# Veeco Instruments Inc: Form 10-Q for the period ended Jun 30, 2023

- Company: [Veeco Instruments Inc](/companies/veco.md) (CIK 103145)
- Form: 10-Q
- Filed: 2023-08-07
- Accepted by EDGAR: Aug 7, 2023, 16:30 ET
- Period: 2023-06-30
- Accession: 0001558370-23-013610
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/103145/000155837023013610/veco-20230630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/103145/000155837023013610/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $161.6m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $315.1m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $94.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $185.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $67.5m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $129.5m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $27.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $54.9m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $23.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $46.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $13.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $23.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $3.1m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $5.9m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $1.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $1.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$85.3m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$76.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$1.61 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$1.48 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$1.61 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$1.48 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 52,861,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 51,764,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $25.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $10.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $180.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $709.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $1.23bn | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $282.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $615.8m | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $274.3m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-06-30 | $612.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,390 characters.

### Cautionary Statement Regarding Forward Looking Statements

Our discussion below constitutes “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. 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. You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made.

### Executive Summary

We are an innovative manufacturer of semiconductor process equipment. Our proven ion beam, laser annealing, lithography, MOCVD, CVD, and single wafer etch & clean technologies play an integral role in the fabrication and packaging of advanced semiconductor devices. With equipment designed to optimize performance, yield and cost of ownership, Veeco holds leading technology positions in the markets we serve. To learn more about Veeco’s systems and service offerings, visit www.veeco.com.

### Business Update

Macroeconomic challenges across the industry have been well publicized, including supply chain constraints, an inflationary and high-interest rate environment with a potential recession ahead, heightened China-export regulations, uncertainty in the banking industry, and a forecasted decline in the semiconductor and related markets due to softness in consumer, smartphone and PC applications, all of which are contributing to a difficult environment with increased uncertainty.

Longer lead times and parts shortages and allocations have required that we plan further ahead than usual, and we have undertaken efforts to increase our purchase commitments to secure critical components in a timely manner. Our supply chain continues to improve, as evidenced by a decline in lead times and a further improvement to suppliers on time deliveries; however, material lead times remain elevated and continue to be a challenge with respect to our supply chain, limiting our ability to fulfill some of our customers’ demands in a timely manner, as many of our peers have also been experiencing. While we expect lead times to further improve in the second half of the year, we expect supply shortages and related challenges to persist throughout 2023. We continue to monitor our supply chain and work with our suppliers to identify and mitigate potential gaps in an effort to ensure continuity of supply. We also continue to experience increasing labor and material costs, creating gross margin pressures.

We continue to see a slow-down in certain shorter lead time products such as advanced packaging lithography, spare parts, and upgrades, as well as instances where customers have requested order cancellations, delayed shipments, or delayed payments. Consequently, we are monitoring the situation very closely and have been taking early actions to limit the pace at which we increase spending while maintaining our growth trajectory.

Furthermore, the US Department of Commerce, Bureau of Industry and Security (“BIS”), issued China-export regulations on October 7, 2022 which broadened the requirements under which export licenses will be required, with a presumption of denial as to their issuance. In addition, certain China-based companies were added to the BIS Unverified List, and changes have been made to the BIS Entity List, further restricting sales to the named entities. Recent order activity has led to significant backlog in China, some of which may be subject to these regulations. While the export regulation landscape is fluid and evolving, we believe at this time that the substantial majority of this backlog will not be negatively affected by the new regulations.

While we work to overcome these macroeconomic challenges, we continue to serve our customers in the following four end markets: Semiconductor; Compound Semiconductor; Data Storage; and Scientific & Other.

Sales in the Semiconductor market during the second quarter grew 9% year-over-year and 14% sequentially, driven by record laser annealing system revenue and shipment of two EUV chambers. We continue to build momentum for our laser annealing solutions in advanced node logic by winning application steps. We recently received orders from several Tier 1 advanced logic customers. While our growth strategy is predominately focused on shipping systems for advanced node logic and memory applications, we have also been receiving orders and shipping systems for trailing node applications in China and other regions. As it relates to the memory market, we recently announced that a Tier 1 memory customer placed several LSA orders for high volume production of DRAM devices following a successful evaluation program. The ongoing adoption of EUV Lithography for advanced node semiconductor manufacturing continues to drive demand for our Ion Beam mask blank systems. Additionally, our lithography systems for Advanced Packaging are aligned with packaging approaches such as fan out wafer level packaging and other advanced packaging applications, while our wet processing systems are used for Photoresist Strip, Solvent Cleans, and flux removal. Overall, our technology and market strategy are well aligned with trends such as artificial intelligence, mobile connectivity and high-performance computing that drive the Semiconductor market. Based on recent order activity and our current backlog in the Semiconductor market, we expect revenue growth in 2023, outpacing wafer fab equipment spending growth, which the prevailing consensus view has forecasted to be down in 2023.

