VEECO INSTRUMENTS INC, 10-Q filed on 11/4/2019
Quarterly Report
v3.19.3
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2019
Oct. 23, 2019
Document and Entity Information    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2019  
Document Transition Report false  
Entity File Number 0-16244  
Entity Registrant Name VEECO INSTRUMENTS INC.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 11-2989601  
Entity Address, Address Line One Terminal Drive  
Entity Address, City or Town Plainview  
Entity Address, State or Province NY  
Entity Address, Postal Zip Code 11803  
City Area Code 516  
Local Phone Number 677-0200  
Title of 12(b) Security Common Stock, par value $0.01 per share  
Trading Symbol VECO  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   48,903,027
Entity Central Index Key 0000103145  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Amendment Flag false  
v3.19.3
Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 135,259 $ 212,273
Restricted cash 687 809
Short-term investments 95,672 48,189
Accounts receivable, net 72,731 66,808
Contract assets 20,782 10,397
Inventories 135,190 156,311
Deferred cost of sales 2,198 3,072
Prepaid expenses and other current assets 23,762 22,221
Total current assets 486,281 520,080
Property, plant, and equipment, net 77,801 80,284
Operating lease right-of-use assets 10,472  
Intangible assets, net 72,376 85,149
Goodwill 184,302 184,302
Deferred income taxes 1,872 1,869
Other assets 29,172 29,132
Total assets 862,276 900,816
Current liabilities:    
Accounts payable 34,702 39,611
Accrued expenses and other current liabilities 40,641 46,450
Customer deposits and deferred revenue 66,031 72,736
Income taxes payable 663 1,256
Total current liabilities 142,037 160,053
Deferred income taxes 5,713 5,690
Long-term debt 296,810 287,392
Operating lease long-term liabilities 6,066  
Other liabilities 9,180 9,906
Total liabilities 459,806 463,041
Stockholders' equity:    
Preferred stock, $0.01 par value; 500,000 shares authorized; no shares issued and outstanding.
Common stock, $0.01 par value; 120,000,000 shares authorized; 48,903,027 and 48,547,417 shares issued at September 30, 2019 and December 31, 2018, respectively; 48,903,027 and 48,024,685 shares outstanding at September 30, 2019 and December 31, 2018, respectively. 489 485
Additional paid-in capital 1,066,203 1,061,325
Accumulated deficit (666,058) (619,983)
Accumulated other comprehensive income 1,836 1,820
Treasury stock, at cost, 522,732 shares at December 31, 2018.   (5,872)
Total stockholders' equity 402,470 437,775
Total liabilities and stockholders' equity $ 862,276 $ 900,816
v3.19.3
Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2019
Dec. 31, 2018
Consolidated Balance Sheets    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized 500,000 500,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, authorized shares 120,000,000 120,000,000
Common stock, shares issued 48,903,027 48,547,417
Common stock, shares outstanding 48,903,027 48,024,685
Treasury stock, shares   522,732
v3.19.3
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Consolidated Statements of Operations        
Net sales $ 108,954 $ 126,757 $ 306,147 $ 443,110
Cost of sales 66,731 80,372 192,924 284,651
Gross profit 42,223 46,385 113,223 158,459
Operating expenses, net:        
Research and development 22,639 23,544 68,901 72,793
Selling, general, and administrative 20,962 20,186 60,620 70,842
Amortization of intangible assets 4,312 4,183 12,773 28,102
Restructuring 1,828 2,057 3,874 7,669
Acquisition costs   249   2,906
Asset impairment       252,343
Other, net (153) 39 (232) 325
Total operating expenses, net 49,588 50,258 145,936 434,980
Operating income (loss) (7,365) (3,873) (32,713) (276,521)
Interest income 1,219 823 3,749 2,266
Interest expense (5,549) (5,602) (16,491) (16,113)
Income (loss) before income taxes (11,695) (8,652) (45,455) (290,368)
Income tax expense (benefit) 72 301 407 (27,954)
Net income (loss) $ (11,767) $ (8,953) $ (45,862) $ (262,414)
Income (loss) per common share:        
Basic (in dollars per share) $ (0.25) $ (0.19) $ (0.97) $ (5.55)
Diluted (in dollars per share) $ (0.25) $ (0.19) $ (0.97) $ (5.55)
Weighted average number of shares:        
Basic (in shares) 47,489 46,982 47,361 47,283
Diluted (in shares) 47,489 46,982 47,361 47,283
v3.19.3
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Consolidated Statements of Comprehensive Income (Loss)        
Net income (loss) $ (11,767) $ (8,953) $ (45,862) $ (262,414)
Other comprehensive income (loss), net of tax:        
Unrealized gain (loss) on available-for-sale securities (38) 4 8 4
Foreign currency translation (4) (4) 8 (4)
Total other comprehensive income (loss), net of tax (42)   16  
Total comprehensive income (loss) $ (11,809) $ (8,953) $ (45,846) $ (262,414)
v3.19.3
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Cash Flows from Operating Activities    
Net income (loss) $ (45,862) $ (262,414)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Depreciation and amortization 25,838 41,110
Non-cash interest expense 9,418 8,739
Deferred income taxes 20 (28,872)
Share-based compensation expense 11,528 12,720
Asset impairment   252,343
Changes in operating assets and liabilities:    
Accounts receivable and contract assets (16,308) 769
Inventories and deferred cost of sales 17,921 (17,748)
Prepaid expenses and other current assets (1,276) 10,037
Accounts payable and accrued expenses (16,000) (4,006)
Customer deposits and deferred revenue (6,705) (47,589)
Income taxes receivable and payable, net (593) (3,552)
Other, net (986) (915)
Net cash provided by (used in) operating activities (23,005) (39,378)
Cash Flows from Investing Activities    
Acquisitions of businesses, net of cash acquired   (2,662)
Capital expenditures (8,189) (5,788)
Proceeds from the sale of investments 102,230 65,365
Payments for purchases of investments (148,664) (72,303)
Proceeds from held for sale assets 645  
Net cash provided by (used in) investing activities (53,978) (15,388)
Cash Flows from Financing Activities    
Cash withholdings for employee stock purchase plan 2,609 3,007
Taxes paid for restricted stock vestings (2,771) (3,029)
Purchases of common stock   (11,457)
Net cash provided by (used in) financing activities (162) (11,479)
Effect of exchange rate changes on cash and cash equivalents 9 (4)
Net increase (decrease) in cash, cash equivalents, and restricted cash (77,136) (66,249)
Cash, cash equivalents, and restricted cash - beginning of period 213,082 280,583
Cash, cash equivalents, and restricted cash - end of period 135,946 214,334
Supplemental Disclosure of Cash Flow Information    
Interest paid 9,401 9,655
Income taxes paid 2,835 4,269
Non-cash operating and financing activities    
Net transfer of inventory to property, plant and equipment 4,074 $ 1,170
Right-of-use assets obtained in exchange for lease obligations $ 516  
v3.19.3
Basis of Presentation
9 Months Ended
Sep. 30, 2019
Basis of Presentation  
Basis of Presentation

