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Form 10-Q VEECO INSTRUMENTS INC For: Jun 30

August 8, 2022 4:34 PM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-16244

VEECO INSTRUMENTS INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

    

11-2989601

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

Terminal Drive
Plainview, New York

11803

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code:

(516) 677-0200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

VECO

The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

    

    

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 

As of August 1, 2022, there were 51,425,233 shares of the registrant’s common stock outstanding.

Safe Harbor Statement

This quarterly report on Form 10-Q (the “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Discussions containing such forward-looking statements may be found in Part I - Items 1, 2, and 3 hereof, as well as within this Report generally. In addition, when used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “targets,” “plans,” “intends,” “will,” and similar expressions related to the future are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results.

In addition, the preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates and assumptions are based on knowledge of current events, including the potential impact of the COVID-19 pandemic on our business, and planned actions to be undertaken in the future, they may ultimately differ from actual results. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. All estimates and assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from these estimates and assumptions.

The risks and uncertainties of Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco,” the “Company,” “we,” “us,” and “our,” unless the context indicates otherwise) include, without limitation, those set forth under the heading “Risk Factors” in Part 1, Item 1A of our 2021 Form 10-K, those included within Item 1A of our quarterly report on Form 10-Q for the quarter ending March 31, 2022, and the following:

Risks Related to Our Business, Finance and Operations

The effects of the COVID-19 pandemic have strained and have negatively impacted our business and operations, and the duration and extent to which COVID-19 may impact our future results of operations and overall financial performance remains uncertain;

Unfavorable market conditions, coupled with ongoing supply chain challenges and inflationary pressures, have adversely affected, and may continue to adversely affect, our operating results;

The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to fluctuate significantly;

Our sales cycle is long and unpredictable;

Our backlog is subject to customer cancellation or modification which could result in decreased sales, increased inventory obsolescence, and liabilities to our suppliers for products no longer needed;

We may be required to take impairment charges on assets;

We are exposed to risks associated with business combinations, acquisitions, strategic investments and divestitures;

We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our Company by another company more difficult;

Our current debt facilities, including our 2.70% Convertible Senior Notes due 2023 (the “2023 Notes”), our 3.50% Convertible Senior Notes due 2025 (the “2025 Notes”), or our 3.75% Convertible Senior Notes due 2027 (the “2027 Notes”) (the 2023 Notes, 2025 Notes, and 2027 Notes, together, the “Notes”), and our revolving credit facility (the “Credit Facility”), may contain certain restrictions, covenants and repurchase provisions that

1

may limit our ability to raise the funds necessary to meet our working capital needs, which may include the cash conversion of the Notes or repurchase of the Notes for cash upon a fundamental change;

The conditional conversion features of the 2023 Notes, 2025 Notes, and 2027 Notes, if triggered, may materially and adversely affect our financial condition and operating results;

The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results;

Issuance of our common stock, if any, upon conversion of the Notes, as well as the capped call transactions and the hedging activities of the option counterparties, may impair or reduce our ability to utilize our net operating loss carryforwards or our research and development credits carryforwards in the future;

The capped call transactions may affect the value of the 2027 Notes and our common stock;

Risks Associated with Operating a Global Business

We are exposed to risks of operating businesses outside the United States;

Changes in U.S. trade policy and export controls and ongoing trade disputes between the U.S. and China have adversely affected, and may continue to adversely affect, our business, results of operations, and financial condition;

We may be unable to obtain required export licenses for the sale of our products;

We are exposed to various risks associated with global regulatory requirements;

We may be exposed to liabilities under the Foreign Corrupt Practices Act and other similar laws;

Our operating results may be adversely affected by tightening credit markets;

We are subject to foreign currency exchange risks;

Risks Related to Intellectual Property and Cybersecurity

Disruptions in our information technology systems or data security incidents could result in significant financial, legal, regulatory, business, and reputational harm to us;

We may be unable to effectively enforce and protect our intellectual property rights;

We may be subject to claims of intellectual property infringement by others;

Risks Associated with Our Industry

We face significant competition;

We operate in industries characterized by rapid technological change;

Certain of our sales are dependent on the demand for consumer electronic products and automobiles, which can experience significant volatility;