We address the Compound Semiconductor market with a broad portfolio of technologies, including Wet Processing and MOCVD, along with MBE and Ion Beam, all of which have been developed to support emerging applications such as 5G driven RF device/filter manufacturing, GaN power electronics, and photonics applications including edge-emitting lasers, specialty LEDs and micro-LEDs. Sales in the Compound Semiconductor market in Q2 2023 increased as compared to the prior quarter and declined as compared to prior year quarter. In Q2 2023, we shipped several systems for photonics applications. We continue to invest for future growth in the Compound Semiconductor market in areas like power electronics and Micro-LED. Power electronics markets are served by GaN equipment, and also by SiC epitaxy equipment. We are working to penetrate the GaN power market, which is driven by applications such as wireless charging in consumer electronics. In addition to our GaN system offerings, on January 31, 2023 Veeco acquired SiC technology to address the high-growth SiC power epitaxy equipment market, which is primarily driven by adoption of electric vehicles. With this acquisition, Veeco is accelerating its entry into this market, and expects revenue starting in 2024.

Sales in the Data Storage market in Q2 2023 declined as compared to the prior quarter and the prior year quarter. Demand for our Ion Beam products is driven by cloud-based storage. Hard disk drive manufacturers are manufacturing drives with an increasing number of magnetic heads, in addition to introducing advanced technologies requiring increased capital intensity. As reported, the hard disk drive industry experienced contraction in exabyte shipments in 2022 and 2023 with uncertainty as to the timing of a recovery; however, recent analyst and industry forecasts predict nearline hard disk drive exabyte shipments to grow at an approximate 20 to 25% CAGR over the coming years. Despite these current industry challenges, we continue to expect revenue growth in 2023 based on the ship dates of orders in our backlog.

Sales in the Scientific & Other market are largely driven by sales to governments, universities, and research institutions. We address the Scientific & Other market with several technologies, including MBE, ALD, MOCVD, Wet Processing, & IBD/IBE, which support scientific, optical coating and other applications, such as Micro-Electromechanical Systems (MEMS) applications. Sales in this market increased as compared to the quarter in the prior year, while declining as compared to the first quarter of this year. We expect sales in this market to grow in the long run, in line with GDP.

Overall, based on our current visibility supported by our backlog, we continue to expect total 2023 revenue to be in the range of $630 million to $670 million.

### Results of Operations

### For the three months ended June 30, 2023 and 2022

The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for the indicated periods in 2023 and 2022 and the period-over-period dollar and percentage changes for those line items. Our results of operations are reported as one business segment, represented by our single operating segment.

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 | ​ | ​ | ​ ​ | ​ ​ | ​ ​ 2022 | ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ Change Period to Period | ​ ​ | ​ | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: | --- | --- | ---: | ---: | --- | --- |
| Net sales |  | $161,641 |  | 100% | ​ | ​ | $163,999 |  | 100% | ​ | ​ | $(2,358) | (1)% | ​ |  |
| Cost of sales | ​ | 94,131 |  | 58% | ​ | ​ | 99,732 |  | 61% | ​ | ​ | (5,601) | (6)% | ​ | ​ |
| Gross profit | ​ | 67,510 |  | 42% | ​ | ​ | 64,267 |  | 39% | ​ | ​ | 3,243 | 5% | ​ | ​ |
| Operating expenses, net: | ​ |  |  |  | ​ | ​ |  |  | ​ | ​ | ​ |  | ​ | ​ | ​ |
| Research and development | ​ | 27,384 |  | 17% | ​ | ​ | 26,016 |  | 16% | ​ | ​ | 1,368 | 5% | ​ | ​ |
| Selling, general, and administrative | ​ | 23,822 |  | 15% | ​ | ​ | 22,950 |  | 14% | ​ | ​ | 872 | 4% | ​ | ​ |
| Amortization of intangible assets | ​ | 2,123 |  | 1% | ​ | ​ | 2,505 |  | 2% | ​ | ​ | (382) | (15)% | ​ | ​ |
| Other operating expense (income), net | ​ | 493 |  | - | ​ | ​ | (27) |  | - | ​ | ​ | 520 | \* | ​ | ​ |
| Total operating expenses, net | ​ | 53,822 |  | 33% | ​ | ​ | 51,444 |  | 31% | ​ | ​ | 2,378 | 5% | ​ | ​ |
| Operating income (loss) | ​ | 13,688 |  | 8% | ​ | ​ | 12,823 |  | 8% | ​ | ​ | 865 | 7% | ​ | ​ |
| Interest income (expense), net | ​ | (632) |  | (0)% | ​ | ​ | (2,635) |  | (2)% | ​ | ​ | 2,003 | (76)% | ​ | ​ |
| Other income (expense), net | ​ | ​ (97,091) | ​ | (60)% | ​ | ​ | ​ — | ​ | 0% | ​ | ​ | (97,091) | \* | ​ | ​ |
| Income (loss) before income taxes | ​ | (84,035) |  | (52)% | ​ | ​ | 10,188 |  | 6% | ​ | ​ | (94,223) | \* | ​ | ​ |
| Income tax expense (benefit) | ​ | 1,285 |  | - | ​ | ​ | 533 |  | - | ​ | ​ | 752 | 141% | ​ | ​ |
| Net income (loss) | ​ | $(85,320) |  | (53)% | ​ | ​ | $9,655 |  | 6% | ​ | ​ | $(94,975) | \* | ​ | ​ |