Note 1 — Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of Veeco have been prepared in accordance with U.S. GAAP as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 270 for interim financial information and with the instructions to Rule 10-01 of Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements as the interim information is an update of the information that was presented in Veeco’s most recent annual financial statements. For further information, refer to Veeco’s Consolidated Financial Statements and Notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”). In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal, recurring nature.

Veeco reports interim quarters on a 13-week basis ending on the last Sunday of each quarter. The fourth quarter always ends on the last day of the calendar year, December 31. The 2019 interim quarters end on March 31, June 30, and September 29, and the 2018 interim quarters ended on April 1, July 1, and September 30. These interim quarters are reported as March 31, June 30, and September 30 in Veeco’s interim consolidated financial statements.

Revenue Recognition

Revenue is recognized upon the transfer of control of the promised product or service to the customer in an amount that reflects the consideration the Company expects to receive in exchange for such product or service. The Company’s contracts with customers generally do not contain variable consideration. In the rare instances where variable consideration is included, the Company estimates the amount of variable consideration and determines what portion of that, if any, has a high probability of significant subsequent revenue reversal, and if so, that amount is excluded from the transaction price. The Company’s contracts with customers frequently contain multiple deliverables, such as systems, upgrades, components, spare parts, installation, maintenance, and service plans. Judgment is required to properly identify the performance obligations within a contract and to determine how the revenue should be allocated among the performance obligations. The Company also evaluates whether multiple transactions with the same customer or related parties should be considered part of a single contract based on an assessment of whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of one another.

   

When there are separate units of accounting, the Company allocates revenue to each performance obligation on a relative stand-alone selling price basis. The stand-alone selling prices are determined based on the prices at which the Company separately sells the systems, upgrades, components, spare parts, installation, maintenance, and service plans. For items that are not sold separately, the Company estimates stand-alone selling prices generally using an expected cost plus margin approach.