We have a concentrated customer base, located primarily in a limited number of regions, which operates in highly concentrated industries;

2

The cyclicality of the industries we serve directly affects our business;

Our failure to estimate customer demand accurately could result in inventory obsolescence, liabilities to our suppliers for products no longer needed, and manufacturing interruptions or delays which could affect our ability to meet customer demand;

We rely on a limited number of suppliers, some of whom are our sole source for particular components;

Our failure to successfully manage our outsourcing activities or failure of our outsourcing partners to perform as anticipated could adversely affect our results of operations;

General Risk Factors

The price of our common shares is volatile and could decrease;

We are subject to risks of non-compliance with environmental, health, and safety regulations and sustainability requirements;

Our inability to attract, retain, and motivate employees could have a material adverse effect on our business; and

Changes in accounting pronouncements or taxation rules, practices, or rates may adversely affect our financial results.

Consequently, such forward looking statements and estimates should be regarded solely as the current plans and beliefs of Veeco. We do not undertake any obligation to update any forward looking statements to reflect future events or circumstances after the date of such statements.

3

PART IFINANCIAL INFORMATION

Item 1. Financial Statements

Veeco Instruments Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share amounts)

June 30,

December 31,

    

2022

    

2021

Assets

(unaudited)

Current assets:

Cash and cash equivalents

$

116,916

$

119,747

Restricted cash

727

725

Short-term investments

 

113,159

 

104,181

Accounts receivable, net

 

126,881

 

109,609

Contract assets

17,367

18,293

Inventories

 

176,491

 

170,858

Prepaid expenses and other current assets

17,743

25,974

Total current assets

 

569,284

 

549,387

Property, plant, and equipment, net

 

105,031

 

99,743

Operating lease right-of-use assets

26,405

28,813

Intangible assets, net

28,896

33,905

Goodwill

 

181,943

 

181,943

Deferred income taxes

1,639

1,639

Other assets

 

3,454

 

3,546

Total assets

$

916,652

$

898,976

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

47,074

$

44,456

Accrued expenses and other current liabilities

 

56,918

 

79,752

Customer deposits and deferred revenue

 

74,560

 

63,136

Income taxes payable

 

1,598

 

1,860

Current portion of long-term debt

 

20,120

 

Total current liabilities

 

200,270

 

189,204

Deferred income taxes

 

4,774

 

4,792

Long-term debt

 

254,055

 

229,438

Long-term operating lease liabilities

31,772

32,834

Other liabilities

 

5,044

 

5,080

Total liabilities

 

495,915

 

461,348

Stockholders' equity:

Preferred stock, $0.01 par value; 500,000 shares authorized; no shares issued and outstanding.

 

Common stock, $0.01 par value; 120,000,000 shares authorized; 51,425,233 shares issued and outstanding at June 30, 2022 and 50,652,864 shares issued and outstanding at December 31, 2021

 

515

 

507

Additional paid-in capital

 

1,065,590

 

1,116,921

Accumulated deficit

 

(645,757)

 

(681,283)

Accumulated other comprehensive income

 

389

 

1,483

Total stockholders' equity

 

420,737

 

437,628

Total liabilities and stockholders' equity

$

916,652

$

898,976

See accompanying Notes to the Consolidated Financial Statements.

4

Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

Three months ended June 30,

Six months ended June 30,

    

2022

    

2021

    

2022

    

2021

    

Net sales

$

163,999

$

146,344

$

320,425

$

280,059

Cost of sales

 

99,732

 

86,178

 

190,146

 

164,978

Gross profit

 

64,267

60,166

130,279

115,081

Operating expenses, net:

Research and development

 

26,016

 

22,553

 

50,133

 

44,398

Selling, general, and administrative

 

22,950

 

21,466

 

45,844

 

41,722

Amortization of intangible assets

 

2,505

 

2,976

 

5,009

 

6,330

Other operating expense (income), net

(27)

(81)

(47)

(36)

Total operating expenses, net

51,444

46,914

100,939

92,414

Operating income

 

12,823

 

13,252

 

29,340

 

22,667

Interest income

 

213

 

235

 

302

 

370

Interest expense

 

(2,848)

 

(6,820)

 

(5,740)

 

(13,578)

Income before income taxes

 

10,188

6,667

23,902

9,459

Income tax expense (benefit)

 

533

 

319

 

917

 

617

Net income

$

9,655

$

6,348

$

22,985

$

8,842

Income per common share:

Basic

$

0.19

$

0.13

$

0.46

$

0.18

Diluted

$

0.18

$

0.12

$

0.43

$

0.17

Weighted average number of shares:

Basic

 

49,697

 

48,743

 

49,702

 

48,758

Diluted

 

59,455

 

53,942

 

59,521

 

53,539

See accompanying Notes to the Consolidated Financial Statements.

