousands) | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | **Semiconductor** | $412,724 | $369,369 | 12% | | **Compound Semiconductor** | $87,258 | $121,194 | (28)% | | **Data Storage** | $88,473 | $87,544 | 1% | | **Scientific & Other** | $77,980 | $68,030 | 15% | | **China** | $217,942 | $123,703 | 76% | | **United States** | $162,790 | $197,433 | (18)% | - A loss on extinguishment of debt of **$97.1 million** was recorded in 2023, comprising **$16.5 million** for the 2025 Notes and **$80.6 million** for the 2027 Notes, following a refinancing transaction[213](index=213&type=chunk)[214](index=214&type=chunk) [Liquidity and Capital Resources](index=64&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and Investments Position | (in thousands) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $158,781 | $154,925 | | Short-term investments | $146,664 | $147,488 | | **Total** | **$305,784** | **$302,960** | Summary of Cash Flow Activity (2023 vs. 2022) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $61,674 | $108,483 | | Net cash used in investing activities | $(53,330) | $(68,880) | | Net cash used in financing activities | $(4,680) | $(4,550) | - The company has access to a **$150.0 million** revolving credit facility, which was undrawn as of December 31, 2023, to support working capital needs[225](index=225&type=chunk) - As of December 31, 2023, the company had total contractual obligations of **$572.8 million**, with **$189.2 million** due in less than one year, including **$200.4 million** in purchase commitments[227](index=227&type=chunk)[228](index=228&type=chunk) [Critical Accounting Policies and Estimates](index=67&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Critical accounting policies requiring a high degree of judgment include Revenue Recognition, Inventory Valuation, Goodwill and Intangible Assets, Accounting for Business Combinations, and Income Taxes[230](index=230&type=chunk) - For revenue recognition, significant judgment is required to identify performance obligations, allocate the transaction price, and determine when the transfer of control to the customer occurs, especially for systems with field acceptance provisions[231](index=231&type=chunk)[237](index=237&type=chunk) - Goodwill is tested for impairment annually by comparing the fair value of the single reporting unit, determined by adjusted market capitalization, to its carrying amount[236](index=236&type=chunk)[237](index=237&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=73&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces interest rate risk on its **$146.7 million** investment portfolio and limited currency exchange risk, with only **4% of sales** denominated in foreign currencies - The company's investment portfolio of **$146.7 million** is subject to interest rate risk, where a **100 basis point** increase in interest rates would result in a **$0.8 million** decrease in the portfolio's fair value[247](index=247&type=chunk) - Net sales to customers outside the U.S. were **76%** of total sales in 2023, but sales denominated in currencies other than the U.S. dollar were only **4%** of total net sales, mitigating direct currency exchange risk[250](index=250&type=chunk) [Financial Statements and Supplementary Data](index=73&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section confirms the inclusion of the company's Consolidated Financial Statements within the Form 10-K filing - The Consolidated Financial Statements are listed in the Index to Consolidated Financial Statements and Financial Statement Schedule filed as part of this Form 10-K[252](index=252&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=75&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None[254](index=254&type=chunk) [Controls and Procedures](index=75&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management and independent auditors concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that disclosure controls and procedures are effective as of December 31, 2023[255](index=255&type=chunk) - Management concluded that internal control over financial reporting is effective as of December 31, 2023, based on the COSO (2013) framework[256](index=256&type=chunk) - There were no changes in internal control during the fourth quarter of 2023 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[258](index=258&type=chunk) [Other Information](index=78&type=section&id=Item%209B.%20Other%20Information) This item is not applicable and contains no information - None[266](index=266&type=chunk) [PART III](index=78&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=78&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[268](index=268&type=chunk) [Executive Compensation](index=78&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[270](index=270&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=78&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership and equity compensation plans is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[271](index=271&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=78&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[272](index=272&type=chunk) [Principal Accounting Fees and Services](index=78&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on principal accounting fees and services is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[273](index=273&type=chunk) [PART IV](index=79&type=section&id=PART%20IV) [Exhibits, Financial Statement Schedules](index=79&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report - This item includes the registrant's financial statements, financial statement schedules, and a list of all exhibits filed with the report[277](index=277&type=chunk)

