Veeco(VECO) - 2019 Q1 - Quarterly Report

Filing Information This section details the Quarterly Report on Form 10-Q for Veeco Instruments Inc. for the period ended March 31, 2019, including its filer status and common stock information - The document is a Quarterly Report on Form 10-Q for the period ended March 31, 2019, filed by Veeco Instruments Inc[2] - Veeco Instruments Inc. is classified as a Large Accelerated Filer[4] Common Stock Information | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $0.01 per share | VECO | The NASDAQ Global Select Market | - As of April 25, 2019, there were 48,675,196 shares of common stock outstanding[4] Safe Harbor Statement This statement highlights that the report contains forward-looking information subject to risks and uncertainties, which may cause actual results to differ materially - This report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from projected results[8] - The preparation of financial statements requires management to make estimates and assumptions, which may ultimately differ from actual results[9] - Key risks include unfavorable market conditions, global business operations, international trade disputes, IT system disruptions, intellectual property issues, stock price volatility, potential impairment charges, significant competition, rapid technological change, dependence on consumer electronics, concentrated customer base, and industry cyclicality[10][12][15] PART I—FINANCIAL INFORMATION This part presents Veeco Instruments Inc.'s unaudited consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2019 Item 1. Financial Statements This section presents Veeco Instruments Inc.'s unaudited consolidated financial statements for the three months ended March 31, 2019, including the Balance Sheets, Statements of Operations, Statements of Comprehensive Income (Loss), Statements of Cash Flows, and detailed notes, prepared in accordance with U.S. GAAP for interim reporting Consolidated Balance Sheets This section provides a snapshot of Veeco Instruments Inc.'s financial position, detailing assets, liabilities, and equity as of March 31, 2019, and December 31, 2018 Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2019 | December 31, 2018 | Change | | :------------------------ | :------------- | :---------------- | :----------- | | Total Assets | $885,594 | $900,816 | $(15,222) | | Total Liabilities | $463,796 | $463,041 | $755 | | Total Stockholders' Equity | $421,798 | $437,775 | $(15,977) | | Cash and cash equivalents | $169,439 | $212,273 | $(42,834) | | Short-term investments | $67,215 | $48,189 | $19,026 | | Inventories | $148,103 | $156,311 | $(8,208) | | Long-term debt | $290,473 | $287,392 | $3,081 | Consolidated Statements of Operations This section presents Veeco Instruments Inc.'s financial performance, including net sales, gross profit, operating income, and net income for the three months ended March 31, 2019 and 2018 Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three months ended March 31, 2019 | Three months ended March 31, 2018 | Change | Change (%) | | :------------------------ | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Net sales | $99,371 | $158,574 | $(59,203) | (37)% | | Cost of sales | $64,655 | $101,894 | $(37,239) | (37)% | | Gross profit | $34,716 | $56,680 | $(21,964) | (39)% | | Operating income (loss) | $(14,140) | $(11,435) | $(2,705) | 24% | | Net income (loss) | $(18,530) | $(15,827) | $(2,703) | 17% | | Basic EPS | $(0.40) | $(0.34) | $(0.06) | 17.6% | | Diluted EPS | $(0.40) | $(0.34) | $(0.06) | 17.6% | Consolidated Statements of Comprehensive Income (Loss) This section outlines Veeco Instruments Inc.'s comprehensive income or loss, including net income and other comprehensive income components for the three months ended March 31, 2019 and 2018 Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | Three months ended March 31, 2019 | Three months ended March 31, 2018 | Change | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net income (loss) | $(18,530) | $(15,827) | $(2,703) | | Other comprehensive income (loss), net of tax | $38 | $24 | $14 | | Total comprehensive income (loss) | $(18,492) | $(15,803) | $(2,689) | Consolidated Statements of Cash Flows This section details Veeco Instruments Inc.'s cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2019 and 2018 Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three months ended March 31, 2019 | Three months ended March 31, 2018 | Change | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net cash provided by (used in) operating activities | $(22,291) | $(11,807) | $(10,484) | | Net cash provided by (used in) investing activities | $(20,938) | $(22,559) | $1,621 | | Net cash provided by (used in) financing activities | $379 | $117 | $262 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $(42,839) | $(34,217) | $(8,622) | | Cash, cash