5

Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

Three months ended June 30,

Six months ended June 30,

    

2022

    

2021

    

2022

    

2021

    

Net income

$

9,655

$

6,348

$

22,985

$

8,842

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on available-for-sale securities

 

(224)

 

(15)

 

(1,043)

 

(4)

Change in currency translation adjustments

 

(48)

 

(9)

 

(51)

 

(39)

Total other comprehensive income (loss), net of tax

 

(272)

 

(24)

 

(1,094)

 

(43)

Total comprehensive income

$

9,383

$

6,324

$

21,891

$

8,799

See accompanying Notes to the Consolidated Financial Statements.

6

Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Six months ended June 30,

    

2022

    

2021

    

Cash Flows from Operating Activities

Net income

$

22,985

$

8,842

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

 

12,749

 

13,189

Non-cash interest expense

477

7,100

Deferred income taxes

 

(18)

 

17

Share-based compensation expense

 

10,759

 

7,605

Changes in operating assets and liabilities:

Accounts receivable and contract assets

 

(16,346)

 

(21,158)

Inventories

 

(5,873)

 

(18,298)

Prepaid expenses and other current assets

 

8,231

 

4,489

Accounts payable and accrued expenses

 

(17,613)

 

14,046

Customer deposits and deferred revenue

 

11,424

 

3,334

Income taxes receivable and payable, net

 

(263)

 

449

Other, net

 

1,657

 

1,114

Net cash provided by (used in) operating activities

 

28,169

 

20,729

Cash Flows from Investing Activities

Capital expenditures

 

(15,420)

 

(9,082)

Proceeds from the sale of investments

 

23,335

 

130,398

Payments for purchases of investments

 

(33,876)

 

(156,020)

Net cash provided by (used in) investing activities

(25,961)

(34,704)

Cash Flows from Financing Activities

Proceeds (net of tax withholdings) from option exercises and employee stock purchase plan

 

2,129

 

1,865

Restricted stock tax withholdings

 

(7,115)

 

(2,747)

Net cash provided by (used in) financing activities

 

(4,986)

 

(882)

Effect of exchange rate changes on cash and cash equivalents

 

(51)

 

(39)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

(2,829)

 

(14,896)

Cash, cash equivalents, and restricted cash - beginning of period

 

120,472

 

130,283

Cash, cash equivalents, and restricted cash - end of period

$

117,643

$

115,387

Supplemental Disclosure of Cash Flow Information

Interest paid

$

5,037

$

4,160

Income taxes paid (refunds received)

1,083

(196)

Non-cash activities

Capital expenditures included in accounts payable and accrued expenses

6,464

15,400

Net transfer of inventory to property, plant and equipment

237

Right-of-use assets obtained in exchange for lease obligations

258

20,353

See accompanying Notes to the Consolidated Financial Statements.

7

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

(unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of Veeco have been prepared in accordance with U.S. GAAP as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 270 for interim financial information and with the instructions to Rule 10-01 of Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements as the interim information is an update of the information that was presented in Veeco’s most recent annual financial statements. For further information, refer to Veeco’s Consolidated Financial Statements and Notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal, recurring nature.

Veeco reports interim quarters on a 13-week basis ending on the last Sunday of each quarter. The fourth quarter always ends on the last day of the calendar year, December 31. The 2022 interim quarters end on April 3, July 3, and October 2, and the 2021 interim quarters ended on April 4, July 4, and October 3. These interim quarters are reported as March 31, June 30, and September 30 in Veeco’s interim consolidated financial statements.

