Veeco Instruments Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; financial statements are unaudited. Veeco designs and sells thin-film process equipment for LED, display, power electronics, advanced packaging, MEMS/RF, scientific and industrial, and data-storage markets.
Financial performance
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $98.3 million | $90.8 million |
| Gross profit / margin | $35.1 million / 35.7% | $33.8 million / 37.2% |
| Operating income (loss) | $(15.8) million | $18.6 million |
| Net income (loss) | $(19.1) million | $19.2 million |
| Diluted EPS | $(0.48) | $0.48 |
| Operating cash flow | $4.3 million | $(18.4) million |
Revenue rose 8% year over year. Gross margin declined, partly due to acquisition-related inventory fair-value step-up costs from PSP, partly offset by $3.0 million of forfeited customer deposits recognized as revenue. The net loss includes $8.0 million of intangible amortization, $2.4 million of restructuring expense, and $0.1 million of asset impairment. Q1 2014 results included a $29.4 million non-cash gain from reversing contingent consideration associated with the ALD acquisition, a major reason for the year-over-year earnings reversal.
Q1 2015 operating cash flow was positive, with working-capital inflows including higher customer deposits and deferred revenue, partly offset by increases in prepaid assets, inventory/deferred cost of sales, and receivables. Investing cash flow was $28.1 million, primarily reflecting net liquidation of short-term investments; capital expenditures were $4.8 million.
Revenue mix and operating indicators
- Lighting, Display & Power Electronics revenue was $64.3 million, up 1% year over year; Advanced Packaging, MEMS & RF was $13.2 million versus $0.8 million; Scientific & Industrial was $13.6 million, up 61%; Data Storage was $7.2 million, down 59%.
- Bookings were $101.8 million versus $102.6 million a year earlier; book-to-bill was slightly above 1.0. Backlog was $288.9 million at quarter-end, compared with $286.7 million at December 31, 2014.
- International customers accounted for approximately 72% of sales, versus 91% a year earlier. China revenue was $44.3 million; U.S. revenue was $28.0 million.
Balance sheet and liquidity
At March 31, 2015, cash and cash equivalents were $303.1 million, short-term investments $89.0 million, and restricted cash $0.5 million, totaling $392.6 million. Current assets were $574.7 million and current liabilities $196.1 million. Total debt was approximately $1.8 million, including a mortgage bearing 7.91% interest and due in 2020. Veeco reported total assets of $942.1 million and stockholders’ equity of $723.8 million. Management said cash, investments, and projected operating cash flow should meet needs for the next 12 months. Of cash and equivalents, $216.5 million was held outside the U.S.; $130.2 million of foreign-held cash would incur significant U.S. taxes if repatriated.
Outlook, changes, and risks
Management said Q1 performance met expectations and described continued execution of a financial turnaround. It anticipated Q2 2015 bookings to improve from Q1, primarily from Lighting, Display & Power Electronics. Management cited accelerating LED adoption, customer utilization levels that may require added capacity, and favorable EPIK 700 customer testing and production orders. PSP, acquired in December 2014 for $145.5 million, was described as performing well, with momentum in advanced packaging and 3D TSV applications. Data Storage demand remained challenging and uncertain, with orders expected to fluctuate; management said stronger bookings since Q3 2014 were expected to support sales in upcoming 2015 quarters. These statements are forward-looking and not guarantees.
- Restructuring included closing the South Korea facility and notifying 23 employees of termination as Veeco reduced ALD technology spending and redirected R&D. Management expected minimal additional restructuring costs for these activities during the remainder of 2015.
- Purchase commitments totaled $127.0 million, substantially all due within one year. Outstanding bank guarantees were $46.0 million, with $23.8 million of unused lines available for customer performance bonds.
- A product-liability lawsuit alleges injury involving an MBE system. Veeco disputes the claims, cannot estimate any potential loss, and believes any recovery against it would be covered by insurance. Other ordinary-course proceedings were not expected to materially affect results.
- Key risks include cyclical and concentrated markets, reliance on a limited customer and supplier base, possible order/backlog cancellations, technology changes, export and geopolitical exposure, currency risk, and execution of outsourcing and acquisition integration. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether Q2 bookings improved as management expected, and how bookings translate into revenue and backlog.
- Whether LED demand and EPIK 700 production orders persist, and whether Data Storage bookings recover.
- How quickly PSP-related inventory step-up costs and acquired intangible amortization affect margins and earnings.
- Whether deferred revenue associated with EPIK 700 shipments—reported to have increased by $25.3 million—is recognized as expected during 2015.
- The ability to meet $127.0 million of purchase commitments and other cash needs, including constraints and tax costs related to foreign-held cash.
- The outcome and potential exposure of the MBE product-liability lawsuit; the filing does not provide a clear estimate of possible loss.