Veeco Instruments Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with the three months ended March 31, 2023. Veeco develops, manufactures, sells, and supports semiconductor and thin-film process equipment, and reports as one operating segment. Financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $174.5 million | $153.5 million | +14% |
| Gross profit / margin | $75.4 million / 43.2% | $62.0 million / 40.4% | Margin +2.8 percentage points |
| Operating income / margin | $22.0 million / 12.6% | $9.8 million / 6.4% | Operating income +125% |
| Net income | $21.9 million | $8.7 million | +150% |
| Diluted EPS | $0.37 | $0.17 | +$0.20 |
| Operating cash flow | $9.4 million | $13.9 million | Down $4.6 million |
| Capital expenditures | $6.0 million | $6.9 million | Down $1.0 million |
Gross margin improved primarily due to higher sales volume and favorable product mix. Net interest income was $0.7 million, versus net interest expense of $0.8 million a year earlier, primarily reflecting higher interest rates. The effective tax rate was 3.94%, favorably affected by share-based compensation tax benefits, Foreign-Derived Intangible Income, and R&D tax credits.
Revenue mix and changes
- Semiconductor: $120.4 million, up 29% year over year and 69% of sales; growth was led by Laser Annealing systems.
- Compound Semiconductor: $21.0 million, down 1% year over year.
- Data Storage: $18.0 million, down 16%.
- Scientific & Other: $15.1 million, down 15%.
- Geographically, Rest of APAC sales rose 89% to $73.2 million and China sales rose 6% to $64.3 million. EMEA declined 63% to $8.5 million and U.S. sales declined 10% to $27.9 million. Japan and Taiwan contributed $32.9 million and $19.3 million, respectively, in Rest of APAC.
Cash, debt, and liquidity
- At March 31, 2024, cash and cash equivalents were $174.0 million, restricted cash $0.3 million, and short-term investments $122.9 million; combined liquidity was $297.2 million, versus $305.8 million at year-end 2023.
- Total debt carrying value was $275.2 million: $26.4 million of 2025 Notes, $24.7 million of 2027 Notes, and $224.1 million of 2029 Notes. The 2025 Notes mature January 2025; 2027 and 2029 Notes mature in June 2027 and June 2029. No borrowings were outstanding on the $150 million revolving credit facility.
- Management said cash, investments, and projected operating cash flows should cover working capital, contractual obligations, and other needs for the next 12 months, including the scheduled 2025 Notes principal payment. The company reported $200.8 million of purchase commitments, substantially all due within one year.
- Operating cash flow was reduced by $25.8 million of working-capital changes, including higher inventory and contract assets and lower contract liabilities, partly offset by increased accounts payable and accrued expenses. Cash rose by $15.2 million during the quarter, with investment activity contributing to investing cash inflows.
Outlook, commentary, and risks
- Management expects Semiconductor revenue to grow in 2024, citing backlog and visibility, demand related to advanced logic and memory, and customer orders for laser annealing systems. It also expects Compound Semiconductor revenue to grow, Data Storage revenue to be flat to up, and Scientific & Other revenue to remain flat.
- Management describes the semiconductor industry as cyclical, while citing longer-term demand drivers including AI, high-performance computing, connectivity, automotive applications, and more complex chip architectures. It cautions that gross margins and the geographic and market mix of sales may fluctuate.
- Key disclosed risks include customer and regional concentration, cyclicality and unpredictable order timing, customer cancellations or changes to backlog, supplier dependence, inventory exposure, competition and rapid technological change, and U.S.-China trade policy and export controls. About 84% of Q1 sales were to customers outside the U.S.; most international sales were denominated in U.S. dollars.
- Veeco recorded a $0.6 million reduction in estimated Epiluvac contingent consideration in other operating income and paid $1.8 million for a performance milestone. The remaining contingent consideration liability was $21.8 million. Available-for-sale investments had $0.2 million of gross unrealized losses; the filing reports no other-than-temporary losses.
- The company disclosed routine legal proceedings and said their resolution is not expected to materially affect its financial position, results, or cash flows. It reported no material changes to previously disclosed risk factors and no material changes in internal control over financial reporting.
Most important facts for investors to verify
- Whether semiconductor demand and the stated 2024 market outlooks translate into shipments, revenue, and sustained margin improvement.
- Whether working-capital investment—particularly inventory, contract assets, and contract liabilities—continues to constrain operating cash flow.
- The company’s ability to fund the $26.5 million 2025 Notes principal maturity and meet its $200.8 million purchase commitments while maintaining liquidity.
- Exposure to China, export-license and trade restrictions, customer concentration, and changes in regional sales mix.
- The terms and potential dilution or cash implications of convertible notes; holders could convert the 2025 and 2027 Notes through June 30, 2024 under the specified share-price conditions.