The preparation of financial statements in conformity with U.S GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, actual results may differ from these estimates. In particular, the COVID-19 pandemic has adversely impacted and is likely to further adversely impact the Company’s business and markets, including the Company’s workforce and operations and the operations of the Company’s customers, suppliers, and business partners. The full extent to which the pandemic will directly or indirectly impact the Company's business, results of operations and financial condition, including sales, expenses, manufacturing, research and development costs, reserves and allowances, fair value measurements, and asset impairment charges, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or address its impact, governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.

Revenue Recognition

Revenue is recognized upon the transfer of control of the promised product or service to the customer in an amount that reflects the consideration the Company expects to receive in exchange for such product or service. The Company’s contracts with customers generally do not contain variable consideration. In the rare instances where variable consideration is included, the Company estimates the amount of variable consideration and determines what portion of that, if any, has a high probability of significant subsequent revenue reversal, and if so, that amount is excluded from the transaction price. The Company’s contracts with customers frequently contain multiple deliverables, such as systems, upgrades, components, spare parts, installation, maintenance, and service plans. Judgment is required to properly identify the performance obligations within a contract and to determine how the revenue should be allocated among the performance obligations. The Company also evaluates whether multiple transactions with the same customer or related parties should be considered part of a single contract based on an assessment of whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of one another.

   

When there are separate units of accounting, the Company allocates revenue to each performance obligation on a relative stand-alone selling price basis. The stand-alone selling prices are determined based on the prices at which the Company separately sells the systems, upgrades, components, spare parts, installation, maintenance, and service plans. For items

8

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

that are not sold separately, the Company estimates stand-alone selling prices generally using an expected cost plus margin approach.

   

Most of the Company’s revenue is recognized at a point in time when the performance obligation is satisfied. The Company considers many facts when evaluating each of its sales arrangements to determine the timing of revenue recognition, including its contractual obligations and the nature of the customer’s post-delivery acceptance provisions. The Company’s system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For many of these arrangements, a customer source inspection of the system is performed in the Company’s facility, test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery, or other quality assurance testing is performed internally to ensure system functionality prior to shipment. Historically, such source inspection or test data replicates the field acceptance provisions that are performed at the customer’s site prior to final acceptance of the system. When the Company objectively demonstrates that the criteria specified in the contractual acceptance provisions are achieved prior to delivery either through customer testing or the Company’s historical experience of its tools meeting specifications, transfer of control of the product to the customer is considered to have occurred and revenue is recognized upon system delivery since there is no substantive contingency remaining related to the acceptance provisions at that date. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where the Company cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferred. The Company recognizes such revenue and costs upon obtaining objective evidence that the acceptance provisions can be achieved, assuming all other revenue recognition criteria have been met.

   

In certain cases the Company’s contracts with customers contain a billing retention, which is billed by the Company and payable by the customer when field acceptance provisions are completed. Revenue recognized in advance of the amount that has been billed is recorded as a contract asset on the Consolidated Balance Sheets.

   

The Company recognizes revenue related to maintenance and service contracts over time based upon the respective contract term. Installation revenue is recognized over time as the installation services are performed. The Company recognizes revenue from the sales of components, spare parts, and specified service engagements at a point in time, which is typically consistent with the time of delivery in accordance with the terms of the applicable sales arrangement.

   

The Company may receive customer deposits on system transactions. The timing of the transfer of goods or services related to the deposits is either at the discretion of the customer or generally expected to be within one year from the deposit receipt. As such, the Company does not adjust transaction prices for the time value of money. Incremental direct costs incurred related to the acquisition of a customer contract, such as sales commissions, are expensed as incurred since the expected amortization period is one year or less.

The Company has elected to treat shipping and handling costs as a fulfillment activity, and the Company includes such costs in cost of sales when the Company recognizes revenue for the related goods. Taxes assessed by governmental authorities that are collected by the Company from a customer are excluded from revenue.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Each quarter the Company assesses the valuation and recoverability of all inventories: materials (raw materials, spare parts, and service inventory); work-in-process; and finished goods. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated net realizable value if less than cost. The Company evaluates usage requirements by analyzing historical usage, anticipated demand, alternative uses of materials, and other qualitative factors. Unanticipated changes in demand for the Company’s products may require a write down of

9

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

inventory, which would be reflected in cost of sales in the period the revision is made. Inventory acquired as part of a business combination is recorded at fair value on the date of acquisition.