equivalents, and restricted cash - end of period | $170,243 | $246,366 | $(76,123) | Notes to the Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, estimates, and specific financial items Note 1 — Basis of Presentation This note describes the accounting principles and policies used in preparing the unaudited interim financial statements, including revenue recognition and lease accounting standards - Unaudited interim financial statements are prepared in accordance with U.S. GAAP for interim information and SEC Regulation S-X[26] - Revenue is recognized upon the transfer of control of promised products or services to the customer, requiring judgment for multiple deliverables and stand-alone selling prices[28][29] - Most revenue is recognized at a point in time, typically upon system delivery after contractual acceptance provisions are met or objectively demonstrated[30][31] - The company adopted ASC 842 (Leases) effective January 1, 2019, recognizing approximately $14.2 million each in Right-of-Use (ROU) assets and lease liabilities, with no impact on the income or cash flow statements[37][38] Note 2 — Income (Loss) Per Common Share This note details the calculation of basic and diluted earnings per share, including the treatment of potentially dilutive securities during periods of net loss Income (Loss) Per Common Share (in thousands, except per share amounts) | Metric | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $(18,530) | $(15,827) | | Basic EPS | $(0.40) | $(0.34) | | Diluted EPS | $(0.40) | $(0.34) | | Basic weighted average shares outstanding | 46,848 | 46,963 | | Diluted weighted average shares outstanding | 46,848 | 46,963 | | Potentially dilutive shares excluded (antidilutive) | 2,426 | 2,092 | | Convertible Senior Notes shares excluded (antidilutive) | 8,618 | 8,618 | - Due to a net loss, common share equivalents and potential shares from Convertible Senior Notes were excluded from diluted EPS calculation as their effect would be antidilutive[39] Note 3 — Assets This note provides a breakdown of Veeco Instruments Inc.'s assets, including short-term investments, inventories, intangible assets, and non-marketable investments - Short-term investments are primarily classified as available-for-sale and reported at fair value, consisting of U.S. treasuries, government agency securities, corporate debt, and commercial paper[40][42] Fair Value of Cash Equivalents and Short-term Investments (March 31, 2019, in thousands) | Asset Type | Level 1 | Level 2 | Total | | :-------------------- | :--------- | :--------- | :--------- | | Cash equivalents | $86,780 | $11,257 | $98,037 | | Short-term investments | $51,726 | $15,489 | $67,215 | Inventories (in thousands) | Category | March 31, 2019 | December 31, 2018 | | :-------------- | :------------- | :---------------- | | Materials | $84,711 | $90,816 | | Work-in-process | $36,299 | $42,354 | | Finished goods | $27,093 | $23,141 | | Total | $148,103 | $156,311 | Intangible Assets (Net, in thousands) | Category | March 31, 2019 | December 31, 2018 | | :---------------------- | :------------- | :---------------- | | Technology | $43,690 | $46,410 | | Customer relationships | $27,338 | $28,469 | | In-process R&D | $3,180 | $3,180 | | Trademarks and tradenames | $6,671 | $7,011 | | Other | $52 | $79 | | Total | $80,931 | $85,149 | - The company holds non-marketable investments in Kateeva, Inc. ($21.0 million) and another entity ($3.5 million), measured at cost and subject to periodic impairment reviews[52] Note 4 — Liabilities This note details Veeco Instruments Inc.'s liabilities, including accrued expenses, warranty reserves, restructuring accruals, and the carrying value of convertible senior notes Accrued Expenses and Other Current Liabilities (in thousands) | Category | March 31, 2019 | December 31, 2018 | | :------------------------ | :------------- | :---------------- | | Payroll and related benefits | $17,722 | $20,486 | | Warranty | $7,226 | $7,852 | | Operating lease liabilities | $4,797 | — | | Interest | $1,992 | $4,321 | | Professional fees | $3,059 | $2,897 | | Sales, use, and other taxes | $1,256 | $2,670 | | Restructuring liability | $1,720 | $2,213 | | Other | $6,268 | $6,011 | | Total | $44,040 | $46,450 | - Warranty reserves decreased from $7.852 million at December 31, 2018, to $7.226 million at March 31, 2019[55] - Restructuring accruals totaled $1.720 million at March 31, 2019, reflecting ongoing cost-saving initiatives and headcount reductions[56][58] Convertible Senior Notes Carrying Value (in thousands) | Component | March 31, 2019 | December 31, 2018 | | :------------------------ | :------------- | :---------------- | | Principal amount | $345,000 | $345,000 | | Unamortized debt discount | $(49,537) | $(52,336) | | Unamortized transaction costs | $(4,990) | $(5,272) | | Net carrying