Veeco(US:VECO)2020-05-07 20:47markdown [Safe Harbor Statement](index=4&type=section&id=Safe%20Harbor%20Statement) This statement outlines risks and uncertainties in forward-looking projections, including the COVID-19 pandemic's impact - This report contains forward-looking statements, identified by words like "believes," "anticipates," and "expects," which are subject to risks and uncertainties that could cause actual results to differ materially from projections[9](index=9&type=chunk) - The preparation of financial statements requires management to make estimates and assumptions, including the potential impact of the COVID-19 pandemic, which may ultimately differ from actual results[10](index=10&type=chunk) - Key risks and uncertainties include the unknown duration and economic, operational, and financial impacts of the COVID-19 pandemic, unfavorable market conditions, global business risks, changes in U.S. trade policy, IT system disruptions, intellectual property issues, significant competition, rapid technological change, and dependence on consumer electronics demand[11](index=11&type=chunk)[13](index=13&type=chunk)[17](index=17&type=chunk) [PART I—FINANCIAL INFORMATION](index=9&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=9&type=section&id=Item%201.%20Financial%20Statements) This section presents Veeco Instruments Inc.'s unaudited consolidated financial statements for the quarter ended March 31, 2020, including balance sheets, statements of operations, comprehensive income, and cash flows, along with detailed notes explaining accounting policies, significant assets, liabilities, equity, and segment information [Consolidated Balance Sheets](index=9&type=section&id=Consolidated%20Balance%20Sheets) This section compares the company's consolidated balance sheets for Q1 2020 and year-end 2019 **Consolidated Balance Sheet Highlights (March 31, 2020 vs. December 31, 2019):** | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total Current Assets | **$500,490** | **$475,878** | | Total Assets | **$832,886** | **$818,088** | | Total Current Liabilities | **$128,509** | **$118,224** | | Total Liabilities | **$455,822** | **$443,576** | | Total Stockholders' Equity | **$377,064** | **$374,512** | [Consolidated Statements of Operations](index=11&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's consolidated operational performance for the three months ended March 31, 2020 and 2019 **Consolidated Statements of Operations Highlights (Three months ended March 31, 2020 vs. 2019):** | Metric | 3 Months Ended March 31, 2020 (in thousands) | 3 Months Ended March 31, 2019 (in thousands) | Change (YoY) | | :-------------------------- | :----------------------------------- | :----------------------------------- | :------------ | | Net sales | **$104,502** | **$99,371** | **+$5,131** (**+5%**) | | Gross profit | **$46,419** | **$34,716** | **+$11,703** (**+34%**) | | Operating income (loss) | **$4,567** | **$(14,140)** | **+$18,707** | | Net income (loss) | **$(567)** | **$(18,530)** | **+$17,963** | | Basic EPS | **$(0.01)** | **$(0.40)** | **+$0.39** | | Diluted EPS | **$(0.01)** | **$(0.40)** | **+$0.39** | [Consolidated Statements of Comprehensive Income (Loss)](index=12&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) This section presents the company's comprehensive income and loss for the three months ended March 31, 2020 and 2019 **Consolidated Statements of Comprehensive Income (Loss) Highlights (Three months ended March 31, 2020 vs. 2019):** | Metric | 3 Months Ended March 31, 2020 (in thousands) | 3 Months Ended March 31, 2019 (in thousands) | Change (YoY) | | :------------------------------------------ | :----------------------------------- | :----------------------------------- | :------------ | | Net income (loss) | **$(567)** | **$(18,530)** | **+$17,963** | | Total other comprehensive income (loss), net of tax | **$153** | **$38** | **+$115** | | Total comprehensive income (loss) | **$(414)** | **$(18,492)** | **+$18,078** | [Consolidated Statements of Cash Flows](index=13&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash flow activities from operations, investing, and financing for Q1 2020 and 2019 **Consolidated Statements of Cash Flows Highlights (Three months ended March 31, 2020 vs. 2019):** | Metric | 3 Months Ended March 31, 2020 (in thousands) | 3 Months Ended March 31, 2019 (in thousands) | Change (YoY) | | :-------------------------------------------------- | :----------------------------------- | :----------------------------------- | :------------ | | Net cash provided by (used in) operating activities | **$(2,396)** | **$(22,291)** | **+$19,895** | | Net cash provided by (used in) investing activities | **$35,194** | **$(20,938)** | **+$56,132** | | Net cash provided by (used in) financing activities | **$276** | **$379** | **-$103** | | Net increase (decrease) in cash, cash equivalents, and restricted cash | **$33,026** | **$(42,839)** | **+$75,865** | | Cash, cash