Veeco Instruments Inc. — Q1 2011 Form 10-Q
Business context and reporting period. Veeco designs and manufactures equipment for LED and solar production and data storage. This filing covers the three months reported as ended March 31, 2011, compared with the prior-year quarter. The company notes that its 2011 13-week quarter actually ended April 3. Metrology, sold in October 2010, is presented as discontinued operations.
Financial performance and liquidity
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Net sales | $254.7 million | $134.8 million |
| Gross profit / gross margin | $129.3 million / 50.8% | $56.7 million / 42.1% |
| Operating income / margin | $79.7 million / 31.3% | $25.2 million / 18.7% |
| Continuing-operations income | $53.1 million; diluted EPS $1.25 | $22.8 million; diluted EPS $0.54 |
| Net income; diluted EPS | $52.6 million; $1.24 | $26.0 million; $0.62 |
| Cash from operations | $74.9 million | $41.8 million |
- Cash and cash equivalents were $276.8 million at March 31, 2011; short-term investments were $426.0 million and restricted cash was $76.1 million. Restricted cash includes $22.9 million held in Metrology-sale escrow and $53.2 million backing customer-related bank guarantees.
- Current assets were $1.032 billion and current liabilities $336.2 million. Total debt carrying value was approximately $97.3 million, comprising $94.7 million of convertible notes and $2.6 million of long-term debt; the notes’ $98.1 million principal balance was classified as current.
- Operating cash flow benefited from a $55.9 million reduction in accounts receivable, while inventories increased $12.8 million and income taxes payable declined $32.7 million. Capital expenditures were $9.4 million.
Changes versus the prior period
- Revenue rose 89%. LED & Solar sales increased 92.5% to $214.7 million; Data Storage sales increased 72.0% to $40.0 million. Management cited stronger HB LED demand and Data Storage customer spending.
- Gross margin improved to 50.8% from 42.1%, with both segments benefiting from higher volume, favorable product mix and pricing, and product cost reductions.
- Orders declined 3% to $230.9 million; book-to-bill was 0.91 versus 1.77. LED & Solar orders fell 6.3%, attributed primarily to timing of customer deposits, while Data Storage orders rose 23.7%. Backlog was $530.1 million, down from $555.0 million at year-end.
- R&D expense increased 89.7% to $24.6 million, principally reflecting LED & Solar product development. SG&A rose 35.0% to $23.9 million, but decreased as a share of revenue to 9.4% from 13.2%.
- The effective tax rate on continuing operations was 32.0%, versus 2.4% a year earlier. The filing attributes the prior-year rate mainly to deferred tax assets becoming realizable; the 2011 rate benefited from foreign tax-rate differences and tax credits, including the manufacturer’s deduction.
Outlook, risks and unusual items
- Q2 2011 revenue guidance was $255–$285 million and GAAP EPS guidance was $1.08–$1.32. Management forecast orders at least 25% above Q1 and cited visibility for continued order strength through Q3. Full-year revenue guidance remained above $1 billion.
- Management described strong quoting activity, positive customer response to the MaxBright system, and potential multi-system deals. It estimated an MOCVD market opportunity of approximately 5,000 chambers from 2011–2015. These are forward-looking statements, not guarantees.
- On April 25, 2011, Veeco called all remaining convertible notes for redemption on May 26. It expected to pay the remaining $91.6 million principal in cash and issue conversion premiums in shares if holders converted. The notes’ conversion and redemption activity affects near-term cash use and share count.
- On April 5, Veeco acquired a privately held component supplier for $28.0 million in cash. Purchase commitments outstanding at March 31 were $182.1 million.
- The Metrology sale generated $230.4 million of proceeds, including $7.2 million relating to China assets; a $5.4 million gain was deferred for those assets. The $22.9 million escrow remains restricted for one year to secure specified potential claims.
- Key risks include order and revenue timing, customer cancellation or modification of backlog, reliance on a limited customer and supplier base, demand cyclicality and foreign-government incentives affecting MOCVD orders. Veeco also highlighted possible Japan earthquake and tsunami effects on demand and its supply chain, while stating it did not expect a significant long-term manufacturing or sales impact based on its review.
- Legal proceedings arise in the ordinary course; the company did not expect their resolution to materially adversely affect its financial position, results or cash flows. Management said disclosure controls were effective and reported no significant changes in internal controls.
Important facts for investors to verify
- Whether Q2 orders and revenue track management’s guidance, given Q1’s 0.91 book-to-bill and lower backlog.
- How much of LED & Solar demand is sustained end-market growth versus customer deposits, timing, and government incentives, particularly in China.
- The cash and dilution effects of the convertible-note redemption and any conversions, alongside the $28 million acquisition and $182.1 million purchase commitments.
- Whether margin gains, inventory growth and warranty obligations remain manageable as shipments and production scale.
- Any material developments in the Japan-related supply chain, Metrology escrow, customer guarantees, or other disclosed contingencies.