Veeco Instruments Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise. Veeco develops, manufactures, sells, and supports semiconductor and thin-film process equipment, reported as one operating segment.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $146.3 | $98.6 | $280.1 | $203.1 |
| Gross profit / margin | $60.2 / 41.1% | $41.9 / 42.5% | $115.1 / 41.1% | $88.3 / 43.5% |
| Operating income / margin | $13.3 / 9.1% | $0.4 / 0.4% | $22.7 / 8.1% | $5.0 / 2.4% |
| Net income (loss) | $6.3 | $(8.3) | $8.8 | $(8.9) |
| Diluted EPS | $0.12 | $(0.17) | $0.17 | $(0.18) |
- Q2 sales rose 48% year over year; first-half sales rose 38%. Sales increased in all end-markets in both comparisons. Q2 growth was strongest in Data Storage, up 84%, followed by Semiconductor, up 43%.
- Gross profit increased with higher sales volume, but gross margin declined, which management attributed to product and regional mix and spending to support higher activity.
- Operating expenses increased in dollars, including higher R&D and SG&A, but fell as a share of revenue. No restructuring or asset impairment charges were recorded in the 2021 periods; Q2 2020 included both, as well as a $3.0 million debt-extinguishment loss.
- Net interest expense was $6.6 million in Q2 and $13.2 million for the first half, higher year over year primarily because of the 2025 and 2027 convertible notes. First-half interest included $7.1 million of non-cash amortization of debt discounts and transaction costs.
Cash flow, liquidity and debt
- First-half operating cash flow was $20.7 million, versus $17.6 million a year earlier. Increases in receivables and inventories absorbed cash. Investing cash flow was $(34.7) million, including $9.1 million of capital expenditures and net purchases of investments; financing cash flow was $(0.9) million.
- At June 30, cash and cash equivalents, restricted cash, and short-term investments totaled $330.0 million, compared with $320.1 million at year-end 2020. Current assets were $638.6 million and current liabilities $179.4 million.
- Convertible notes had a $328.2 million net carrying value and $389.2 million principal outstanding: $131.7 million due 2023, $132.5 million due 2025, and $125.0 million due 2027. The 2027 Notes were convertible by holders through September 30, 2021 under the stock-price conversion condition.
- Management said cash, investments, and projected operating cash flows should cover working capital, contractual commitments, lease payments, and scheduled note interest for at least 12 months.
Changes, outlook and risks
- Q2 sales by geography rose sharply in the United States and Rest of APAC, while EMEA sales fell 66% year over year. First-half EMEA sales declined 47%; U.S., China, and Rest of APAC sales increased.
- Management expects the laser annealing, 5G RF, Data Storage, and advanced-packaging lithography businesses to contribute to full-year 2021 revenue growth. It expects Semiconductor and Compound Semiconductor markets to be longer-term growth drivers in 2022 and beyond. No numerical revenue or earnings guidance is provided.
- Management described near-term Data Storage visibility as good and the market as likely healthy through 2021, but noted order rates had slowed after several years of capacity additions and anticipated a period of customer equipment digestion.
- Strategic R&D and inventory investments are being made to support anticipated growth. San Jose facility construction was on track; higher capital spending and duplicate operating costs are expected during the transition.
- COVID-19 remains an uncertainty for operations, customers, and supply chains. Other highlighted risks include quarterly order and revenue timing, customer concentration and cancellations, U.S.-China trade restrictions and export licensing, foreign-market exposure, competition, and component supply constraints. The company reported no material change to previously disclosed risk factors.
- Purchase commitments totaled $144.4 million, substantially all due within one year. Pending California shareholder class and derivative actions concern alleged disclosures related to the Ultratech acquisition; Veeco is defending the matters and does not expect the resolution of legal proceedings to materially adversely affect its financial position, results, or cash flows.
Important facts for investors to verify
- Whether revenue growth continues and whether the lower gross margin persists as product and regional mix changes.
- How much of the near-term outlook depends on Data Storage demand, given management’s warning of possible equipment digestion.
- Cash conversion and working-capital trends, particularly receivables and inventory, alongside planned San Jose facility spending.
- Convertible-note terms, potential dilution and cash settlement exposure, including the 2027 Notes’ conversion status and maturities.
- Exposure to COVID-19-related disruption, trade controls and export licenses, customer concentration, and the outcome of the Ultratech-related litigation.