| --- | --- | --- | --- | |----------------------------------------------------------------------------------------------------------|------------------|-------|-------| | | | | | | | | | | | | | | | | 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 ...

Financial Performance - The company achieved 11% year-on-year revenue growth in 2022, with record revenue in the Semiconductor market growing 50% year-on-year [184]. - Sales in the Semiconductor market reached $369.4 million, accounting for 57% of total sales, while sales in the Compound Semiconductor market grew 13% to $121.2 million [197]. - Data Storage market sales declined by 48% in 2022, totaling $87.5 million, driven by increased capital intensity in hard disk drive manufacturing [192]. - The company reported a net income of $166.9 million for the year ended December 31, 2022, compared to $26.0 million in 2021, representing a significant increase [211]. - Gross profit increased to $263.1 million in 2022, although gross margins decreased due to rising logistics costs [198]. - The company expects total revenue for 2023 to be in the range of $630 million to $670 million, despite near-term weakness in the Compound Semiconductor market [194]. Cash Flow and Investments - The ending backlog for 2022 was $500 million, with robust cash flow from operations of $108 million, strengthening the company's balance sheet [184]. - Cash and cash equivalents increased to $154.9 million as of December 31, 2022, from $119.7 million in 2021, reflecting a growth of approximately 29.4% [210]. - Net cash provided by operating activities was $108.5 million in 2022, an increase from $67.7 million in 2021, driven by higher net income and changes in operating assets and liabilities [212]. - The company incurred net cash used in investing activities of $68.9 million in 2022, primarily due to capital expenditures and changes in investments [214]. - The company has $20.2 million outstanding principal balance of 2.70% convertible senior notes, which matured on January 15, 2023 [216]. - The company has access to a $150.0 million revolving credit facility, with an option to request an additional $75.0 million, expiring in December 2026 [217]. Research and Development - Research and development expenses increased by 17% to $103.6 million in 2022, reflecting investments in new technology and applications [196]. - The acquisition of Epiluvac for $30 million is expected to accelerate the company's entry into the silicon carbide epitaxy equipment market, with anticipated revenue in 2024 [191]. - Intangible assets related to in-process research and development projects are considered indefinite-lived until the completion or abandonment of the associated R&D efforts [234]. Tax and Obligations - The company recorded an income tax benefit of $116.0 million in 2022, primarily due to a $117.0 million domestic tax benefit related to the release of a $105.5 million valuation allowance [207]. - Total contractual obligations as of December 31, 2022, amounted to $653.6 million, with $283.6 million due within one year [220]. - The company recognizes the effect of income tax positions only for those estimated to be more likely than not sustained if challenged [236]. Currency and Foreign Sales - Net sales to customers outside of the United States represented approximately 69%, 62%, and 68% of total net sales in 2022, 2021, and 2020, respectively [242]. - Net sales denominated in currencies other than the U.S. dollar represented approximately 3%, 3%, and 5% of total net sales in 2022, 2021, and 2020, respectively [242]. - A 10% change in foreign exchange rates would have an immaterial impact on the consolidated results of operations since most sales outside the United States are denominated in U.S. dollars [243]. - The company centrally manages its investment portfolios considering investment opportunities, risks, tax consequences, and overall financing strategies [239]. - The company may enter into monthly forward derivative contracts to mitigate currency exchange risk [241]. - Changes in currency exchange rates could affect foreign currency denominated monetary assets and liabilities and forecasted cash flows [241]. Facility and Operations - The company completed the buildout of its new San Jose facility, fully transitioning to this location [190]. - The investment portfolio includes fixed-income securities with a fair value of approximately $147.5 million as of December 31, 2022 [239]. - A 100 basis point increase in interest rates would result in a decrease in the fair value of the portfolio by $0.6 million [239]. - Interest expense decreased significantly to $9.3 million in 2022 from $26.0 million in the prior year, primarily due to changes in debt amortization [204]. - The company recorded a loss on extinguishment of debt of approximately $4.0 million for the year ended December 31, 2021 [205]. - The company had $289.2 million in purchase commitments as of December 31, 2022, primarily for inventory and equipment used in manufacturing and R&D activities [220].