equivalents, and restricted cash - end of period | **$162,977** | **$170,243** | **-$7,266** | [Notes to the Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) [Note 1 — Basis of Presentation](index=14&type=section&id=Note%201%20%E2%80%94%20Basis%20of%20Presentation) This note details the basis of financial statement presentation, revenue recognition, and inventory valuation policies - The unaudited Consolidated Financial Statements are prepared in accordance with U.S. GAAP for interim financial information, with all adjustments considered necessary for fair presentation included[29](index=29&type=chunk) - The COVID-19 pandemic has adversely impacted and is likely to further impact the Company's business and markets, including its workforce, operations, customers, suppliers, and business partners, with the full extent depending on future developments[31](index=31&type=chunk) - Revenue is recognized upon the transfer of control of the promised product or service to the customer, with judgment required to identify performance obligations and allocate revenue in contracts with multiple deliverables[32](index=32&type=chunk)[33](index=33&type=chunk) - Most revenue is recognized at a point in time, typically upon system delivery, when the Company can objectively demonstrate that contractual acceptance provisions are achieved prior to delivery[35](index=35&type=chunk) - Inventories are stated at the lower of cost or net realizable value, with quarterly assessments for valuation and recoverability, including write-downs for obsolete or excess inventory based on usage requirements and anticipated demand[40](index=40&type=chunk)[42](index=42&type=chunk) [Note 2 — Income (Loss) Per Common Share](index=18&type=section&id=Note%202%20%E2%80%94%20Income%20%28Loss%29%20Per%20Common%20Share) This note provides details on the calculation of basic and diluted income (loss) per common share **Income (Loss) Per Common Share (Three months ended March 31, 2020 vs. 2019):** | Metric | 3 Months Ended March 31, 2020 (in thousands, except per share) | 3 Months Ended March 31, 2019 (in thousands, except per share) | | :-------------------------------- | :------------------------------------------------- | :------------------------------------------------- | | Net income (loss) | **$(567)** | **$(18,530)** | | Basic EPS | **$(0.01)** | **$(0.40)** | | Diluted EPS | **$(0.01)** | **$(0.40)** | | Basic weighted average shares outstanding | **47,811** | **46,848** | | Diluted weighted average shares outstanding | **47,811** | **46,848** | - Common share equivalents and potentially dilutive shares were excluded from the diluted weighted average shares outstanding for both periods because the Company incurred a net loss, making their effect antidilutive[43](index=43&type=chunk) [Note 3 — Assets](index=18&type=section&id=Note%203%20%E2%80%94%20Assets) This note details the company's assets, including investments, receivables, inventories, and 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[44](index=44&type=chunk) **Fair Value Measurement of Assets (March 31, 2020 vs. December 31, 2019):** | Asset Category | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------- | :---------------------------- | :---------------------------- | | Cash equivalents | **$138,794** | **$78,493** | | Short-term investments | **$79,429** | **$115,252** | - Accounts receivable is presented net of an allowance for doubtful accounts of **$0.6 million** at both March 31, 2020, and December 31, 2019, with no increase deemed necessary due to the current estimated impact of COVID-19 on collectability[51](index=51&type=chunk) **Inventories (March 31, 2020 vs. December 31, 2019):** | Category | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------- | :---------------------------- | :---------------------------- | | Materials | **$81,684** | **$82,155** | | Work-in-process | **$41,706** | **$42,575** | | Finished goods | **$6,221** | **$8,337** | | Total | **$129,611** | **$133,067** | - A non-core product line was classified as held for sale in Q4 2019, resulting in a **$4.0 million** non-cash impairment charge, and was subsequently sold for approximately **$11.4 million** after March 31, 2020[53](index=53&type=chunk)[54](index=54&type=chunk) **Net Property, Plant, and Equipment (March 31, 2020 vs. December 31, 2019):** | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------------------- | :---------------------------- | :---------------------------- | | Net property, plant, and equipment | **$72,291** | **$75,711** | - The Company assessed the COVID-19 pandemic as a potential triggering event for goodwill and intangible asset impairment but concluded there were no indicators of impairment during the three months ended March 31, 2020[56](index=56&type=chunk)[57](index=57&type=chunk) **Net Intangible Assets (March 31, 2020 vs. December 31, 2019):** | Category | March 31, 2020 (Net, in thousands) | December 31, 2019 (Net, in