value | $290,473 | $287,392 | - Total interest expense related to the Convertible Senior Notes was $5.410 million for the three months ended March 31, 2019, including $3.081 million in non-cash interest expense[61] Note 5 — Commitments and Contingencies This note outlines Veeco Instruments Inc.'s contractual obligations, including operating lease commitments, purchase commitments, and ongoing legal proceedings Operating Lease Commitments (March 31, 2019, in thousands) | Period (Payments due) | Operating Leases | | :-------------------- | :--------------- | | 2019 (excluding Q1) | $4,144 | | 2020 | $5,233 | | 2021 | $2,431 | | 2022 | $1,334 | | 2023 | $853 | | Thereafter | $548 | | Total future minimum lease payments | $14,543 | | Less: Imputed interest | $(1,364) | | Total | $13,179 | - The weighted average remaining lease term for operating leases is 3 years, with a weighted average discount rate of 6.0%[63] - Purchase commitments totaled $90.5 million at March 31, 2019, with substantially all due within one year[66] - The company is vigorously defending two class action lawsuits related to the Ultratech acquisition, alleging misstatements and breach of fiduciary duty, but does not believe they will have a material adverse effect[68][69][70] Note 6 — Derivative Financial Instruments This note describes Veeco Instruments Inc.'s use of derivative contracts to manage foreign currency exchange risk, emphasizing their non-speculative nature - The company uses monthly forward derivative contracts to mitigate foreign currency exchange risk, not for speculative purposes[71] - There were no outstanding derivative contracts or gains/losses from currency exchange derivatives for the three months ended March 31, 2019[72] Note 7 — Equity This note details changes in Veeco Instruments Inc.'s stockholders' equity, including common stock, additional paid-in capital, accumulated deficit, and comprehensive income Changes in Stockholders' Equity (in thousands) | Item | Balance at Dec 31, 2018 | Q1 2019 Activity | Balance at Mar 31, 2019 | | :---------------------------------- | :---------------------- | :--------------- | :---------------------- | | Common Stock (Amount) | $485 | $2 | $487 | | Treasury Stock (Amount) | $(5,872) | $5,872 | $0 | | Additional Paid-in Capital | $1,061,325 | $(3,146) | $1,058,179 | | Accumulated Deficit | $(619,983) | $(18,743) | $(638,726) | | Accumulated Other Comprehensive Income | $1,820 | $38 | $1,858 | | Total Stockholders' Equity | $437,775 | $(15,977) | $421,798 | - Accumulated Other Comprehensive Income (AOCI) increased by $38 thousand, primarily due to unrealized gains on available-for-sale securities and foreign currency translation[75] Note 8 — Share-based compensation This note outlines Veeco Instruments Inc.'s share-based compensation expense across various line items and changes in non-vested restricted and performance shares Share-based Compensation Expense (in thousands) | Line Item | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Cost of sales | $470 | $554 | | Research and development | $792 | $954 | | Selling, general, and administrative | $1,895 | $2,857 | | Restructuring | $0 | $172 | | Total | $3,157 | $4,537 | - Total share-based compensation expense decreased by $1.38 million (30.4%) year-over-year[77] - Non-vested restricted and performance shares increased from 2,218 thousand shares at December 31, 2018, to 2,938 thousand shares at March 31, 2019, due to new grants offset by vesting and forfeitures[78] Note 9 — Income Taxes This note details Veeco Instruments Inc.'s loss before income taxes and income tax expense or benefit, explaining the drivers for domestic and non-U.S. tax positions Loss Before Income Taxes and Income Tax Expense (Benefit) (in thousands) | Metric | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Loss before income taxes | $(18,340) | $(16,057) | | Income tax expense (benefit) | $190 | $(230) | - The domestic tax expense is primarily attributable to the tax amortization of indefinite-lived intangible assets, which is not available to offset U.S. deferred tax assets due to a valuation allowance[81] - The non-U.S. tax expense in Q1 2019 is primarily due to non-U.S. operation profits and foreign withholding taxes on unremitted earnings, partially offset by intangible asset amortization[81][82] Note 10 — Segment Reporting and Geographic Information This note provides insights into Veeco Instruments Inc.'s single operating segment, categorizing sales by end-market and geographic region for performance analysis - Veeco operates and measures its results in one operating segment: the design, development, manufacture, and support of thin film process equipment[83] - Sales are categorized into four end-markets: Advanced Packaging, MEMS & RF Filters; LED Lighting, Display & Compound Semiconductor; Front-End Semiconductor; and