   

Most of the Company’s revenue is recognized at a point in time when the performance obligation is satisfied. The Company considers many facts when evaluating each of its sales arrangements to determine the timing of revenue recognition, including its contractual obligations and the nature of the customer’s post-delivery acceptance provisions. The Company’s system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For many of these arrangements, a customer source inspection of the system is performed in the Company’s facility, test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery, or other quality assurance testing is performed internally to ensure system functionality prior to shipment. Historically, such source inspection or test data replicates the field acceptance provisions that are performed at the customer’s site prior to final acceptance of the system. When the Company objectively demonstrates that the criteria specified in the contractual acceptance provisions are achieved prior to delivery either through customer testing or the Company’s historical experience of its tools meeting specifications, transfer of control of the product to the customer is considered to have occurred and revenue is recognized upon system

delivery since there is no substantive contingency remaining related to the acceptance provisions at that date. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where the Company cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferred. The Company recognizes such revenue and costs upon obtaining objective evidence that the acceptance provisions can be achieved, assuming all other revenue recognition criteria have been met.

   

In certain cases the Company’s contracts with customers contain a billing retention, typically 10% of the sales price, which is billed by the Company and payable by the customer when field acceptance provisions are completed. Revenue recognized in advance of the amount that has been billed is recorded as a contract asset on the Consolidated Balance Sheets.

   

The Company recognizes revenue related to maintenance and service contracts over time based upon the respective contract term. Installation revenue is recognized over time as the installation services are performed. The Company recognizes revenue from the sales of components, spare parts, and specified service engagements at a point in time, which is typically consistent with the time of delivery in accordance with the terms of the applicable sales arrangement.

   

The Company may receive customer deposits on system transactions. The timing of the transfer of goods or services related to the deposits is either at the discretion of the customer or expected to be within one year from the deposit receipt. As such, the Company does not adjust transaction prices for the time value of money. Incremental direct costs incurred related to the acquisition of a customer contract, such as sales commissions, are expensed as incurred since the expected amortization period is one year or less.

The Company has elected to treat shipping and handling costs as a fulfillment activity, and the Company includes such costs in cost of services when the Company recognizes revenue for the related goods. Taxes assessed by governmental authorities that are collected by the Company from a customer are excluded from revenue.

Leases

At contract inception, the Company determines if an arrangement is a lease, or contains a lease, of an identified asset for which the Company has the right to obtain substantially all of the economic benefits from its use and the right to direct its use. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, while lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. The implicit discount rate in the Company’s leases generally cannot readily be determined, and therefore the Company uses its incremental borrowing rate based on information available at lease commencement date in determining the present value of future payments. The Company has options to renew or terminate certain leases. These options are included in the determination of lease term when it is reasonably certain that the Company will exercise such options. The Company does not separate lease and non-lease components in determining ROU assets or lease liabilities for real estate leases. Additionally, the Company does not recognize ROU assets or lease liabilities for leases with original terms or renewals of one year or less.

Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU 2016-02: Leases, which, along with subsequent ASUs related to this topic, has been codified as Accounting Standards Codification 842 (“ASC 842”). ASC 842 generally requires operating lessee rights and obligations to be recognized as assets and liabilities on the balance sheet. The new standard, which the Company adopted effective January 1, 2019, offers a transition option whereby companies can recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The Company has adopted using this transition method, and therefore prior period balances have not been

adjusted. In addition, ASC 842 provides for a number of optional exemptions in transition. The Company has elected certain exemptions whereby prior conclusions regarding lease identification, lease classification, and initial direct costs were not reassessed under the new standard. The adoption of the standard impacted the Company’s Consolidated Balance Sheets through the recognition of ROU assets and lease liabilities of approximately $14.2 million each as of January 1, 2019, but did not have an impact on the Consolidated Statements of Operations, Statements of Comprehensive Income, or Statements of Cash Flows.

v3.19.3
Income (Loss) Per Common Share
9 Months Ended
Sep. 30, 2019
Income (Loss) Per Common Share  
Income (Loss) Per Common Share

Note 2 — Income (Loss) Per Common Share

Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted income per share is calculated by dividing net income by the weighted average number of shares used to calculate basic income (loss) per share plus the weighted average number of common share equivalents outstanding during the period. The dilutive effect of outstanding options to purchase common stock and share-based awards is considered in diluted income per share by application of the treasury stock method. The dilutive effect of performance share units is included in diluted income per common share in the periods the performance targets have been achieved. The computations of basic and diluted income (loss) per share for the three and nine months ended September 30, 2019 and 2018 are as follows:

Three months ended September 30,

Nine months ended September 30,

    