\* Not meaningful

#### Net Sales

The following is an analysis of sales by market and by region:

*(dollars in thousands)*

| ​ ​ ​ ​ Sales by end-market | ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 ​ | ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ 2022 ​ | ​ | ​ | ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Change Period to Period ​ | ​ ​ | ​ ​ | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: | --- | --- | ---: | ---: | --- | --- |
| Semiconductor | ​ | $106,275 |  | 65% | ​ | ​ | $97,521 |  | 60% | ​ | ​ | $8,754 | 9% | ​ | ​ |
| Compound Semiconductor | ​ | 24,066 |  | 15% | ​ | ​ | 31,122 |  | 19% | ​ | ​ | (7,056) | (23)% | ​ | ​ |
| Data Storage | ​ | 13,945 |  | 9% | ​ | ​ | 21,548 |  | 13% | ​ | ​ | (7,603) | (35)% | ​ | ​ |
| Scientific & Other | ​ | 17,355 |  | 11% | ​ | ​ | 13,808 |  | 8% | ​ | ​ | 3,547 | 26% | ​ | ​ |
| **Total** | ​ | $161,641 |  | 100% | ​ | ​ | $163,999 |  | 100% | ​ | ​ | $(2,358) | (1)% | ​ | ​ |
| **Sales by geographic region** | ​ |  |  |  | ​ | ​ |  |  |  | ​ | ​ |  | ​ | ​ | ​ |
| United States | ​ | $35,739 |  | 22% | ​ | ​ | $57,940 |  | 35% | ​ | ​ | $(22,201) | (38)% | ​ | ​ |
| EMEA | ​ | 17,511 |  | 11% | ​ | ​ | 27,234 |  | 17% | ​ | ​ | (9,723) | (36)% | ​ | ​ |
| China | ​ | ​ 49,986 | ​ | 31% | ​ | ​ | ​ 28,497 | ​ | 17% | ​ | ​ | ​ 21,489 | 75% | ​ | ​ |
| Rest of APAC | ​ | 58,320 |  | 36% | ​ | ​ | 49,345 |  | 30% | ​ | ​ | 8,975 | 18% | ​ | ​ |
| Rest of World | ​ | 85 |  | - | ​ | ​ | 983 |  | 1% | ​ | ​ | (898) | \* | ​ | ​ |
| **Total** | ​ | $161,641 |  | 100% | ​ | ​ | $163,999 |  | 100% | ​ | ​ | $(2,358) | (1)% | ​ | ​ |

\* Not meaningful

Sales decreased for the three months ended June 30, 2023 against the comparable prior year period in the Data Storage and Compound Semiconductor markets, partially offset by an increase in the Semiconductor market. By geography, sales decreased in the United States and EMEA regions, partially offset by an increase in the China region. Sales in the Rest of APAC region for the three months ended June 30, 2023 included sales in Singapore, Taiwan, and Japan of $22.9 million, $16.1 million, and $12.5 million respectively. Sales in the Rest of APAC region for the three months ended June 30, 2022 included sales in Taiwan and Japan of $28.0 million and $11.0 million, respectively. We expect there will continue to be year-to-year variations in our future sales distribution across markets and geographies. In light of the global nature of our business, we are impacted by conditions in the various countries in which we and our customers operate.

#### Gross Profit

For the three months ended June 30, 2023, gross profit increased against the comparable prior period due to higher gross margins. Gross margins increased principally due to product mix of sales in the period and favorable spending. We expect our gross margins to fluctuate each period due to product mix and other factors.

#### Research and Development

The markets we serve are characterized by continuous technological development and product innovation, and we invest in various research and development initiatives to maintain our competitive advantage and achieve our growth objectives. Research and development expenses increased for the three months ended June 30, 2023 against the comparable prior period primarily due to personnel-related expenses as we invest in new research and development and additional applications for our technology in order to be well-positioned to capitalize on emerging global megatrends and support longer term growth in Semiconductor and Compound Semiconductor markets.

#### Selling, General, and Administrative

Selling, general, and administrative expenses remained flat for the three months ended June 30, 2023 against the comparable prior period. Given the uncertainty regarding the impacts on our business resulting from the general macroeconomic environment, we are focused on the proactive management of expenses.