Financial Data and Key Metrics Changes - The company reported revenue of $666 million for 2023, a 3% increase year-over-year, with semiconductor revenue reaching $413 million, up 12% from the prior year [83][98] - Gross margin improved to 43.5% in 2023 from approximately 42% in the prior year, with non-GAAP operating income growing 10% to $110 million and diluted non-GAAP EPS increasing to $1.69 [83][101] - For Q4, revenue totaled $174 million, with a gross margin of approximately 45%, leading to non-GAAP operating income of $32 million and non-GAAP EPS of $0.51 [84][38] Business Line Data and Key Metrics Changes - Semiconductor revenue increased 17% sequentially in Q4, driven by laser annealing systems, comprising 66% of total revenue for the quarter [84][103] - Compound semiconductor revenue was reported at $87 million, a decline from the prior year, representing 13% of total revenue, primarily due to decreased demand for wet processing systems for 5G RF devices [98] - Data storage revenue remained flat at $88 million, also comprising 13% of total revenue, while scientific and other revenue increased 15% to $78 million, making up 12% of revenue [98] Market Data and Key Metrics Changes - Revenue from China increased to 33% of total revenue in 2023, up from 19% in the prior year, driven by mature node semiconductor sales [100] - The Asia-Pacific region, excluding China, accounted for 31% of revenue, with the largest contribution from semiconductor customers, while the United States made up 24% of total revenue [100] - EMEA contributed 12% of revenue for the year [100] Company Strategy and Development Direction - The company is focused on advancing its product roadmaps and investing in growth opportunities, particularly in semiconductor technologies [79][82] - The company plans to ship multiple EVALuation systems in 2024, which are expected to lead to significant market expansion [82][89] - The company is targeting a gross margin of 45% in the future, with ongoing improvements in operational efficiency [101] Management's Comments on Operating Environment and Future Outlook - Management expects semiconductor revenue to grow by 5% to 10% in 2024, with strong demand from both advanced and mature node customers [87][88] - The company anticipates continued strength in the semiconductor market, particularly in laser annealing and ion beam deposition technologies [85][96] - Management noted that while the data storage business is expected to remain flat to up 10% in 2024, the focus is on leveraging ion beam technology for semiconductor applications [90] Other Important Information - The company shipped its first two nanosecond annealing EVALuation systems to leading logic customers in Q4, with potential for high-volume manufacturing orders in 2025 [94] - The company is actively working with Tier 1 customers in silicon carbide and plans to place two EVALuation systems in the field in 2024 [88][89] - The company has seen a significant increase in demand for its ion beam deposition systems, with a reported 20% lower resistance compared to traditional methods [95][96] Q&A Session Summary Question: What is the outlook for semiconductor growth in 2024? - Management guided for semiconductor revenue growth of 5% to 10% in 2024, with strong demand expected from both advanced and mature node customers [87][88] Question: Can you provide details on the backlog for 2024? - The company expects to see strength in the semiconductor business, with the largest portion of the backlog coming from this sector [17] Question: How has the revenue from China changed? - Revenue from China increased to 33% of total revenue in 2023, driven by mature node semiconductor sales, compared to 19% in the prior year [20][100] Question: What are the expectations for the data storage business? - The data storage business is expected to be flat to up 10% in 2024, with a focus on leveraging ion beam technology for semiconductor applications [90] Question: What is the status of the EVALuation systems? - The company plans to ship multiple EVALuation systems in 2024, with a strong focus on turning these into revenue and follow-on production [52][54]

| --- | --- | --- | --- | |----------------------------------------------------------------------------------------------------------|-------|-------|-------| | | | | | | | | | | | 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)