2019

    

2018

    

2019

    

2018

    

(in thousands, except per share amounts)

Net income (loss)

$

(11,767)

$

(8,953)

$

(45,862)

$

(262,414)

Net income (loss) per common share:

Basic

$

(0.25)

$

(0.19)

$

(0.97)

$

(5.55)

Diluted

$

(0.25)

$

(0.19)

$

(0.97)

$

(5.55)

Basic weighted average shares outstanding

 

47,489

 

46,982

 

47,361

 

47,283

Effect of potentially dilutive share-based awards

 

 

 

 

Diluted weighted average shares outstanding

 

47,489

 

46,982

 

47,361

 

47,283

Common share equivalents excluded from the diluted weighted average shares outstanding since Veeco incurred a net loss and their effect would be antidilutive

403

16

302

17

Potentially dilutive shares excluded from the diluted calculation as their effect would be antidilutive

1,874

2,617

1,893

2,469

Maximum potential shares to be issued for settlement of the Convertible Senior Notes excluded from the diluted calculation as their effect would be antidilutive

8,618

8,618

8,618

8,618

v3.19.3
Assets
9 Months Ended
Sep. 30, 2019
Assets  
Assets

Note 3 — Assets

Investments

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 under the caption “Accumulated other comprehensive income” in the Consolidated Balance Sheets. These securities may include U.S. treasuries, government agency securities, corporate debt, and commercial paper, all with maturities of greater than three months when purchased. All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are included in “Other, net” in the Consolidated Statements of Operations.

Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants. Veeco classifies certain assets based on the following fair value hierarchy:

Level 1: Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and

Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Veeco has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions or estimation methodologies could have a significant effect on the estimated fair value amounts.

The following table presents the portion of Veeco’s assets that were measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018:

    

Level 1

    

Level 2

    

Level 3

    

Total

(in thousands)

September 30, 2019

Cash equivalents

Certificate of deposits and time deposits

$

59,227

$

$

$

59,227

U.S. treasuries

24,958

24,958

Commercial paper

10,675

10,675

Corporate debt

3,001

3,001

Total

$

84,185

$

13,676

$

$

97,861

Short-term investments

U.S. treasuries

$

81,727

$

$

$

81,727

Corporate debt

5,006

5,006

Commercial paper

8,939

8,939

Total

$

81,727

$

13,945

$

$

95,672

December 31, 2018

Cash equivalents

Certificate of deposits and time deposits

$

65,571

$

$

$

65,571

U.S. treasuries

3,990

3,990

Total

$

69,561

$

$

$

69,561

Short-term investments

U.S. treasuries

$

37,184

$

$

$

37,184

Corporate debt

8,516

8,516

Commercial paper

2,489

2,489

Total

$

37,184

$

11,005

$

$

48,189

There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2019.

At September 30, 2019 and December 31, 2018, the amortized cost and fair value of available-for-sale securities consist of:

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Estimated

Cost

Gains

Losses

Fair Value

(in thousands)

September 30, 2019

U.S. treasuries

$

81,733

$

10

$

(16)

$

81,727

Corporate debt

5,007

(1)

5,006

Commercial paper

8,940

(1)

8,939

Total

$

95,680

$

10

$

(18)

$

95,672

December 31, 2018

U.S. treasuries

$

37,191

$

$

(7)

$

37,184

Corporate debt

 

8,525

 

 

(9)

 

8,516

Commercial paper

2,489

2,489

Total

$

48,205

$

$

(16)

$

48,189

Available-for-sale securities in a loss position at September 30, 2019 and December 31, 2018 consist of:

September 30, 2019

December 31, 2018

    

    

Gross

    

    

Gross

Estimated

Unrealized

Estimated

Unrealized

Fair Value

Losses

Fair Value

Losses

(in thousands)

U.S. treasuries

$

81,727

$

(16)

$

37,184

$

(7)

Corporate debt

 

5,006

 

(1)

 

8,516

 

(9)

Commercial Paper

8,939

(1)

Total

$

95,672

$

(18)

$

45,700

$

(16)

At September 30, 2019 and December 31, 2018, there were no short-term investments that had been in a continuous loss position for more than 12 months.

The maturities of securities classified as available-for-sale at September 30, 2019 were all due in one year or less. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. There were no realized gains or losses for the three and nine months ended September 30, 2019 and 2018.