#### Amortization Expense

Amortization expense decreased compared to the comparable prior year period primarily due to changes in amortization expense to reflect expected cash flows of certain intangible assets, as well as certain other intangible assets becoming fully amortized in 2022.

#### Interest Income (Expense)

We recorded net interest expense of $0.6 million for the three months ended June 30, 2023, compared to $2.6 million for the comparable prior year period. The decrease in net interest expense was primarily related to an increase of interest income of approximately $2.4 million due to a more favorable interest rate environment for the three months ended June 30, 2023, against the comparable prior year period.

#### Other Income (Expense)

On May 19, 2023, in connection with the completion of a private offering of $230.0 million aggregate principal amount of 2.875% convertible senior notes, we repurchased and retired approximately $106.0 million in aggregate principal amount of our outstanding 2025 Notes, with a carrying amount of $105.4 million, for approximately $106.0 million of cash and 0.7 million shares of our common stock for the 2025 Notes. Also, we repurchased and retired approximately $100.0 million in aggregate principal amount of our outstanding 2027 Notes; with a carrying amount of $98.5 million, for approximately $92.8 million of cash and 3.8 million shares of our common stock for the 2027 Notes. We accounted for the partial settlement of the 2025 Notes and 2027 Notes as an extinguishment, and as such, recorded a loss on extinguishment of approximately $16.5 million and $80.6 million, respectively, for the three months ended June 30, 2023.

#### Income Taxes

At the end of each interim reporting period, we estimate the effective income tax rate expected to be applicable for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods.

Our tax expense for the three months ended June 30, 2023 was $1.3 million, compared to $0.5 million for the comparable prior period. For the three months ended June 30, 2023, we incurred income tax expense primarily related to pre-tax income from operations excluding the loss on extinguishment of the 2025 and 2027 Notes. Pursuant to Section 249 limitation on losses from extinguishment of convertible notes, we recognized a benefit of $0.9 million associated with this loss for the three months ended June 30, 2023. Additionally, the $1.3 million of income tax expense for the three months ended June 30, 2023 was favorably impacted by the tax benefits related to Foreign-Derived Intangible Income and research and development tax credits. For the three months ended June 30, 2022, the effective tax rate was lower than the U.S. statutory tax rate primarily related to changes in the valuation allowance of deferred tax assets in the U.S.

### For the six months ended June 30, 2023 and 2022

The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for the indicated periods in 2023 and 2022 and the period-over-period dollar and percentage changes for those line items. Our results of operations are reported as one business segment, represented by our single operating segment.

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ | ​ | ​ ​ | ​ ​ | ​ ​ 2022 | ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ Change Period to Period | ​ | ​ | ​ |
| --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: | --- |
| Net sales |  | $315,145 |  | 100% | ​ | ​ | $320,425 |  | 100% | ​ | ​ | $(5,280) |  | (2)% | ​ |
| Cost of sales | ​ | 185,618 |  | 59% | ​ | ​ | 190,146 |  | 59% | ​ | ​ | (4,528) |  | (2)% | ​ |
| Gross profit | ​ | 129,527 |  | 41% | ​ | ​ | 130,279 |  | 41% | ​ | ​ | (752) |  | (1)% | ​ |
| Operating expenses, net: | ​ |  |  |  | ​ | ​ |  |  | ​ | ​ | ​ |  |  | ​ | ​ |
| Research and development | ​ | 54,945 |  | 17% | ​ | ​ | 50,133 |  | 16% | ​ | ​ | 4,812 |  | 10% | ​ |
| Selling, general, and administrative | ​ | 46,449 |  | 15% | ​ | ​ | 45,844 |  | 14% | ​ | ​ | 605 |  | 1% | ​ |
| Amortization of intangible assets | ​ | 4,235 |  | 1% | ​ | ​ | 5,009 |  | 2% | ​ | ​ | (774) |  | (15)% | ​ |
| Other operating expense (income), net | ​ | 404 |  | - | ​ | ​ | (47) |  | - | ​ | ​ | 451 |  | \* | ​ |
| Total operating expenses, net | ​ | 106,033 |  | 34% | ​ | ​ | 100,939 |  | 32% | ​ | ​ | 5,094 |  | 5% | ​ |
| Operating income (loss) | ​ | 23,494 |  | 7% | ​ | ​ | 29,340 |  | 9% | ​ | ​ | (5,846) |  | (20)% | ​ |
| Interest income (expense), net | ​ | (1,434) |  | (0)% | ​ | ​ | (5,438) |  | (2)% | ​ | ​ | 4,004 |  | (74)% | ​ |
| Other income (expense), net | ​ | ​ (97,091) | ​ | (31)% | ​ | ​ | ​ — | ​ | 0% | ​ | ​ | ​ (97,091) | ​ | \* | ​ |
| Income (loss) before income taxes | ​ | (75,031) |  | (24)% | ​ | ​ | 23,902 |  | 7% | ​ | ​ | (98,933) |  | \* | ​ |
| Income tax expense (benefit) | ​ | 1,548 |  | - | ​ | ​ | 917 |  | - | ​ | ​ | 631 |  | 69% | ​ |
| Net income (loss) | ​ | $(76,579) |  | (24)% | ​ | ​ | $22,985 |  | 7% | ​ | ​ | $(99,564) |  | \* | ​ |