Financial Data and Key Metrics Changes - Revenue for the full year 2022 was $646 million, representing an 11% growth over 2021, with semiconductor revenue growing 50% year on year [12][23] - Non-GAAP operating income increased 15% to $100 million, with diluted non-GAAP EPS at $1.57 [13][27] - Q4 2022 revenue was $154 million, with non-GAAP operating income of $24 million and diluted non-GAAP EPS of $0.38 [15][33] - Cash flow from operations for the full year was $108 million, a 60% increase over 2021 [13][29] Business Line Data and Key Metrics Changes - Semiconductor revenue was $369 million, accounting for 57% of total revenue, driven by strong performance in laser annealing systems [23] - Compound semiconductor revenue was $121 million, up 13% from 2021, making up 19% of total revenue [23] - Data storage revenue decreased by 48% to $88 million, representing 13% of total revenue [24] - Scientific and other revenue increased by 12% to $68 million, accounting for 11% of total revenue [24] Market Data and Key Metrics Changes - Asia Pacific region (excluding China) contributed 36% of total revenue, while the United States accounted for 31% [25] - China made up 19% of total revenue, with expectations for increased revenue from China in the first half of 2023 [26] - EMEA accounted for 14% of total revenue [25] Company Strategy and Development Direction - The acquisition of Epiluvac aims to accelerate entry into the high-growth silicon carbide epitaxy equipment market, driven by electric vehicle demand [7][17] - The company plans to leverage its manufacturing and global sales infrastructure to enhance growth prospects in the silicon carbide market [20][51] - Focus on maintaining profitability while navigating macroeconomic challenges and investing in R&D for product roadmaps [52] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for 2023, with a revenue outlook between $630 million and $670 million [39] - The semiconductor market is expected to remain flat to slightly up in 2023, outperforming overall wafer fab equipment spending [43] - Challenges in the compound semiconductor market are anticipated, but long-term growth potential remains strong [47] Other Important Information - The company ended 2022 with a backlog of $500 million, a $60 million increase from the previous year [29] - Gross margin for Q4 2022 was 42%, exceeding guidance due to a favorable product mix and lower manufacturing costs [32][84] - The company appointed a new Head of Investor Relations, Anthony Pappone, following the departure of Anthony Bencivenga [53] Q&A Session Summary Question: Changes in Q1 expectations and compound semiconductor weakness - Management confirmed that Q1 guidance remains at $130 million to $150 million, considering the increased backlog and strong bookings [56][57] - The compound semiconductor market is facing challenges primarily due to weakness in consumer markets [64] Question: Breakdown of strong bookings in Q4 - Record bookings were noted in the semiconductor segment, particularly in laser annealing and EUV mask blank systems [60][62] Question: Details on the Epiluvac acquisition - The acquisition includes a new 8-inch single wafer silicon carbide reactor, with plans for integration into Veeco's sales and service infrastructure [66][68] Question: Revenue expectations from silicon carbide CVD business - Management indicated that significant revenue from the silicon carbide market is not expected until 2024, with a focus on building demo tools and customer engagement [68][75] Question: Backlog composition and data storage outlook - More than half of the backlog is in semiconductor, with about 20% from data storage, indicating a positive outlook for data storage in 2023 [82] Question: Gross margin performance and expectations - Q4 gross margin exceeded expectations due to a favorable product mix and lower logistics costs, with guidance for 2023 gross margin similar to 2022 [84][85]

Financial Performance - Veeco's FY 2022 revenue reached $646 million, representing an 11% year-over-year growth[5] - The company's non-GAAP operating income for FY 2022 was $100 million[5] - Diluted non-GAAP EPS for FY 2022 was $1.57[6] - Q4 2022 revenue was $154 million[8] - Q4 2022 non-GAAP operating income was $24 million[8] - Q4 2022 diluted non-GAAP EPS was 38 cents[9] Market and Strategy - Semiconductor revenue increased by 50% year-over-year in FY 2022, driven by Laser Annealing[7] - The company's backlog grew by $60 million to $500 million[7] - Veeco acquired Epiluvac to accelerate access to the high-growth Silicon Carbide (SiC) markets[11, 13] - The SiC device market is expected to experience a compound annual growth rate (CAGR) of approximately 30%, reaching ~$6 billion by 2027[14] - The SiC epitaxy equipment market is expected to experience a CAGR of approximately 15%, reaching ~$500 million by 2027[14] Acquisition of Epiluvac - Veeco acquired Epiluvac AB for $30 million in cash upfront, with potential earn-outs up to $35 million[15]

Veeco Instruments, Inc. (NASDAQ:VECO) Q3 2022 Earnings Conference Call November 7, 2022 5:00 PM ET Company Participants Anthony Bencivenga - Investor Relations Bill Miller - Chief Executive Officer John Kiernan - Chief Financial Officer Conference Call Participants Rick Schafer - Oppenheimer Mark Miller - The Benchmark Company David Duley - Steelhead Gus Richard - Northland Operator Good day and welcome to today Veeco Quarter 3 2022 Earnings Call. Today’s conference is being recorded. At this time, I would ...