Scientific & Industrial[84][85][86][87] Sales by End-Market (in thousands) | End-Market | Three months ended March 31, 2019 | Three months ended March 31, 2018 | Change | Change (%) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Advanced Packaging, MEMS & RF Filters | $23,127 | $27,153 | $(4,026) | (15)% | | LED Lighting, Display & Compound Semiconductor | $13,550 | $89,916 | $(76,366) | (85)% | | Front-End Semiconductor | $22,617 | $9,457 | $13,160 | 139% | | Scientific & Industrial | $40,077 | $32,048 | $8,029 | 25% | | Total | $99,371 | $158,574 | $(59,203) | (37)% | Sales by Geographic Region (in thousands) | Geographic Region | Three months ended March 31, 2019 | Three months ended March 31, 2018 | Change | Change (%) | | :---------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | United States | $32,315 | $23,754 | $8,561 | 36% | | China | $10,159 | $75,395 | $(65,236) | (87)% | | EMEA | $17,827 | $15,745 | $2,082 | 13% | | Rest of World | $39,070 | $43,680 | $(4,610) | (11)% | | Total | $99,371 | $158,574 | $(59,203) | (37)% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of Veeco's financial condition and results of operations for the three months ended March 31, 2019, highlighting significant declines in net sales and gross profit, increased net loss, and details on liquidity and capital resources Cautionary Statement Regarding Forward Looking Statements This statement advises readers that the discussion contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially - The discussion contains forward-looking statements, identified by specific terminology, which are subject to risks and uncertainties[90] - Readers are cautioned not to place undue reliance on forward-looking statements, as actual results may differ materially[90] Executive Summary This summary introduces Veeco as a leading manufacturer of semiconductor and thin film process equipment, outlining key drivers and applications across its four market segments - Veeco is a leading manufacturer of innovative semiconductor and thin film process equipment, with revenue categorized into four key market segments[91][92] - Sales in Advanced Packaging, MEMS & RF Filter market were driven by Lithography and PSP systems for advanced packaging processes, with encouraging traction in DRAM packaging[93] - Sales in LED Lighting, Display & Compound Semiconductor market were driven by display and photonics applications, with future business expected from 3D sensors, VCSELs, laser diodes, and RF devices[94] - Front-End Semiconductor sales were primarily driven by laser annealing systems for advanced-node foundry processes and increasing adoption of LDD-IBD for EUV Mask Blank Production[95] - Scientific & Industrial sales were supported by Ion Beam systems for data storage and optical coatings, and MBE systems for research, driven by demand for improved areal density in magnetic heads[96] Results of Operations This section analyzes Veeco Instruments Inc.'s financial performance, detailing changes in net sales, gross profit, and operating expenses for the three months ended March 31, 2019 Net Sales This section analyzes the significant decrease in net sales, particularly in the LED Lighting, Display & Compound Semiconductor market and China, for the three months ended March 31, 2019 Net Sales by Market (in thousands) | End-Market | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | Change (%) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Advanced Packaging, MEMS & RF Filters | $23,127 | $27,153 | $(4,026) | (15)% | | LED Lighting, Display & Compound Semiconductor | $13,550 | $89,916 | $(76,366) | (85)% | | Front-End Semiconductor | $22,617 | $9,457 | $13,160 | 139% | | Scientific & Industrial | $40,077 | $32,048 | $8,029 | 25% | | Total | $99,371 | $158,574 | $(59,203) | (37)% | Net Sales by Geographic Region (in thousands) | Geographic Region | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | Change (%) | | :---------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | United States | $32,315 | $23,754 | $8,561 | 36% | | China | $10,159 | $75,395 | $(65,236) | (87)% | | EMEA | $17,827 | $15,745 | $2,082 | 13% | | Rest of World | $39,070 | $43,680 | $(4,610) | (11)% | | Total | $99,371 | $158,574 | $(59,203) | (37)% | - The significant decrease in sales was primarily in the LED Lighting, Display & Compound Semiconductor market, particularly in China, where no significant new orders are expected in the near future[99][100] Gross Profit This section examines the decline in gross profit, attributing it to lower sales volume and reduced gross margins resulting from changes in product and region mix Gross Profit (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | Change (%) | | :---------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Gross profit | $34,716 | $56,680 | $(21,964) | (39)% | - Gross