thousands) | | :-------------------- | :--------------------------------- | :--------------------------------- | | Technology | **$33,494** | **$36,142** | | Customer relationships | **$18,859** | **$19,701** | | Trademarks and tradenames | **$5,314** | **$5,654** | | Other | **$13** | **$21** | | Total | **$57,680** | **$61,518** | [Note 4 — Liabilities](index=24&type=section&id=Note%204%20%E2%80%94%20Liabilities) This note outlines the company's liabilities, including accrued expenses, warranty, restructuring, and convertible notes **Accrued Expenses and Other Current Liabilities (March 31, 2020 vs. December 31, 2019):** | Category | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :------------------------ | :---------------------------- | :---------------------------- | | Payroll and related benefits | **$18,909** | **$15,174** | | Warranty | **$5,968** | **$7,067** | | Operating lease liabilities | **$4,286** | **$4,196** | | Interest | **$1,992** | **$4,321** | | Professional fees | **$1,936** | **$2,443** | | Sales, use, and other taxes | **$2,644** | **$811** | | Restructuring liability | **$2,074** | **$2,841** | | Other | **$3,759** | **$4,390** | | Total | **$41,568** | **$41,243** | - Warranty reserves decreased from **$7.067 million** at December 31, 2019, to **$5.968 million** at March 31, 2020, reflecting **$0.645 million** in new warranties issued and **$1.708 million** in consumption of reserves[60](index=60&type=chunk) - Restructuring charges continued in Q1 2020, with additional accruals and payments made related to initiatives from H2 2019 to streamline operations and reduce costs, impacting approximately **60 employees**[61](index=61&type=chunk)[63](index=63&type=chunk) - Customer deposits totaled **$24.9 million** and deferred revenue was **$24.731 million** at March 31, 2020, with approximately **$32.2 million** of remaining performance obligations expected to be recognized within one to three **years**[64](index=64&type=chunk) **Convertible Senior Notes Carrying Value (March 31, 2020 vs. December 31, 2019):** | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------- | :---------------------------- | :---------------------------- | | Principal amount | **$345,000** | **$345,000** | | Net carrying value | **$303,388** | **$300,068** | - Total interest expense related to the Convertible Senior Notes was **$5.649 million** for the three months ended March 31, 2020, including **$3.320 million** in non-cash interest expense[67](index=67&type=chunk) [Note 5 — Commitments and Contingencies](index=27&type=section&id=Note%205%20%E2%80%94%20Commitments%20and%20Contingencies) This note details the company's lease, purchase commitments, and ongoing legal proceedings - The weighted average remaining lease term for operating leases was **3 years** as of March 31, 2020, with total future minimum lease payments of **$14.918 million**[70](index=70&type=chunk)[71](index=71&type=chunk) - Purchase commitments totaled **$76.2 million** at March 31, 2020, with substantially all due within one year[72](index=72&type=chunk) - Outstanding bank guarantees and letters of credit totaled **$5.8 million**, with **$25.8 million** unused, as of March 31, 2020[73](index=73&type=chunk) - The Company is vigorously defending two purported class action lawsuits related to the Ultratech acquisition, alleging false/misleading statements and breach of fiduciary duty, but does not believe their ultimate resolution will have a material adverse effect on its financial position, results of operations, or cash flows[74](index=74&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk) [Note 6 — Derivative Financial Instruments](index=30&type=section&id=Note%206%20%E2%80%94%20Derivative%20Financial%20Instruments) This note describes the company's use of derivative financial instruments to mitigate foreign currency risk - Veeco uses monthly forward derivative contracts to mitigate foreign currency exchange rate risks but does not designate them as hedges, recording fair value changes in "Other operating expense (income), net."[78](index=78&type=chunk) - There were no outstanding derivative contracts or gains/losses from currency exchange derivatives for the three months ended March 31, 2020, or 2019[79](index=79&type=chunk) [Note 7 — Equity](index=31&type=section&id=Note%207%20%E2%80%94%20Equity) This note details changes in the company's stockholders' equity, including common stock and accumulated comprehensive income **Changes in Stockholders' Equity (Three months ended March 31, 2020):** | Metric | Balance at Dec 31, 2019 (in thousands) | Net Loss (in thousands) | Other Comprehensive Income (in thousands) | Share-based Compensation (in thousands) | Net Issuance under Employee Stock Plans (in thousands) | Balance at Mar 31, 2020 (in thousands) | | :------------------------------------ | :------------------------------------- | :---------------------- | :---------------------------------------- | :-------------------------------------- | :----------------------------------------------------- | :------------------------------------- | | Common