Accounts Receivable

Accounts receivable is presented net of an allowance for doubtful accounts of $0.2 million and $0.3 million at September 30, 2019 and December 31, 2018, respectively.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Inventories at September 30, 2019 and December 31, 2018 consist of the following:

September 30,

December 31,

    

2019

    

2018

(in thousands)

Materials

$

78,430

$

90,816

Work-in-process

 

40,873

 

42,354

Finished goods

 

15,887

 

23,141

Total

$

135,190

$

156,311

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets primarily consist of supplier deposits, prepaid value-added tax, lease deposits, prepaid insurance, and prepaid licenses. Veeco had deposits with its suppliers of $13.0 million and $12.8 million at September 30, 2019 and December 31, 2018, respectively.

Property, Plant, and Equipment

Property, plant, and equipment at September 30, 2019 and December 31, 2018 consist of the following:

September 30,

December 31,

    

2019

    

2018

(in thousands)

Land

$

5,061

$

5,669

Building and improvements

 

61,633

 

61,124

Machinery and equipment (1)

 

138,169

 

128,385

Leasehold improvements

 

6,755

 

9,033

Gross property, plant, and equipment

 

211,618

 

204,211

Less: accumulated depreciation and amortization

 

133,817

 

123,927

Net property, plant, and equipment

$

77,801

$

80,284

(1)Machinery and equipment also includes software, furniture and fixtures

For the three and nine months ended September 30, 2019, depreciation expense was $4.2 million and $13.1 million, respectively, and $4.6 million and $13.0 million for the comparable 2018 periods.

Goodwill

Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. There were no changes to goodwill during the nine months ended September 30, 2019.

Intangible Assets

Intangible assets consist of purchased technology, customer relationships, patents, trademarks and tradenames, and backlog, and are initially recorded at fair value. Long-lived intangible assets are amortized over their estimated useful lives in a method reflecting the pattern in which the economic benefits are consumed or amortized on a straight-line basis if such pattern cannot be reliably determined.

The components of purchased intangible assets were as follows:

September 30, 2019

December 31, 2018

Accumulated

Accumulated

    

Gross

    

Amortization

    

    

Gross

    

Amortization

    

Carrying

and

Net

Carrying

and

Net

Amount

Impairment

Amount

Amount

Impairment

Amount

(in thousands)

Technology

$

350,928

$

309,651

$

41,277

$

337,218

$

290,808

$

46,410

Customer relationships

164,595

139,518

25,077

164,595

136,126

28,469

In-process R&D

13,710

10,530

3,180

Trademarks and tradenames

30,910

24,917

5,993

30,910

23,899

7,011

Other

 

3,686

 

3,657

 

29

 

3,686

 

3,607

 

79

Total

$

550,119

$

477,743

$

72,376

$

550,119

$

464,970

$

85,149

Other intangible assets primarily consist of patents, licenses, and backlog.

Other Assets

The Company has a non-marketable investment in Kateeva, Inc. (“Kateeva”), with a carrying value of $21.0 million at September 30, 2019 and December 31, 2018. Additionally, the Company has a non-marketable investment in a separate entity, with a carrying value of $3.5 million at September 30, 2019 and December 31, 2018. The Company does not exert significant influence over these investments, and its ownership interest is less than 20%. Neither equity investment has a readily observable market price, and therefore the Company has elected to measure these investments at cost, adjusted for changes in observable market prices minus impairment. The investments are included in “Other assets” on the Consolidated Balance Sheets. There were no changes in observable market prices for either investment for the nine months ended September 30, 2019. These investments are subject to periodic impairment reviews; as there are no open-market valuations, the impairment analyses require judgment. The analyses include assessments of the companies’ financial condition, the business outlooks for their products and technologies, their projected results and cash flow, business valuation indications from recent rounds of financing, the likelihood of obtaining subsequent rounds of financing, and the impact of equity preferences held by Veeco relative to other investors.

v3.19.3
Liabilities
9 Months Ended
Sep. 30, 2019
Liabilities  
Liabilities

Note 4 — Liabilities

Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities at September 30, 2019 and December 31, 2018 consist of:

September 30,

December 31,

    

2019

    

2018

(in thousands)

Payroll and related benefits

$

14,471

$

20,486

Warranty

7,552

7,852

Operating lease liabilities

4,730

Interest

1,992

4,321

Professional fees

2,794

2,897

Sales, use, and other taxes

 

1,497

 

2,670

Restructuring liability

 

1,617

 

2,213

Other

 

5,988

 