profit decreased due to lower sales volume and reduced gross margins, primarily resulting from changes in product and region mix of sales[101] Research and Development This section details the decrease in R&D expenses, primarily driven by lower personnel-related costs and professional fees as part of cost-saving initiatives Research and Development Expense (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | Change (%) | | :----- | :-------------------------------- | :-------------------------------- | :------- | :--------- | | R&D | $23,340 | $24,320 | $(980) | (4)% | - R&D expenses decreased primarily due to lower personnel-related expenses and professional fees, reflecting initiatives to streamline operations and reduce costs[102] Selling, General, and Administrative This section reports a decrease in SG&A expenses, mainly due to reduced personnel-related costs and professional fees from ongoing cost-saving initiatives Selling, General, and Administrative Expense (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | Change (%) | | :----- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | SG&A | $19,902 | $26,383 | $(6,481) | (25)% | - SG&A expenses decreased primarily due to reduced personnel-related expenses and professional fees from cost-saving initiatives[103] Amortization Expense This section explains the significant decrease in amortization expense, which is a direct result of intangible asset impairment recorded in the prior year Amortization of Intangible Assets (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | Change (%) | | :---------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Amortization | $4,218 | $13,532 | $(9,314) | (69)% | - The decrease in amortization expense is a result of the impairment of intangible assets recorded during the second quarter of 2018[104] Restructuring Expense This section details the ongoing restructuring charges incurred in Q1 2019, reflecting efforts to streamline operations, enhance efficiencies, and reduce costs Restructuring Expense (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | Change (%) | | :------------ | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Restructuring | $1,430 | $2,695 | $(1,265) | (47)% | - Restructuring charges continued in Q1 2019 as part of ongoing efforts to streamline operations, enhance efficiencies, and reduce costs, including facility consolidation and headcount reductions[105][106] Interest Income (Expense) This section reports on net interest income and expense, including non-cash charges related to the amortization of debt discount and transaction costs for Convertible Senior Notes Net Interest Income (Expense) (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | Change (%) | | :---------------------- | :-------------------------------- | :-------------------------------- | :------- | :--------- | | Interest income (expense), net | $(4,200) | $(4,622) | $422 | (9)% | - Non-cash charges related to the amortization of debt discount and transaction costs for Convertible Senior Notes were $3.1 million in Q1 2019 and $2.9 million in Q1 2018[107] Income Taxes This section explains the income tax expense or benefit, detailing the domestic tax expense from intangible asset amortization and non-U.S. tax expense from operation profits Income Tax Expense (Benefit) (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :-------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Income tax expense (benefit) | $190 | $(230) | $420 | - The Q1 2019 tax expense included $0.1 million related to domestic operations and $0.1 million related to non-U.S. operations[109] - Domestic tax expense is primarily due to the tax amortization of indefinite-lived intangible assets not available to offset U.S. deferred tax assets[110] - Non-U.S. tax expense in Q1 2019 is primarily attributable to non-U.S. operation profits and foreign withholding taxes on unremitted earnings, offset by intangible asset amortization[110] Liquidity and Capital Resources This section assesses Veeco Instruments Inc.'s ability to meet its financial obligations, detailing cash, investments, and cash flows from operating, investing, and financing activities Cash, Cash Equivalents, Restricted Cash, and Short-term Investments This section provides a summary of Veeco Instruments Inc.'s cash and investment balances, including amounts held outside the United States, and management's outlook on liquidity Cash and Investments (in thousands) | Metric | March 31, 2019 | December 31, 2018 | Change | | :---------------------- | :------------- | :---------------- | :----------- | | Cash and cash equivalents | $169,439 | $212,273 | $(42,834) | | Restricted cash | $804 | $809 | $(5) | | Short-term investments | $67,215 | $48,189 | $19,026 | | Total | $237,458 | $261,271 | $(23,813) | - At March 31, 2019, $65.7 million of cash and cash equivalents