Stock Amount | **$490** | — | — | — | **$4** | **$494** | | Additional Paid-in Capital | **$1,071,058** | — | — | **$3,646** | **$(684)** | **$1,074,020** | | Accumulated Deficit | **$(698,930)** | **$(567)** | — | — | — | **$(699,497)** | | Accumulated Other Comprehensive Income | **$1,894** | — | **$153** | — | — | **$2,047** | | Total | **$374,512** | **$(567)** | **$153** | **$3,646** | **$(680)** | **$377,064** | - Accumulated Other Comprehensive Income (AOCI) increased from **$1.894 million** at December 31, 2019, to **$2.047 million** at March 31, 2020, primarily due to unrealized gains on available-for-sale securities[81](index=81&type=chunk) [Note 8 — Share-Based Compensation](index=31&type=section&id=Note%208%20%E2%80%94%20Share-Based%20Compensation) This note outlines the company's share-based compensation expense and non-vested share activity **Share-Based Compensation Expense (Three months ended March 31, 2020 vs. 2019):** | Category | 3 Months Ended March 31, 2020 (in thousands) | 3 Months Ended March 31, 2019 (in thousands) | | :--------------------------------- | :------------------------------------------- | :------------------------------------------- | | Cost of sales | **$521** | **$470** | | Research and development | **$874** | **$792** | | Selling, general, and administrative | **$2,251** | **$1,895** | | Total | **$3,646** | **$3,157** | - Total share-based compensation expense increased by **$0.489 million** (**15.5%**) from **$3.157 million** in Q1 2019 to **$3.646 million** in Q1 2020[83](index=83&type=chunk) - The number of non-vested restricted shares and performance shares increased from **2,257 thousand** at December 31, 2019, to **2,629 thousand** at March 31, 2020, with **840 thousand** granted during the period[83](index=83&type=chunk) [Note 9 — Income Taxes](index=33&type=section&id=Note%209%20%E2%80%94%20Income%20Taxes) This note details the company's income tax expense and the valuation allowance against U.S. deferred tax assets **Loss Before Income Taxes and Income Tax Expense (Benefit) (Three months ended March 31, 2020 vs. 2019):** | Metric | 3 Months Ended March 31, 2020 (in thousands) | 3 Months Ended March 31, 2019 (in thousands) | | :------------------------- | :------------------------------------------- | :------------------------------------------- | | Loss before income taxes | **$(299)** | **$(18,340)** | | Income tax expense (benefit) | **$268** | **$190** | - The Company's U.S. deferred tax assets are fully offset by a valuation allowance because it cannot conclude that it is more likely than not that these future benefits will be realized[84](index=84&type=chunk) - Domestic tax expense for the current period is primarily attributable to the tax amortization of indefinite-lived intangible assets that is not available to offset U.S. deferred tax assets, despite a domestic pre-tax loss[86](index=86&type=chunk) [Note 10 — Segment Reporting and Geographic Information](index=34&type=section&id=Note%2010%20%E2%80%94%20Segment%20Reporting%20and%20Geographic%20Information) This note provides sales breakdown by end-market and geographic region for the reporting period - Veeco operates and measures its results in one operating segment: the design, development, manufacture, and support of thin film process equipment primarily sold to make electronic devices[87](index=87&type=chunk) **Sales by End-Market (Three months ended March 31, 2020 vs. 2019):** | End-Market | 3 Months Ended March 31, 2020 (in thousands) | 3 Months Ended March 31, 2019 (in thousands) | Change (YoY) | | :----------------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------ | | Front-End Semiconductor | **$31,366** | **$22,617** | **+$8,749** (**+39%**) | | Advanced Packaging, MEMS & RF Filters | **$8,588** | **$23,127** | **-$14,539** (**-63%**) | | LED Lighting, Display & Compound Semiconductor | **$15,402** | **$13,550** | **+$1,852** (**+14%**) | | Scientific & Industrial | **$49,146** | **$40,077** | **+$9,069** (**+23%**) | | Total | **$104,502** | **$99,371** | **+$5,131** (**+5%**) | **Sales by Geographic Region (Three months ended March 31, 2020 vs. 2019):** | Geographic Region | 3 Months Ended March 31, 2020 (in thousands) | 3 Months Ended March 31, 2019 (in thousands) | Change (YoY) | | :---------------- | :------------------------------------------- | :------------------------------------------- | :------------ | | United States | **$39,635** | **$32,315** | **+$7,320** (**+23%**) | | China | **$10,472** | **$10,159** | **+$313** (**+3%**) | | EMEA | **$16,150** | **$17,827** | **-$1,677** (**-9%**) | | Rest of World | **$38,245** | **$39,070** | **-$825** (**-2%**) | | Total | **$104,502** | **$99,371** | **+$5,131** (**+5%**) | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Veeco's financial condition and operational results for the three months ended March 31, 2020, highlighting the impact of the COVID-19 