6,011

Total

$

40,641

$

46,450

Warranty

Warranties are typically valid for one year from the date of system final acceptance, and Veeco estimates the costs that may be incurred under the warranty. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs and are affected by product failure rates, material usage, and labor costs incurred in correcting product failures during the warranty period. Unforeseen component failures or exceptional component performance can also result in changes to warranty costs. Changes in product warranty reserves for the nine months ended September 30, 2019 include:

    

(in thousands)

Balance - December 31, 2018

$

7,852

Warranties issued

 

4,551

Consumption of reserves

 

(4,517)

Changes in estimate

 

(334)

Balance - September 30, 2019

$

7,552

Restructuring Accruals

During the second quarter of 2018, the Company initiated plans to further reduce excess capacity associated with the manufacture and support of the Company's advanced packaging lithography and 3D wafer inspection systems by consolidating these operations into its San Jose, California facility. As a result of this and other cost saving initiatives, the Company announced headcount reductions of approximately 40 employees. During the nine months ended September 30, 2019, additional accruals were recognized and payments were made related to these restructuring initiatives.

The Company continued to record restructuring charges during the three and nine months ended September 30, 2019 as a result of the Company’s efforts to streamline operations, enhance efficiencies, and reduce costs. Changes in the restructuring accrual were as follows:

    

Personnel

    

Facility

    

Severance and

Related Costs

Related Costs

and Other

Total

(in thousands)

Balance - December 31, 2018

$

2,143

$

70

$

2,213

Provision

3,681

193

3,874

Payments

(4,207)

(263)

(4,470)

Balance - September 30, 2019

$

1,617

$

$

1,617

Customer Deposits and Deferred Revenue

Customer deposits totaled $31.6 million and $28.3 million at September 30, 2019 and December 31, 2018, respectively. Deferred revenue represents amounts billed, other than deposits, in excess of the revenue that can be recognized on a particular contract at the balance sheet date. Changes in deferred revenue were as follows:

(in thousands)

Balance - December 31, 2018

 

$

44,415

Deferral of revenue

 

4,717

Recognition of previously deferred revenue

 

(14,744)

Balance - September 30, 2019

 

$

34,388

As of September 30, 2019, the Company has approximately $49.5 million of remaining performance obligations on contracts with an original estimated duration of one year or more, of which approximately 86% is expected to be recognized within one year, with the remaining amounts expected to be recognized between one to three years. The Company has elected to exclude disclosures regarding remaining performance obligations that have an original expected duration of one year or less.

Convertible Senior Notes

On January 10, 2017, the Company issued $345.0 million of 2.70% convertible senior unsecured notes (the “Convertible Senior Notes”). The Company received net proceeds, after deducting underwriting discounts and fees and expenses payable by the Company, of approximately $335.8 million. The Convertible Senior Notes bear interest at a rate of 2.70% per year, payable semiannually in arrears on January 15 and July 15 of each year, commencing on July 15, 2017. The Convertible Senior Notes mature on January 15, 2023 (the “Maturity Date”), unless earlier purchased by the Company, redeemed, or converted.

The carrying value of the Convertible Senior Notes is as follows:

September 30,

December 31,

    

2019

    

2018

 

(in thousands)

Principal amount

$

345,000

$

345,000

Unamortized debt discount

 

(43,780)

 

(52,336)

Unamortized transaction costs

 

(4,410)

 

(5,272)

Net carrying value

$

296,810

$

287,392

Total interest expense related to the Convertible Senior Notes is as follows:

Three months ended September 30,

Nine months ended September 30,

    

2019

    

2018

    

2019

    

2018

 

(in thousands)

Cash Interest Expense

 

  

  

  

  

Coupon interest expense

$

2,329

$

2,329

$

6,986

$

6,986

Non-Cash Interest Expense

 

  

 

  

 

  

 

  

Amortization of debt discount

 

2,906

 

2,697

 

8,556

 

7,940

Amortization of transaction costs

 

293

 

271

 

862

 

799

Total Interest Expense

$

5,528

$

5,297

$

16,404

$

15,725

The Company determined the Convertible Senior Notes is a Level 2 liability in the fair value hierarchy and estimated its fair value as $309.2 million at September 30, 2019.