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
| ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |

\* Not meaningful

#### Net Sales

The following is an analysis of sales by market and by region:

*(dollars in thousands)*

| ​ ​ ​ ​ Sales by end-market | ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 ​ | ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ 2022 ​ | ​ | ​ | ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Change Period to Period ​ | ​ | ​ |
| --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: |
| Semiconductor | ​ | $199,382 |  | 64% | ​ | ​ | $175,141 |  | 55% | ​ | ​ | $24,241 |  | 14% |
| Compound Semiconductor | ​ | 45,225 |  | 14% | ​ | ​ | 68,231 |  | 21% | ​ | ​ | (23,006) |  | (34)% |
| Data Storage | ​ | 35,459 |  | 11% | ​ | ​ | 43,143 |  | 13% | ​ | ​ | (7,684) |  | (18)% |
| Scientific & Other | ​ | ​ 35,079 |  | 11% | ​ | ​ | ​ 33,910 |  | 11% | ​ | ​ | ​ 1,169 |  | 3% |
| **Total** | ​ | $315,145 |  | 100% | ​ | ​ | $320,425 |  | 100% | ​ | ​ | $(5,280) |  | (2)% |
| **Sales by geographic region** | ​ |  |  |  | ​ | ​ |  |  |  | ​ | ​ |  |  | ​ |
| United States | ​ | $66,750 |  | 21% | ​ | ​ | $105,410 |  | 33% | ​ | ​ | $(38,660) |  | (37)% |
| EMEA | ​ | 40,458 |  | 13% | ​ | ​ | 48,660 |  | 15% | ​ | ​ | (8,202) |  | (17)% |
| China | ​ | 110,733 |  | 35% | ​ | ​ | 58,878 |  | 19% | ​ | ​ | 51,855 |  | 88% |
| Rest of APAC | ​ | 97,065 |  | 31% | ​ | ​ | 106,267 |  | 33% | ​ | ​ | (9,202) |  | (9)% |
| Rest of World | ​ | ​ 139 | ​ | - | ​ | ​ | ​ 1,210 | ​ | - | ​ | ​ | ​ (1,071) | ​ | \* |
| **Total** | ​ | $315,145 |  | 100% | ​ | ​ | $320,425 |  | 100% | ​ | ​ | $(5,280) |  | (2)% |

\* Not meaningful

Sales decreased for the six months ended June 30, 2023 against the comparable prior year period in the Compound Semiconductor and Data Storage markets, partially offset by an increase in the Semiconductor market. By geography, sales decreased in the United States, Rest of APAC, and EMEA regions, partially offset by an increase in the China region. Sales in the Rest of APAC region for the six months ended June 30, 2023 included sales in Taiwan, Singapore, Japan, and Thailand of $34.1 million, $25.8 million, $16.9 million, and $10.4 million respectively. Sales in the Rest of APAC region for the six months ended June 30, 2022 included sales in Taiwan, Singapore and Japan of $45.2 million and $25.9 million, and $15.2 million, respectively. We expect there will continue to be year-to-year variations in our future sales distribution across markets and geographies. In light of the global nature of our business, we are impacted by conditions in the various countries in which we and our customers operate.

#### Gross Profit

For the six months ended June 30, 2023, gross profit remained flat against the comparable prior period. Gross margins also remained flat, as favorable spending was offset by a decrease in sales volume and product mix of sales in the period. We expect our gross margins to fluctuate each period due to product mix and other factors.

#### Research and Development

The markets we serve are characterized by continuous technological development and product innovation, and we invest in various research and development initiatives to maintain our competitive advantage and achieve our growth objectives. Research and development expenses increased for the six months ended June 30, 2023 against the comparable prior period primarily due to personnel-related expenses as we invest in new research and development and additional applications for our technology in order to be well-positioned to capitalize on emerging global megatrends and support longer term growth in Semiconductor and Compound Semiconductor markets.

#### Selling, General, and Administrative

Selling, general, and administrative expenses remained flat for the six months ended June 30, 2023 against the comparable prior period. Given the uncertainty regarding the impacts on our business resulting from the general macroeconomic environment, we are focused on the proactive management of expenses.

#### Amortization Expense

Amortization expense decreased compared to the comparable prior year period primarily due to changes in amortization expense to reflect expected cash flows of certain intangible assets, as well as certain other intangible assets becoming fully amortized in 2022.