Recently Adopted Accounting Standards

The Company adopted ASU 2020-06: Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity on January 1, 2022, using the modified retrospective method for all financial instruments that are outstanding as of the adoption date. This standard simplifies the accounting for convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature, as well as convertible instruments with a beneficial conversion feature. As a result, entities will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce non-cash interest expense for entities that have issued a convertible instrument that was within the scope of those models before the adoption of ASU 2020-06, such as the Company’s 2023 Notes, 2025 Notes, and 2027 Notes. Additionally, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share, and precludes the use of the treasury stock method for certain debt instruments, such as the Company’s 2023 Notes, 2025 Notes, and 2027 Notes.

The adoption of ASU 2020-06 resulted in the following adjustments to the Consolidated Balance Sheets:

December 31, 2021

Adoption of
ASU 2020-06

January 1, 2022

 (in thousands)

Balance Sheet line item:

Long-term debt

$

229,438

$

44,260

$

273,698

Additional paid-in capital

1,116,921

 

(56,801)

 

1,060,120

Accumulated deficit

(681,283)

 

12,541

 

(668,742)

The adoption of ASU 2020-06 resulted in the following adjustments to the Company’s calculations of basic and diluted income per share for the three and six months ended June 30, 2022:

Three months ended June 30, 2022

    

Six months ended June 30, 2022

Under

Under

Under

Under

ASU 2020-06

    

legacy accounting

    

Difference

ASU 2020-06

    

legacy accounting

    

Difference

Income per common share:

Basic income per common share

$

0.19

$

0.15

$

0.04

$

0.46

$

0.37

$

0.09

Diluted income per common share

0.18

0.14

0.04

0.43

0.33

0.10

The adoption of ASU 2020-06 did not materially impact the Company’s cash flows or compliance with debt covenants.

i

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Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

Note 2 — Income Per Common Share

Basic income per share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted income per share is calculated by dividing net income available to common shareholders by the weighted average number of shares used to calculate basic income per share plus the weighted average number of common share equivalents outstanding during the period. The dilutive effect of outstanding options to purchase common stock and share-based awards is considered in diluted income per share by application of the treasury stock method. The dilutive effect of performance share units is included in diluted income per common share if the performance targets have been achieved, or would have been achieved if the reporting date was the end of the contingency period. Upon the adoption of ASU 2020-06 on January 1, 2022, the Company includes the dilutive effect of shares issuable upon conversion of its Notes in the calculation of diluted income per share using the if-converted method. Prior to the adoption of ASU 2020-06, based on the Company’s ability and intent to settle the principal amount of its convertible senior notes in cash, and the excess of the principal portion in shares of its common stock, the Company accounted for the conversion spread using the treasury stock method, and the shares issuable upon conversion of the Notes were not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Notes exceeds their principal amount and if the effect would be dilutive. The computations of basic and diluted income per share for the three months and six months ended June 30, 2022 and 2021 are as follows:

Three months ended June 30,

Six months ended June 30,

    

2022

    

2021

    

2022

    

2021

    

(in thousands, except per share amounts)

Numerator:

Net income

$

9,655

$

6,348

$

22,985

$

8,842

Interest expense associated with convertible notes

1,273

2,546

Net income available to common shareholders

$

10,928

$

6,348

$

25,531

$

8,842

Denominator:

Basic weighted average shares outstanding

 

49,697

 

48,743

 

49,702

 

48,758

Effect of potentially dilutive share-based awards

816

1,707

877

1,553

Dilutive effect of convertible notes

 

8,942

 

3,492

 

8,942

 

3,228

Diluted weighted average shares outstanding

 

59,455

 

53,942

 

59,521

 

53,539

Net income per common share:

Basic

$

0.19

$

0.13

$

0.46

$

0.18

Diluted

$

0.18

$

0.12

$

0.43

$

0.17

Potentially dilutive shares excluded from the diluted calculation as their effect would be antidilutive

987

449

645

452

Maximum potential shares to be issued for settlement of the convertible notes excluded from the diluted calculation as their effect would be antidilutive

6,025

8,811

6,025

8,811

Note 3 — Assets

Investments

Short-term investments are generally classified as available-for-sale and reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income” in the Consolidated Balance Sheets. These securities may include U.S. treasuries, government agency securities, corporate debt, and commercial paper, all with maturities of greater than three months when

11

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

purchased. All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are included in “Other operating expense (income), net” in the Consolidated Statements of Operations.

Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants. Veeco classifies certain assets based on the following fair value hierarchy:

Level 1: Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and

Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Veeco has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions or estimation methodologies could have a significant effect on the estimated fair value amounts.

The following table presents the portion of Veeco’s assets that were measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021:

    

Level 1

    

Level 2

    

Level 3

    

Total

(in thousands)

June 30, 2022

Cash equivalents

Certificate of deposits and time deposits

$

46,720

$

$

$

46,720

Money market cash

319

319

Total

$

47,039

$

$

$

47,039

Short-term investments

U.S. treasuries

$

57,008

$

$

$

57,008

Government agency securities

15,183

15,183

Corporate debt

39,082

39,082

Commercial paper

1,886

1,886

Total

$

57,008

$

56,151

$

$

113,159

December 31, 2021

Cash equivalents

Certificate of deposits and time deposits

$

41,544

$

$

$

41,544

Money market cash

121

121

Total

$

41,665

$

$

$

41,665

Short-term investments

U.S. treasuries

$

51,095

$

$

$

51,095

Government agency securities

12,052

12,052

Corporate debt

40,035

40,035

Commercial paper

999

999

Total

$

51,095

$

53,086

$

$

104,181

12

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

There were no transfers between fair value measurement levels during the three months and six months ended June 30, 2022.

At June 30, 2022 and December 31, 2021, the amortized cost and fair value of available-for-sale securities consist of:

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Estimated

Cost

Gains

Losses

Fair Value

(in thousands)

June 30, 2022

U.S. treasuries

$

57,697

$

$

(689)

$

57,008

Government agency securities

15,291

(108)

15,183

Corporate debt

39,659

(577)

39,082

Commercial paper

1,886

1,886

Total

$

114,533

$

$

(1,374)

$

113,159

December 31, 2021

U.S. treasuries

$

51,269

$

$

(174)

$

51,095

Government agency securities

12,075

(23)

12,052

Corporate debt

 

40,169

(134)

 

40,035

Commercial paper

999

999

Total

$

104,512

$

$

(331)

$

104,181

Available-for-sale securities in a loss position at June 30, 2022 and December 31, 2021 consist of:

June 30, 2022

December 31, 2021

Continuous Loss Position

Continuous Loss Position

Continuous Loss Position

for Less than 12 Months

for 12 Months or More

for Less than 12 Months

    

    

Gross

    

    

Gross

    

    

Gross

Estimated

Unrealized

Estimated

Unrealized

Estimated

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(in thousands)

U.S. treasuries

$

57,008

$

(689)

$

$

$

51,095

$

(174)

Government agency securities

12,585

(100)

2,598

(8)

12,052

(23)

Corporate debt

 

36,313

 

(508)

 

2,769

 

(69)

 

40,035

 

(134)

Total

$

105,906

$

(1,297)

$

5,367

$

(77)

$

103,182

$

(331)

At December 31, 2021, there were no short-term investments that had been in a continuous loss position for more than 12 months.

The contractual maturities of securities classified as available-for-sale at June 30, 2022 were as follows:

June 30, 2022

Amortized

Estimated

Cost

Fair Value

(in thousands)

Due in one year or less

$

102,309

$

101,262

Due after one year through two years

12,224

 

11,897

Total

$

114,533

$

113,159

13

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. There were no realized gains or losses for the six months ended June 30, 2022 and 2021.

Accounts Receivable

Accounts receivable is presented net of an allowance for doubtful accounts of $0.7 million at June 30, 2022 and December 31, 2021. The Company considered its current expectations of future economic conditions, including the impact of COVID-19, when estimating its allowance for doubtful accounts.

Inventories

Inventories at June 30, 2022 and December 31, 2021 consist of the following:

June 30,

December 31,

    

2022