Other Liabilities

As part of the acquisition of Ultratech, the Company assumed an executive non-qualified deferred compensation plan that allowed qualifying executives to defer cash compensation. The plan was frozen at the time of acquisition and no further contributions have been made. At September 30, 2019 and December 31, 2018, plan assets approximated $3.5 million and $3.2 million, respectively, representing the cash surrender value of life insurance policies and is included within “Other assets” in the Consolidated Balance Sheets, while plan liabilities approximated $3.0 million and $3.5 million, respectively, and is included within “Other liabilities” in the Consolidated Balance Sheets. Other liabilities also included medical and dental benefits of $2.0 million and $2.2 million at September 30, 2019 and December 31, 2018, respectively, and asset retirement obligations of $3.2 million and income tax payables of $1.0 million at both September 30, 2019 and December 31, 2018.

v3.19.3
Commitments and Contingencies
9 Months Ended
Sep. 30, 2019
Commitments and Contingencies  
Commitments and Contingencies

Note 5 — Commitments and Contingencies

Leases

The Company’s operating leases primarily include real estate leases for properties used for manufacturing, R&D activities, sales and service, and administration, as well as certain equipment leases. Some leases may include options to renew for a period of up to 5 years, while others may include options to terminate the lease. The weighted average remaining lease term of the Company’s operating leases as of September 30, 2019 was 3 years, and the weighted average discount rate used in determining the present value of future lease payments was 6.0%.

Minimum lease commitments at September 30, 2019 for property and equipment under operating lease agreements are payable as follows:

Operating

    

Leases

(in thousands)

Payments due by period:

2019

$

1,302

2020

5,222

2021

2,548

2022

1,379

2023

865

Thereafter

551

Total future minimum lease payments

11,867

Less: Imputed interest

(1,071)

Total

10,796

Reported as of September 30, 2019

Other current liabilities

4,730

Operating lease liabilities

6,066

Total

$

10,796

Minimum lease commitments at December 31, 2018 for property and equipment under operating lease agreements were payable as follows:

Operating

    

Leases

(in thousands)

Payments due by period:

2019

$

5,143

2020

 

5,056

2021

 

2,432

2022

 

1,812

2023

 

1,066

Thereafter

548

Total

$

16,057

Operating lease cost for the three and nine months ended September 30, 2019 were $1.3 million and $4.1 million, respectively. Variable lease cost for the three and nine months ended September 30, 2019 were $0.4 million and $1.4 million, respectively. Additionally, the Company has an immaterial amount of short term leases. Lease expense for the three and nine months ended September 30, 2018 was $1.7 million and $5.5 million, respectively. Operating cash outflows from operating leases for the nine months ended September 30, 2019 was $5.0 million.

Purchase Commitments

Veeco has purchase commitments of $76.3 million at September 30, 2019, substantially all of which become due within one year.

Bank Guarantees

Veeco has bank guarantees and letters of credit issued by a financial institution on its behalf as needed. At September 30, 2019, outstanding bank guarantees and letters of credit totaled $7.8 million, and unused bank guarantees and letters of credit of $66.4 million were available to be drawn upon.

Legal Proceedings

On June 8, 2018, an Ultratech shareholder who received Veeco stock as part of the consideration for the Ultratech acquisition filed a purported class action complaint in the Superior Court of the State of California, County of Santa Clara, captioned Wolther v. Maheshwari et al., Case No. 18CV329690, on behalf of himself and others who purchased or acquired shares of Veeco pursuant to the registration statement and prospectus which Veeco filed with the SEC in connection with the Ultratech acquisition (the “Wolther Action”). On August 2 and August 8, 2018, two purported class action complaints substantially similar to the Wolther Action were filed on behalf of different plaintiffs in the same court as the Wolther Action. These cases have been consolidated with the Wolther Action, and a consolidated complaint was filed on December 11, 2018. The consolidated complaint seeks to recover damages and fees under Sections 11, 12, and 15 of the Securities Act of 1933 for, among other things, alleged false/misleading statements in the registration statement and prospectus relating to the Ultratech acquisition, relating primarily to the alleged failure to disclose delays in the advanced packaging business, increased MOCVD competition in China, and an intellectual property dispute. Veeco is defending this matter vigorously.

On December 21, 2018, a purported Veeco stockholder filed a derivative action in the Superior Court of the State of California, County of Santa Clara, captioned Vladimir Gusinsky Revocable Trust v. Peeler, et al., Case No. 18CV339925, on behalf of nominal defendant Veeco. The complaint seeks to assert claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment against current and former Veeco directors premised on purported misstatements and omissions in the registration statement relating to the Ultratech acquisition. Veeco is defending this matter vigorously.