#### Interest Income (Expense)

We recorded net interest expense of $1.4 million for the six months ended June 30, 2023, compared to $5.4 million for the comparable prior year period. The decrease in net interest expense was primarily related to an increase of interest income of approximately $4.5 million due to a more favorable interest rate environment for the six months ended June 30, 2023, against the comparable prior year period.

#### Other Income (Expense)

On May 19, 2023, in connection with the completion of a private offering of $230.0 million aggregate principal amount of 2.875% convertible senior notes, we repurchased and retired approximately $106.0 million in aggregate principal amount of our outstanding 2025 Notes; with a carrying amount of $105.4 million, for approximately $106.0 million of cash and 0.7 million shares of our common stock for the 2025 Notes. Also, we repurchased and retired approximately $100.0 million in aggregate principal amount of our outstanding 2027 Notes; with a carrying amount of $98.5 million, for approximately $92.8 million of cash and 3.8 million shares of our common stock for the 2027 Notes. We accounted for the partial settlement of the 2025 Notes and 2027 Notes as an extinguishment, and as such, recorded a loss on extinguishment of approximately $16.5 million and $80.6 million, respectively, for the six months ended June 30, 2023.

#### Income Taxes

At the end of each interim reporting period, we estimate the effective income tax rate expected to be applicable for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods.

Our tax expense for the six months ended June 30, 2023 was $1.5 million, compared to $0.9 million for the comparable prior period. For the six months ended June 30, 2023, we incurred income tax expense primarily related to pre-tax income from operations excluding the loss on extinguishment of the 2025 and 2027 Notes. Pursuant to Section 249 limitation on losses from extinguishment of convertible notes, we recognized a benefit of $0.9 million with this loss for the six months ended June 30, 2023. Additionally, the $1.5 million of income tax expense for the six months ended June 30, 2023 was favorably impacted by the tax benefits related to Foreign-Derived Intangible Income and research and development tax credits, as well as a discrete income tax benefit for share-based compensation windfall. For the six months ended June 30, 2022, the effective tax rate was lower than the U.S. statutory tax rate primarily related to changes in the valuation allowance of deferred tax assets in the U.S.

### Liquidity and Capital Resources

Our cash and cash equivalents, restricted cash, and short-term investments are as follows:

*(in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ June 30, 2023 | ​ ​ | ​ ​ December 31, 2022 |
| --- | --- | ---: | --- | ---: |
| Cash and cash equivalents | ​ | $180,524 | ​ | $154,925 |
| Restricted cash | ​ | 437 | ​ | 547 |
| Short-term investments | ​ | 105,875 | ​ | 147,488 |
| **Total** | ​ | $286,836 | ​ | $302,960 |

At June 30, 2023 and December 31, 2022, cash and cash equivalents of $38.8 million and $28.4 million, respectively, were held outside the United States. As of June 30, 2023, we had $19.8 million of accumulated undistributed earnings generated by our non-U.S. subsidiaries for which the U.S. tax has previously been provided. Approximately $8.5 million of undistributed earnings will be subject to foreign withholding taxes if distributed back to the United States and we accrued $0.9 million for foreign withholding taxes for the undistributed earnings.

We believe that our projected cash flow from operations, combined with our cash and short-term investments, will be sufficient to meet our projected working capital requirements, contractual obligations, and other cash flow needs for the next twelve months, including scheduled interest payments on our convertible senior notes, purchase commitments, and payments in respect of operating leases.

A summary of the cash flow activity for the six months ended June 30, 2023 and 2022 is as follows:

#### Cash Flows from Operating Activities

*(in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Net income (loss) | ​ | $(76,579) | ​ | $22,985 | ​ |
| Non-cash items: | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Depreciation and amortization | ​ | 12,435 | ​ | 12,749 | ​ |
| Non-cash interest expense | ​ | 514 | ​ | 477 | ​ |
| Deferred income taxes | ​ | 778 | ​ | (18) | ​ |
| Share-based compensation expense | ​ | 14,959 | ​ | 10,759 | ​ |
| Loss on extinguishment of debt | ​ | ​ 97,091 | ​ | ​ — | ​ |
| Provision for bad debts | ​ | ​ 490 | ​ | ​ — | ​ |
| Changes in operating assets and liabilities | ​ | (24,553) | ​ | (18,783) | ​ |
| **Net cash provided by (used in) operating activities** | ​ | $25,135 | ​ | $28,169 | ​ |

Net cash provided by operating activities was $25.1 million for the six months ended June 30, 2023 and was due to net loss of $76.6 million and adjustments for non-cash items of $126.3 million, partially offset by a decrease in cash flow from changes in operating assets and liabilities of $24.6 million. The changes in operating assets and liabilities were largely attributable to increases in inventories, accounts receivables, and contract assets; partially offset by increases in customer deposits, accounts payable, and accrued expenses.