pandemic, market segment performance, and key financial changes, including revenue, gross profit, operating expenses, and liquidity [Cautionary Statement Regarding Forward Looking Statements](index=37&type=section&id=Cautionary%20Statement%20Regarding%20Forward%20Looking%20Statements) This statement reiterates the risks and uncertainties associated with forward-looking information - This discussion contains forward-looking statements, identified by words like "believes," "anticipates," "expects," and "estimates," which are subject to risks and uncertainties that could cause actual results to differ materially[94](index=94&type=chunk) [Executive Summary](index=37&type=section&id=Executive%20Summary) This section provides an overview of Veeco's innovative semiconductor process equipment manufacturing business - Veeco is an innovative manufacturer of semiconductor process equipment, utilizing ion beam, laser annealing, lithography, MOCVD, and single wafer etch & clean technologies for advanced semiconductor device fabrication and packaging[95](index=95&type=chunk) [COVID-19 Update](index=37&type=section&id=COVID-19%20Update) This section details the impact of the COVID-19 pandemic on Veeco's operations, workforce, and supply chain - Veeco's operations are considered part of the **critical and essential infrastructure**, allowing manufacturing facilities to remain open and operating **largely at or near full capacity** despite governmental measures to contain the COVID-19 pandemic[97](index=97&type=chunk) - The Company serves a global customer base, with approximately **70%** of net sales to customers outside the United States in 2019, making its business **vulnerable to further deterioration** in global economic conditions, particularly in Asia and Europe[98](index=98&type=chunk) - Proactive measures taken in response to the pandemic include rigorous health and safety protocols, mandated remote working arrangements for **52%** of the global workforce, virtual customer interactions, supply chain gap identification, and monitoring IT systems[101](index=101&type=chunk) - While **no significant supply chain interruptions** have occurred to date, **future disruptions are possible** due to financial challenges confronting suppliers or restrictions/disruptions of transportation[99](index=99&type=chunk) [Business Update](index=39&type=section&id=Business%20Update) This section provides an update on sales performance across key end-markets and emerging applications - Sales in the Front-End Semiconductor market were **driven by shipments** of laser annealing systems and Low-Defect-Density Ion Beam Deposition (LDD-IBD) systems for Extreme Ultraviolet (EUV) Mask Blank production, with customers **ramping production** at **7nm** and **5nm nodes**[103](index=103&type=chunk) - Sales in the Advanced Packaging, MEMS, and RF Filter market **remained weak in Q1**, with **recovery timing uncertain** due to **smartphone industry softness**, though interactions for High-Performance Computing and 5G applications are encouraging[104](index=104&type=chunk)[106](index=106&type=chunk) - Sales in the LED Lighting, Display & Compound Semiconductor market also **remained soft**, but the Company's MOCVD and PSP technologies **support emerging applications** like 5G driven RF device manufacturing, 3D sensing VCSELs, and GaN-based power electronics[107](index=107&type=chunk) - Sales in the Scientific & Industrial market were **primarily driven by Ion Beam systems** for data storage applications, **benefiting from big data, cloud-based storage growth**, and **innovations like heat assisted magnetic recording (HAMR) and microwave assisted magnetic recording (MAMR)**[108](index=108&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) This section analyzes Veeco's financial performance, including net sales, gross profit, and operating expenses **Key Financial Performance (Three Months Ended March 31, 2020 vs. 2019):** | Metric | 2020 (in thousands) | 2019 (in thousands) | Change (YoY) | | :------------------------ | :------------------ | :------------------ | :------------ | | Net sales | **$104,502** | **$99,371** | **+$5,131** (**+5%**) | | Gross profit | **$46,419** | **$34,716** | **+$11,703** (**+34%**) | | Operating expenses, net | **$41,852** | **$48,856** | **-$7,004** (**-14%**) | | Operating income (loss) | **$4,567** | **$(14,140)** | **+$18,707** | | Net income (loss) | **$(567)** | **$(18,530)** | **+$17,963** (**-97%**) | [Net Sales](index=43&type=section&id=Net%20Sales) This section analyzes the year-over-year changes in net sales by market and geographic region - Total net sales **increased by 5%** year-over-year to **$104.5 million** for the three months ended March 31, 2020, **primarily driven by growth** in the Scientific & Industrial (**+23%**) and Front-End Semiconductor (**+39%**) markets[112](index=112&type=chunk) - Sales in the Advanced Packaging, MEMS & RF Filters market **significantly decreased by 