 

The Company is involved in various other legal proceedings arising in the normal course of business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

v3.19.3
Derivative Financial Instruments
9 Months Ended
Sep. 30, 2019
Derivative Financial Instruments  
Derivative Financial Instruments

Note 6 — Derivative Financial Instruments

The Company is exposed to financial market risks arising from changes in currency exchange rates. Changes in currency exchange rates could affect the Company’s foreign currency denominated monetary assets and liabilities and forecasted cash flows. The Company enters into monthly forward derivative contracts with the intent of mitigating a portion of this risk. The Company only uses derivative financial instruments in the context of hedging and not for speculative purposes and had not designated its foreign exchange derivatives as hedges. Accordingly, changes in fair value from these contracts are recorded as “Other, net” in the Company’s Consolidated Statements of Operations. The Company executes derivative transactions with highly rated financial institutions to mitigate counterparty risk.

The Company did not have any outstanding derivative contracts at September 30, 2019 or December 31, 2018. Additionally, the Company did not have any gains or losses from currency exchange derivatives during the nine months ended September 30, 2019. The following table shows the gains and (losses) from currency exchange derivatives during the three and nine months ended September 30, 2018, which are included in “Other, net” in the Consolidated Statements of Operations, as well as the weighted average notional amount of derivatives outstanding for the period:

Three months ended September 30, 2018

Nine months ended September 30, 2018

    

Gains
(Losses)

    

Weighted average
notional amount

    

Gains
(Losses)

    

Weighted average
notional amount

(in thousands)

Foreign currency exchange forwards

$

132

$

4,448

$

348

$

2,869

v3.19.3
Equity
9 Months Ended
Sep. 30, 2019
Equity  
Equity

Note 7 — Equity

Statement of Stockholders’ Equity

The following tables present the changes in Stockholders’ Equity:

    

    

    

    

    

    

Accumulated

    

Additional

Other

Common Stock

Treasury Stock

Paid-in

Accumulated

Comprehensive

Shares

Amount

Shares

    

Amount

Capital

Deficit

Income

Total

(in thousands)

Balance at December 31, 2018

 

48,547

$

485

523

$

(5,872)

$

1,061,325

$

(619,983)

$

1,820

$

437,775

Net loss

 

 

 

 

 

 

(18,530)

 

 

(18,530)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

38

 

38

Share-based compensation expense

 

 

 

 

 

3,157

 

 

 

3,157

Net issuance under employee stock plans

 

128

2

(523)

5,872

(6,303)

(213)

(642)

Balance at March 31, 2019

 

48,675

$

487

$

$

1,058,179

$

(638,726)

$

1,858

$

421,798

Net loss

 

 

 

 

 

 

(15,565)

 

 

(15,565)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

20

 

20

Share-based compensation expense

 

 

 

 

 

4,588

 

 

 

4,588

Net issuance under employee stock plans

 

296

3

182

185

Balance at June 30, 2019

 

48,971

$

490

$

$

1,062,949

$

(654,291)

$

1,878

$

411,026

Net loss

 

 

 

 

 

 

(11,767)

 

 

(11,767)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

(42)

 

(42)

Share-based compensation expense

 

 

 

 

 

3,783

 

 

 

3,783

Net issuance under employee stock plans

 

(68)

(1)

(529)

(530)

Balance at September 30, 2019

 

48,903

$

489

$

$

1,066,203

$

(666,058)

$

1,836

$

402,470

    

    

    

    

    

    

Accumulated

    

Additional

Other

Common Stock

Treasury Stock

Paid-in

Accumulated

Comprehensive

Shares

Amount

Shares

    

Amount

Capital

Deficit

Income

Total

(in thousands)

Balance at December 31, 2017

 

48,229

$

482

85

$

(1,284)

$

1,051,953

$

(212,870)

$

1,812

$

840,093

Net loss

 

 

 

 

 

 

(15,827)

 

 

(15,827)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

24

 

24

Share-based compensation expense

 

 

 

 

 

4,537

 

 

 

4,537

Net issuance under employee stock plans

462

5

(115)

1,728

(2,159)

(426)

Purchases of common stock

 

 

30

 

(444)

 

 

 

 

(444)

Balance at March 31, 2018

 

48,691

$

487

$

$

1,054,331

$

(228,697)

$

1,836

$

827,957

Net loss

 

 

 

 

 

 

(237,634)

 

 

(237,634)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

(24)

 

(24)

Share-based compensation expense

 

 

 

 

 

4,904

 

 

 

4,904

Net issuance under employee stock plans

43

(57)

865

(1,273)

(408)

Purchases of common stock

 

 

57

(865)

 

 

 

 

(865)

Balance at June 30, 2018

 

48,734

$

487

$

$

1,057,962

$

(466,331)

$

1,812

$

593,930

Net loss

 

 

 

 

 

 

(8,953)

 

 

(8,953)

Other comprehensive income, net of tax