Veeco Instruments Inc. — Q1 2021 Form 10-Q
Business context and period. This unaudited report covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. Veeco develops, manufactures, sells, and supports semiconductor and thin-film process equipment; it reports one operating segment and four end markets.
Financial performance
Amounts are in millions of dollars except per-share data. Figures may not sum due to rounding.
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $133.7 | $104.5 | +28% |
| Gross profit / gross margin | $54.9 / 41% | $46.4 / 44% | Profit +18% |
| Operating income / margin | $9.4 / 7% | $4.6 / 4% | +106% |
| Net income (loss) | $2.5 | ($0.6) | Improved $3.1 |
| Diluted EPS | $0.05 | ($0.01) | Improved |
| Operating cash flow | $10.5 | ($2.4) | Improved $12.9 |
| Capital expenditures | $2.0 | $1.1 | Increased |
- Sales grew across all end markets. Semiconductor sales were $51.6 million (+38%); Compound Semiconductor $24.8 million (+34%); Data Storage $41.0 million (+5%); Scientific & Other $16.4 million (+67%).
- Operating income rose substantially, but gross margin declined, mainly due to product and geographic sales mix and spending to support higher activity. R&D increased 14% to $21.8 million; SG&A increased 11% to $20.3 million. Both expenses declined as a percentage of sales.
- Net interest expense was $6.6 million, versus $4.9 million, primarily reflecting the 2025 and 2027 convertible notes issued in 2020; lower interest income also contributed. Income tax expense was $0.3 million in both periods.
Financial position and liquidity
- At March 31, 2021, cash and cash equivalents were $140.7 million, restricted cash $0.7 million, and short-term investments $186.1 million, totaling $327.5 million, up from $320.1 million at year-end 2020.
- Current assets were $618.2 million and current liabilities $163.7 million. Accounts receivable was $87.5 million; inventory was $156.2 million, up from $145.9 million at year-end.
- Long-term debt carrying value was $324.6 million; the notes’ aggregate principal was $389.2 million. The notes comprise $131.7 million of 2.70% notes due 2023, $132.5 million of 3.50% notes due 2025, and $125.0 million of 3.75% notes due 2027.
- Management said cash, investments, and projected operating cash flow should cover working capital, contractual obligations, and other cash needs for the next 12 months, including note interest, purchase commitments, and leases.
Material changes and management outlook
- Sales increased $29.2 million year over year, led by Semiconductor and Scientific & Other. Geographically, China sales rose 91% to $20.0 million and Rest of APAC rose 45% to $54.9 million; EMEA declined 16% to $13.6 million. Approximately 66% of Q1 2021 sales were to customers outside the U.S.
- Management expected laser annealing, 5G RF, and Data Storage products to support near-term revenue growth through 2021. It described Data Storage as healthy through 2021, while noting visibility was limited after customers’ several years of capacity additions. Longer-term growth from 2022 onward was expected from Semiconductor and Compound Semiconductor markets.
- Management cited momentum in laser annealing, advanced packaging, EUV mask-blank systems, 5G-related equipment, and photonics; Scientific & Other showed signs of recovery. It is investing in R&D, inventory, evaluation systems, and service capacity to support growth. The filing provides no quantified revenue or earnings guidance.
- Veeco expects $30–$40 million of capital spending for its new San Jose facility over the next one to two years and expects temporary duplicate operating expenses during the transition. Purchase commitments totaled $158.8 million, substantially all due within one year.
Risks, contingencies, and unusual items
- COVID-19 effects remained uncertain and could affect customers, suppliers, employees, operations, and demand. The company reported no significant supply-chain interruptions to date but warned of possible future disruptions and additional costs.
- Other disclosed risks include sales and order timing volatility, customer cancellations, customer and geographic concentration, China trade policy and export controls, competition, foreign exchange exposure, and supplier constraints. Management reported no material changes to previously disclosed risk factors.
- The 2027 Notes were convertible at holders’ option through June 30, 2021 under the applicable stock-price condition. Conversion or repurchase obligations may affect liquidity; conversion may also result in dilution. Capped calls are intended to mitigate some potential dilution or cash settlement exposure, subject to a cap.
- Two California matters related to the Ultratech acquisition remain pending: a consolidated securities class action and a shareholder derivative action. Veeco is defending both and said it does not expect other ordinary-course legal matters to materially affect its financial position, results, or cash flows.
- There were no goodwill or intangible-asset impairment indicators during the quarter, no outstanding foreign-exchange derivatives at March 31, 2021, and no material changes in internal control reported.
Most important facts for investors to verify
- Whether the anticipated 2021 growth in laser annealing, 5G RF, and Data Storage materializes, and how much visibility remains beyond 2021.
- Whether gross margins recover from 41% as product mix and higher activity-related spending change.
- Convertible-note terms and potential cash settlement, conversion, and dilution exposure, including the 2027 Notes’ conversion status after June 30, 2021.
- Execution costs and timing for the San Jose facility transition, alongside $158.8 million of purchase commitments.
- Developments in COVID-19, supply-chain and export-control risks, concentrated regional sales, and the Ultratech-related legal actions.