63%** year-over-year[112](index=112&type=chunk) - Geographically, sales increased in the United States by **23%**, while EMEA and Rest of World regions experienced decreases of **9%** and **2%** respectively[112](index=112&type=chunk) [Gross Profit](index=43&type=section&id=Gross%20Profit) This section details the factors contributing to changes in gross profit and future margin expectations - Gross profit **increased by 34%** year-over-year, driven by an increase in sales volume, improved product and region mix, and reductions in inventory reserves and manufacturing expenses[113](index=113&type=chunk) - Future gross margins are **expected to fluctuate each period** due to product mix and other factors, and are **not expected to be as high as the current period**[113](index=113&type=chunk) [Research and Development](index=43&type=section&id=Research%20and%20Development) This section explains the changes in research and development expenses due to operational streamlining - Research and development expenses **decreased by 18%** year-over-year, primarily due to reduced personnel-related expenses and professional fees resulting from ongoing operational streamlining and cost reduction initiatives[114](index=114&type=chunk)[115](index=115&type=chunk) [Selling, General, and Administrative](index=44&type=section&id=Selling%20General%20and%20Administrative) This section details the changes in SG&A expenses and proactive management due to COVID-19 - Selling, general, and administrative expenses **decreased by 8%** year-over-year, mainly due to lower personnel-related expenses from continued efforts to streamline operations and reduce costs[116](index=116&type=chunk)[117](index=117&type=chunk) - The Company is **proactively managing expenses** due to COVID-19 uncertainty and may incur additional SG&A expenses in future periods to support pandemic responses[117](index=117&type=chunk) [Amortization Expense](index=45&type=section&id=Amortization%20Expense) This section notes the consistency of amortization expense with the prior year period - Amortization expense **remained consistent with the comparable prior year period**[118](index=118&type=chunk) [Restructuring Expense](index=45&type=section&id=Restructuring%20Expense) This section details ongoing restructuring charges related to operational streamlining and cost reduction efforts - Restructuring charges continued in Q1 2020, with additional accruals and payments made, as part of ongoing efforts to streamline operations and reduce costs, following a reorganization in H2 2019 that impacted approximately **60 employees**[119](index=119&type=chunk) [Interest Income (Expense)](index=45&type=section&id=Interest%20Income%20%28Expense%29) This section analyzes the changes in net interest expense and income, including non-cash charges - Net interest expense **increased by 16%** year-over-year to **$4.9 million** for Q1 2020, including **$3.3 million** in non-cash charges related to the amortization of debt discount and transaction costs of Convertible Senior Notes[120](index=120&type=chunk) - Interest income **decreased by approximately $0.4 million** due to lower interest rates, a **trend expected to continue**[120](index=120&type=chunk) [Income Taxes](index=45&type=section&id=Income%20Taxes) This section details the income tax expense and the treatment of domestic pre-tax losses - Income tax expense for Q1 2020 was **$0.3 million**, up from **$0.2 million** in Q1 2019, with domestic operations contributing **$0.1 million** and non-U.S. operations **$0.2 million**[122](index=122&type=chunk) - No current tax benefit was provided on domestic pre-tax losses as the amounts are **not realizable**, with domestic tax expense primarily from the tax amortization of indefinite-lived intangible assets[122](index=122&type=chunk) [Liquidity and Capital Resources](index=45&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses Veeco's financial liquidity, capital resources, and ability to meet obligations **Cash, Cash Equivalents, Restricted Cash, and Short-term Investments (March 31, 2020 vs. December 31, 2019):** | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :------------------------ | :---------------------------- | :---------------------------- | | Cash and cash equivalents | **$162,325** | **$129,294** | | Restricted cash | **$652** | **$657** | | Short-term investments | **$79,429** | **$115,252** | | Total | **$242,406** | **$245,203** | - The Company believes its projected cash flow from operations, combined with its cash and short-term investments, will be **sufficient to meet its projected working capital requirements**, contractual obligations, and other cash flow needs for the next **twelve months**[126](index=126&type=chunk) - Despite uncertainty related to the COVID-19 outbreak, the Company believes its business model, current cash and short-term investments, and recent expense rationalization efforts **position it well to manage through the crisis**[127](index=127&type=chunk) [Cash Flows from