#### Cash Flows from Investing Activities

*(in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Acquisitions of businesses, net of cash acquired | ​ | $(30,373) | ​ | $— | ​ |
| Capital expenditures | ​ | ​ (10,836) | ​ | ​ (15,420) | ​ |
| Changes in investments, net | ​ | 43,575 | ​ | (10,541) | ​ |
| **Net cash provided by (used in) investing activities** | ​ | $2,366 | ​ | $(25,961) | ​ |

The cash provided by investing activities during the six months ended June 30, 2023 was primarily attributable to net investment activity, partially offset by the net cash used in the acquisition of Epiluvac, and capital expenditures. The cash used in investing activities during the six months ended June 30, 2022 was mainly due to a high level of capital expenditures during 2022 associated with the continued build-out of our newly leased facility in San Jose, California, which is substantially complete at this time.

#### Cash Flows from Financing Activities

*(in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Proceeds from issuance of 2029 Notes, net of issuance costs | ​ | $223,202 | ​ | $— | ​ |
| Extinguishment of Convertible Notes | ​ | ​ (218,991) | ​ | ​ — | ​ |
| Settlement of equity awards, net of withholding taxes | ​ | ​ (6,182) | ​ | $(4,986) | ​ |
| **Net cash provided by (used in) financing activities** | ​ | $(1,971) | ​ | $(4,986) | ​ |

The cash used in financing activities for the six months ended June 30, 2023 was related to the partial repurchase of the 2025 Notes and 2027 Notes, repayment of the 2023 Notes, as well as cash used to settle taxes related to employee equity programs, partially offset by proceeds from issuance of 2029 Notes.

#### Convertible Senior Notes

We have $26.5 million outstanding principal balance of 3.50% convertible senior notes that bear interest at a rate of 3.50% per year, payable semiannually in arrears on January 15 and July 15 of each year, and mature on January 15, 2025, unless earlier purchased by the Company, redeemed, or converted. In addition, we have $25.0 million outstanding principal balance of 3.75% convertible senior notes that bear interest at a rate of 3.75% per year, payable semiannually in arrears on June 1 and December 1 of each year, and mature on June 1, 2027, unless earlier purchased by the Company, redeemed, or converted. The 2027 Notes are currently convertible by shareholders until June 30, 2023. In addition, we have $230.0 million outstanding principal balance of 2.875% convertible senior notes that bear interest at a rate of 2.875% per year, payable semiannually in arrears on June 1 and December 1 of each year, and mature on June 1, 2029, unless earlier purchased by the Company, redeemed, or converted.

We believe that we have sufficient capital resources and cash flows from operations to support scheduled interest payments on these debts. In addition, we have access to a $150.0 million revolving credit facility (including an ability to request an additional $75.0 million, for a total commitment of no more than $225.0 million) to provide for our working capital needs and reimburse drawings under letters of credit and for other general corporate purposes. The Company has no immediate plans to draw down on the facility, which expires in December of 2026. Interest under the facility is variable based on the Company’s secured net leverage ratio and is expected to bear interest based on SOFR plus a range of 150 to 225 basis points, if drawn. There is a yearly commitment fee of 25 to 35 basis points, based on the Company’s secured net leverage ratio, charged on the unused portion of the Facility.

#### Contractual Obligations and Commitments

We have commitments under certain contractual arrangements to make future payments for goods and services. These contractual arrangements secure the rights to various assets and services to be used in the future in the normal course of business. We expect to fund these contractual arrangements with cash generated from operations in the normal course of business.

## Market risk

As filed, 2,990 characters.

#### Interest Rate Risk

Our exposure to market rate risk for changes in interest rates primarily relates to our investment portfolio. We centrally manage our investment portfolios considering investment opportunities and risks, tax consequences, and overall financing strategies. Our investment portfolio includes fixed-income securities with a fair value of approximately $105.9 million at June 30, 2023. These securities are subject to interest rate risk and, based on our investment portfolio at June 30, 2023, a 100 basis point increase in interest rates would result in a decrease in the fair value of the portfolio of $0.6 million. While an increase in interest rates may reduce the fair value of the investment portfolio, we will not realize the losses in the Consolidated Statements of Operations unless the individual fixed-income securities are sold prior to recovery or the loss is determined to be other-than-temporary.

#### Currency Exchange Risk

We conduct business on a worldwide basis and, as such, a portion of our revenues, earnings, and net investments in foreign affiliates is exposed to changes in currency exchange rates. The economic impact of currency exchange rate movements is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions, and other factors. These changes, if material, could cause us to adjust our financing and operating strategies. Consequently, isolating the effect of changes in currency does not incorporate these other important economic factors.