were held outside the United States[111] - Management believes projected cash flow from operations, combined with current cash and short-term investments, will be sufficient to meet working capital requirements and contractual obligations for the next twelve months[111] Cash Flows from Operating Activities This section analyzes the increase in net cash used in operating activities, attributing it to the net loss and unfavorable changes in operating assets and liabilities Net Cash Provided by (Used in) Operating Activities (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net cash provided by (used in) operating activities | $(22,291) | $(11,807) | $(10,484) | - Net cash used in operating activities increased due to the net loss and unfavorable changes in operating assets and liabilities, including decreases in accounts payable and customer deposits, and increases in accounts receivable and prepaid expenses, partially offset by decreases in inventory[112] Cash Flows from Investing Activities This section details cash used in investing activities, primarily driven by net changes in investments and capital expenditures for the three months ended March 31, 2019 Net Cash Provided by (Used in) Investing Activities (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | | Capital expenditures | $(2,180) | $(2,259) | $79 | | Changes in investments, net | $(18,758) | $(20,300) | $1,542 | | Net cash provided by (used in) investing activities | $(20,938) | $(22,559) | $1,621 | - Cash used in investing activities was primarily attributable to net changes in investments and capital expenditures[113] Cash Flows from Financing Activities This section reports on cash provided by financing activities, mainly from employee equity programs, offset by tax withholdings related to these programs Net Cash Provided by (Used in) Financing Activities (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net proceeds from employee equity programs | $379 | $709 | $(330) | | Purchases of common stock | $0 | $(592) | $592 | | Net cash provided by (used in) financing activities | $379 | $117 | $262 | - Cash provided by financing activities was related to cash proceeds from the employee stock purchase plan, offset by cash used for tax withholdings related to employee equity programs[114] Convertible Senior Notes This section describes the $345.0 million 2.70% convertible senior unsecured notes issued in 2017, maturing in 2023, and management's confidence in meeting interest payments - The company issued $345.0 million of 2.70% convertible senior unsecured notes on January 10, 2017, maturing on January 15, 2023[115] - Management believes it has sufficient capital resources and cash flows from operations to support scheduled interest payments on this debt[115] Contractual Obligations and Commitments This section states that the company has commitments for future payments for goods and services, expected to be funded by cash generated from operations - The company has commitments under contractual arrangements for future payments for goods and services, which are expected to be funded with cash generated from operations[116] Off-Balance Sheet Arrangements This section confirms that the company has no material off-balance sheet arrangements other than disclosed bank guarantees and purchase commitments - The company does not have any material off-balance sheet arrangements other than disclosed bank guarantees and purchase commitments[117] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details Veeco's exposure to market risks, specifically interest rate risk related to its investment portfolio and currency exchange risk from its global operations, and the strategies used to mitigate these risks Interest Rate Risk This section discusses the company's exposure to interest rate risk from its fixed-income investment portfolio and quantifies the potential impact of rate changes - The company's investment portfolio, primarily fixed-income securities, had a fair value of approximately $67.2 million at March 31, 2019, exposing it to interest rate risk[118] - A 100 basis point increase in interest rates would result in an estimated $0.2 million decrease in the fair value of the investment portfolio[119] Currency Exchange Risk This section outlines the company's exposure to currency exchange rate fluctuations from global operations and its use of derivative contracts to mitigate this risk - The company conducts business worldwide, exposing its revenues, earnings, and foreign investments to changes in currency exchange rates[120] - Monthly forward derivative contracts are used to mitigate a portion of this risk, not for speculative purposes[121] - Net sales to customers outside the United States represented approximately 67% of total net sales for Q1 2019, but sales denominated in non-U.S. dollars were only 6% of total net