Operating Activities](index=47&type=section&id=Cash%20Flows%20from%20Operating%20Activities) This section details net cash used in operating activities and changes in operating assets and liabilities - Net cash used in operating activities was **$2.4 million** for Q1 2020, primarily due to a net loss and a decrease in cash flow from changes in operating assets and liabilities, partially offset by non-cash adjustments[130](index=130&type=chunk) - Changes in operating assets and liabilities were largely attributable to an increase in accounts receivable and a decrease in deferred revenue, partially offset by an increase in accounts payable and a decrease in contract assets[130](index=130&type=chunk) [Cash Flows from Investing Activities](index=47&type=section&id=Cash%20Flows%20from%20Investing%20Activities) This section outlines net cash provided by investing activities, primarily from investments and capital expenditures - Net cash provided by investing activities was **$35.2 million** for Q1 2020, primarily from net changes in investments, partially offset by capital expenditures[131](index=131&type=chunk) [Cash Flows from Financing Activities](index=49&type=section&id=Cash%20Flows%20from%20Financing%20Activities) This section details net cash provided by financing activities, including employee stock plans - Net cash provided by financing activities was **$0.276 million** for Q1 2020, related to cash received under the Employee Stock Purchase Plan, partially offset by cash used to settle taxes related to employee equity programs[132](index=132&type=chunk) [Convertible Senior Notes](index=49&type=section&id=Convertible%20Senior%20Notes) This section describes the company's convertible senior unsecured notes and ability to meet interest payments - The Company has **$345.0 million** of **2.70%** convertible senior unsecured notes, maturing on January 15, 2023, and believes it has **sufficient capital resources and cash flows from operations to support scheduled interest payments**[133](index=133&type=chunk) [Contractual Obligations and Commitments](index=49&type=section&id=Contractual%20Obligations%20and%20Commitments) This section outlines the company's commitments under contractual arrangements for future payments - The Company has commitments under contractual arrangements for future payments for goods and services, which it expects to fund with cash generated from operations in the normal course of business[134](index=134&type=chunk) [Off-Balance Sheet Arrangements](index=49&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of material off-balance sheet arrangements beyond disclosed items - The Company **does not have any off-balance sheet arrangements** that have, or are reasonably likely to have, a current or future material effect on its financial condition, results of operations, liquidity, capital expenditures, or capital resources, other than disclosed bank guarantees and purchase commitments[135](index=135&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details Veeco's exposure to market risks, specifically interest rate risk on its investment portfolio and currency exchange risk from global operations, and the strategies employed to mitigate these risks [Interest Rate Risk](index=49&type=section&id=Interest%20Rate%20Risk) This section describes the interest rate risk associated with Veeco's fixed-income investment portfolio - Veeco's investment portfolio, with a fair value of approximately **$79.4 million** in fixed-income securities at March 31, 2020, is **exposed to interest rate risk**[136](index=136&type=chunk) - A **100 basis point** increase in interest rates would result in a **$0.3 million** decrease in the fair value of the investment portfolio[136](index=136&type=chunk) [Currency Exchange Risk](index=49&type=section&id=Currency%20Exchange%20Risk) This section details the currency exchange risk from global operations and mitigation strategies - Veeco conducts business worldwide, exposing a portion of its revenues, earnings, and net investments in foreign affiliates to changes in currency exchange rates[137](index=137&type=chunk) - The Company enters into monthly forward derivative contracts to **mitigate foreign currency exchange risk**, but **does not designate them as hedges**, recording fair value changes in "Other operating expense (income), net."[139](index=139&type=chunk) - Net sales to non-U.S. customers represented **62%** of total net sales for Q1 2020, but only **3%** of total net sales were denominated in currencies other than the U.S. dollar, making a **10%** change in foreign exchange rates **immaterial to consolidated results**[140](index=140&type=chunk)[141](index=141&type=chunk) [Item 4. Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of Veeco's disclosure controls and procedures as of March 31, 2020, and notes that remote working arrangements due to COVID-19 did not materially affect internal control over financial reporting [Management's Report on Internal Control Over Financial Reporting](index=51&type=section&id=Management%27s%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) This section confirms the effectiveness of Veeco's disclosure controls and procedures as of March 31, 2020 - Management evaluated and concluded that Veeco's disclosure controls and procedures were **effective** as of March 31, 2020, ensuring timely and accurate reporting of required information[142](index=142&type=chunk) [Changes in Internal Control Over Financial Reporting](index=51&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section states that remote work due to COVID-19 did not materially affect internal control over financial reporting - Remote working arrangements implemented in March 2020 due to the COVID-19 pandemic **did not have a material effect on the Company's internal control over financial reporting**[143](index=143&type=chunk) - There were **no changes in internal control over financial reporting** during the quarter ended March 31, 2020, that have materially affected or are reasonably likely to materially affect it[143](index=143&type=chunk) [PART II—OTHER INFORMATION](index=51&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) This section details ongoing legal proceedings against Veeco, including class action lawsuits - Two purported class action complaints, consolidated as Wolther v. Maheshwari et al., were filed alleging false/misleading statements in the registration statement for the Ultratech acquisition, primarily concerning delays in advanced packaging, increased MOCVD competition in China, and an intellectual property dispute[145](index=145&type=chunk) - A derivative action, Vladimir Gusinsky Revocable Trust v. Peeler, et al., was filed on behalf of Veeco, asserting claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment against current and former directors related to the Ultratech acquisition[146](index=146&type=chunk)[148](index=148&type=chunk) - The Company is **vigorously defending** these matters and does not believe that their ultimate resolution will have a **material adverse effect** on its consolidated financial position, results of operations, or cash flows[149](index=149&type=chunk) [Item 1A. Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, adding a new risk related to the COVID-19 pandemic's uncertain impact - A new risk factor highlights the **significant and uncertain negative impact** of the COVID-19 pandemic on global business activities, economic conditions, and Veeco's operations, customers, suppliers, and partners[151](index=151&type=chunk) - Despite being deemed critical infrastructure, COVID-19 could adversely affect customer purchasing, product delivery, service provision, payment terms, and creditworthiness, impacting future sales and financial performance[152](index=152&type=chunk) - Remote working arrangements due to COVID-19 may increase the risk of information or cyber-security incidents, fraud, or a failure to maintain the uninterrupted operation of information systems[155](index=155&type=chunk) - The full extent of the pandemic's impact is **unpredictable**, depending on factors like duration, severity, containment measures, economic effects, and the speed of recovery to normal operating conditions[156](index=156&type=chunk)[157](index=157&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=55&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report - **No unregistered sales** of equity securities or use of proceeds occurred during the period[158](index=158&type=chunk) [Item 3. Defaults Upon Senior Securities](index=55&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities during the reporting period - **No defaults** upon senior securities occurred during the period[159](index=159&type=chunk) [Item 4. Mine Safety Disclosures](index=55&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 Veeco Instruments Inc[160](index=160&type=chunk) [Item 5. Other Information](index=55&type=section&id=Item%205.%20Other%20Information) This section reports that there is no other information to disclose for the period - **No other information** is required to be disclosed for the period[161](index=161&type=chunk) [Item 6. Exhibits](index=56&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the SEC, including an agreement, certifications from the CEO and CFO, and XBRL-related documents - Exhibits filed include an Agreement and General Release, CEO and CFO certifications (pursuant to Rule 13a-14(a) or Rule 15d-14(a) and 18 U.S.C. Section 1350), and various XBRL documents[164](index=164&type=chunk) [SIGNATURES](index=56&type=section&id=SIGNATURES) This section contains the required signatures for the report, affirming its compliance with regulations - The report was signed on May 7, 2020, by William J. Miller, Ph.D., Chief Executive Officer, and John P. Kiernan, Senior Vice President and Chief Financial Officer, pursuant to the requirements of the Securities Exchange Act of 1934[166](index=166&type=chunk)[167](index=167&type=chunk)