Changes in currency exchange rates could affect our foreign currency denominated monetary assets and liabilities and forecasted cash flows. We may enter into monthly forward derivative contracts from time to time with the intent of mitigating a portion of this risk. We only use derivative financial instruments in the context of hedging and not for speculative purposes and have not historically designated our foreign exchange derivatives as hedges. Accordingly, changes in fair value from these contracts are recorded as “Other, net” in our Consolidated Statements of Operations. We execute derivative transactions with highly rated financial institutions to mitigate counterparty risk.

Our net sales to customers located outside of the United States represented approximately 78% and 79% of our total net sales for the three and six months ended June 30, 2023, respectively, 65% and 67% for the comparable 2022 periods. We expect that net sales to customers outside the United States will continue to represent a large percentage of our total net sales. Our sales denominated in currencies other than the U.S. dollar represented approximately 3% of total net sales for both the three and six months ended June 30, 2023 and 2022.

A 10% change in foreign exchange rates would have an immaterial impact on the consolidated results of operations since most of our sales outside the United States are denominated in U.S. dollars.

## Controls and procedures

As filed, 1,370 characters.

#### Evaluation of Disclosure Controls and Procedures

Our principal executive and financial officers have evaluated and concluded that our disclosure controls and procedures are effective as of June 30, 2023. The disclosure controls and procedures are designed to ensure that the information required to be disclosed in this report filed under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our principal executive and financial officers as appropriate to allow timely decisions regarding required disclosure.

#### Changes in Internal Control Over Financial Reporting

On January 31, 2023, we completed the acquisition of Epiluvac AB and are integrating the acquired business into our overall internal control over financial reporting process. Management is in the process of assessing the internal control over financial reporting and is implementing or revising internal controls where necessary. See Note 3 to the Consolidated Financial Statements – *Business Combinations*, for further details. There were no other changes in internal control for the quarter ended June 30, 2023 that have materially affected or are reasonably likely to materially affect internal control over financial reporting.

## Risk factors

As filed, 4,312 characters.

Information regarding risk factors appears in the Safe Harbor Statement at the beginning of this quarterly report on Form 10-Q and in Part I — Item 1A of our 2022 Form 10-K. There have been no material changes from the risk factors previously disclosed, except as follows:

***Our current debt facilities, including our 3.50% Convertible Senior notes due 2025 (the “2025 Notes”), our 3.75% Convertible Notes due 2027 (the “2027 Notes”), and our 2.875% Convertible Notes due 2029 (the “2029 Notes”) (the 2025 Notes, 2027 Notes, and 2029 Notes together the “Notes”), and our revolving credit facility (the “Credit facility”), contains certain restrictions, covenants and repurchase provisions that 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.***

As of June 30, 2023, we had $26.5 million in principal amounts outstanding in 2025 Notes, $25.0 million in principal amounts outstanding in 2027 Notes, and $230.0 million in principal amounts outstanding in 2029 Notes. In addition, as of June 30, 2023 we had an undrawn senior secured revolving credit facility in an aggregate principal amount of $150.0 million, including a $15.0 million letter of credit sublimit.

These debt facilities contain certain covenant and other restrictions that may limit our ability to, among other things, incur additional debt or create liens, sell certain assets, and merge or consolidate with third parties, which may, in turn, preclude us from responding to changes in business and economic conditions, engaging in transactions that might otherwise be beneficial to us, or obtaining additional financing. Our ability to comply with some of these covenants is dependent on our future performance, which will be subject to many factors, some of which are beyond our control such as prevailing economic conditions. In addition, our failure to comply with these covenants could result in a default under the Notes or Credit Facility, which could accelerate the debt. If any of our debt is accelerated, we may not have sufficient funds available to repay such debt, which could materially and negatively affect our financial condition and results of operation.

In addition, our ability to repurchase or to pay cash upon conversion of the Notes, or maturity of the Credit Facility, may be limited by law, by regulatory authority or by agreements governing our indebtedness that exist at the time of repurchase, conversion, or maturity. Our failure to settle the debt as required would constitute a default under the applicable debt facility and could also lead to a default under the other debt facilities. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness.

Finally, holders of the Notes will have the right to require us to repurchase all or any portion of their Notes upon the occurrence of a fundamental change before the maturity date. Additionally, in the event the conditional conversion features of the 2025 Notes, 2027 Notes, and 2029 Notes are triggered (as is currently the case for the 2027 Notes through September 30, 2023), holders of Notes will be entitled to convert the Notes at any time during specified periods at their option. If one or more holders elect to convert the Notes, or if a fundamental change occurs before maturity, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted, which could adversely impact our liquidity. Additionally, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of the Notes surrendered therefor or pay cash with respect to the Notes being converted. In addition, even if holders do not elect to convert the Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which could result in a material reduction of our net working capital.

Filed Aug 7, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-013610. Last ingested by Listed: Nov 5, 2026, 14:56 ET. No prices; not investment advice.