sales[122] - A 10% change in foreign exchange rates would have an immaterial impact on consolidated results, as most sales outside the U.S. are denominated in U.S. dollars[123] Item 4. Controls and Procedures Management concluded that Veeco's disclosure controls and procedures were effective as of March 31, 2019. The adoption of ASC 842 (Leases) led to the implementation of additional internal controls, but no other material changes to internal control over financial reporting occurred during the quarter Management's Report on Internal Control Over Financial Reporting This section states that the principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 31, 2019 - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 31, 2019[124] Changes in Internal Control Over Financial Reporting This section reports the implementation of additional internal controls due to ASC 842 adoption, with no other material changes to internal control over financial reporting during the quarter - Additional internal controls were implemented due to the adoption of ASC 842 (Leases) on January 1, 2019[125] - No other changes in internal control over financial reporting materially affected or are reasonably likely to materially affect internal control over financial reporting for the quarter ended March 31, 2019[125] PART II—OTHER INFORMATION This part covers legal proceedings, risk factors, equity security sales, and other disclosures for Veeco Instruments Inc. for the reporting period Item 1. Legal Proceedings This section details two ongoing class action lawsuits related to the Ultratech acquisition, alleging misstatements in the registration statement and breach of fiduciary duty. The company is vigorously defending these matters and does not believe their ultimate resolution will have a material adverse effect on its financial position, results of operations, or cash flows - Two class action lawsuits, the 'Wolther Action' and a derivative action, are ongoing, stemming from the Ultratech acquisition[128][129] - The lawsuits allege false/misleading statements in the registration statement and prospectus, and claims for breach of fiduciary duty and waste of corporate assets[128][129] - Veeco is vigorously defending these matters and does not believe their ultimate resolution will have a material adverse effect on its consolidated financial position, results of operations, or cash flows[128][129][130] Item 1A. Risk Factors This section refers to the comprehensive risk factors previously disclosed in the Safe Harbor Statement within this report and in Part I — Item 1A of the company's 2018 Form 10-K, stating that there have been no material changes to these risks - Information regarding risk factors appears in the Safe Harbor Statement at the beginning of this report and in Part I — Item 1A of the 2018 Form 10-K[131] - There have been no material changes from the risk factors previously disclosed in the 2018 Form 10-K[131] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on Veeco's share repurchase program, authorized for up to $100 million through December 2019. No shares were repurchased during the first quarter of 2019, with $14.3 million of the program utilized as of March 31, 2019 - Veeco's Board of Directors authorized a program to repurchase up to $100 million of common stock through December 11, 2019[132] - No shares were purchased during the first quarter of 2019[132] - As of March 31, 2019, $14.3 million of the $100 million program had been utilized[132] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[133] Item 4. Mine Safety Disclosures This section indicates that the disclosure requirements for mine safety are not applicable to Veeco Instruments Inc. - This item is not applicable[134] Item 5. Other Information This section states that there is no other information to report under this item for the current period - No other information is reported under this item[135] Item 6. Exhibits This section provides a list of exhibits filed with the Securities and Exchange Commission, including various forms of restricted stock unit awards, amendments to letter agreements, and certifications from the Chief Executive Officer and Chief Financial Officer - The exhibits include forms of Notice of Performance Restricted Stock Unit Award, Notice of Restricted Stock Award, amendments to letter agreements for William J. Miller and Shubham Maheshwari, and certifications from the CEO and CFO[137] SIGNATURES This section confirms the official signing of the report by Veeco Instruments Inc.'s principal executive and financial officers on May 6, 2019 - The report was duly signed on behalf of Veeco Instruments Inc. on May 6, 2019[140] - Signatories include William J. Miller, Ph.D., Chief Executive Officer, and Shubham Maheshwari, Executive Vice President, Chief Financial Officer, and Chief Operating Officer[141]