Veeco Reports 2Q; Expects Increase in LED Lighting in 2012,2013

PLAINVIEW, N.Y.–(BUSINESS WIRE)–Veeco Instruments Inc. (Nasdaq: VECO) announced its financial results for the second quarter ended June 30, 2011.

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Veeco reports its results on a U.S. generally accepted accounting principles (“GAAP”) basis, and also provides results excluding certain items. Please refer to the attached table for details of the reconciliation between GAAP operating results and Non-GAAP operating results. All results presented herein are for Veeco’s “Continuing Operations” which excludes the Metrology business sold to Bruker Corporation on October 7, 2010.

 

“In addition to paying off our convertible debt and making a small technology purchase, Veeco recently utilized cash to buy-back our shares, reflecting our continued confidence in the long-term outlook for the Company.”

GAAP Results ($M except EPS)
	Q2 ‘11	Q2 ‘10
Revenues	$264.8	$221.4
Net income	$19.2	$49.9
EPS (diluted)	$0.45	$1.15

Non-GAAP Results ($M except EPS)
	Q2 ‘11	Q2 ‘10
Net income	$57.6	$40.7
EPS (diluted)	$1.34	$0.94

Strong Second Quarter Results and MaxBright Adoption

John R. Peeler, Veeco’s Chief Executive Officer, commented, “Veeco reported a solid second quarter, with revenues of $265 million, non-GAAP net income and earnings per share of $58 million and $1.34, respectively. Revenues were up 4% sequentially, and up 20% from the prior year second quarter. LED & Solar revenues were $219 million, including $206 million in MOCVD, and Data Storage revenues were $46 million, the highest quarterly level in five years. Veeco met our quarterly guidance, yet timing of revenue continues to be impacted by the longer order-to-revenue cycle times associated with the high percentage of MOCVD business currently coming from China, primarily due to customer facility readiness and credit tightening.”

“Veeco’s second quarter bookings were a record $311 million,” continued Mr. Peeler, “up 35% sequentially. LED & Solar orders were a record $273 million, with MOCVD orders up 34% sequentially to $250 million. While China was again the main region for new systems purchases, Korea showed signs of improvement, including a multi-system MaxBright™ MOCVD order from an important LED industry leader. Veeco also reported a strong MBE bookings quarter of $24 million. Data Storage orders were $38 million, up 15% sequentially. The Company’s Q2 2011 book-to-bill ratio was 1.17 to 1, and quarter-end backlog was $558.2 million.”

Mr. Peeler added, “We have seen spectacular customer reaction to our new MaxBright MOCVD system – in the second quarter we booked over $100 million of MaxBright systems – 40% of our total MOCVD bookings. We believe customers are clearly recognizing that MaxBright is simply the best tool on the market to drive down LED manufacturing costs.”

CIGS Solar Systems Business Update

Mr. Peeler commented, “Veeco has decided to exit the CIGS Solar Systems business for various reasons, including the improved performance of mainstream solar technologies and the lower than expected end market acceptance for CIGS technology to date. While CIGS remains an important thin film solar technology, we have determined that the timeframe and cost to successful commercialization are not acceptable to Veeco.”

Mr. Peeler added, “Veeco intends to transfer our R&D facility, pilot line, technology and key personnel in Clifton Park, New York to the College of Nanoscale Science and Engineering (CNSE) in order to support their planned CNSE/SEMATECH Photovoltaic Manufacturing Consortium (PVMC). We believe the PVMC is much-needed to drive CIGS industry roadmaps, collaboration, market acceptance and commercialization.”

Veeco’s second quarter GAAP results were negatively impacted by approximately $51 million in asset impairment and restructuring charges related to this business (refer to attached table). In addition, approximately $20 million in CIGS deposition systems has been removed from Veeco’s backlog. Effective third quarter 2011, Veeco will treat its CIGS Solar Systems business, which operated at a loss, as a discontinued operation. Mr. Peeler added, “The closure of our CIGS Systems business is expected to have an immediate and positive impact to Veeco’s profitability.” Veeco will continue to sell CIGS deposition components and remains the top supplier of MOCVD and MBE tools to the concentrator photovoltaic (CPV) market.

Veeco Repurchases Shares, Eliminates Convertible Debt and Invests in Technology

During the second quarter, under its Board authorized share buy-back program, Veeco purchased $7.8 million in stock at an average price of $46.91 per share. Veeco also completed the redemption of its outstanding Convertible Subordinated Notes for $98.1 million aggregate principal amount and completed the purchase of a privately-held company which supplies certain critical components to our MOCVD business for $28.3 million. Mr. Peeler commented, “In addition to paying off our convertible debt and making a small technology purchase, Veeco recently utilized cash to buy-back our shares, reflecting our continued confidence in the long-term outlook for the Company.”

Veeco purchased an additional $71.9 million of stock, at an average price of $42.21 per share, so far during the month of July (as of 7/26/11). Since the $200 million buy-back program was authorized last August, Veeco has repurchased a total of 3 million shares for $117.8 million.

Third Quarter 2011 Guidance & Outlook

Regarding Veeco’s business outlook, Mr. Peeler commented, “Quoting activity in MOCVD remains robust and we are experiencing extremely positive customer reaction to MaxBright. MOCVD order patterns will continue to fluctuate from quarter to quarter depending upon the timing of customer deposits. In the short term, orders will likely be impacted by several headwinds that have been widely reported including weak near-term LED industry end market demand and global macro-economic concerns. We therefore currently forecast that Veeco’s third quarter 2011 bookings will be lower than our record second quarter.”

Veeco’s third quarter 2011 revenue is currently forecasted to be between $235 and $285 million. Earnings per share are currently forecasted to be $0.92 to $1.32 on a GAAP basis and $1.00 to $1.40 on a non-GAAP basis. Please refer to the attached financial table for more details. Mr. Peeler added, “We expect to have a great 2011 and are on track to deliver on our guidance of over $1 billion in revenue and over $5.25 in non-GAAP earnings per share. We are confident that the Company can perform well during any short-term fluctuations in business thanks to our variable cost model and strong cash position.”

LED Growth Opportunity

“While short-term business conditions are uncertain, there is a fantastic growth opportunity ahead of us as LED lighting market adoption is expected to increase in 2012 and 2013,” commented Mr. Peeler. “We believe lighting market penetration will accelerate due to a variety of factors including ban the bulb legislation in Europe and the U.S., Japan’s move to stimulate LED adoption, significant investment by Korean and Taiwanese leaders who have already introduced lighting products in the sub-$15 range, China’s emergence as a major LED industry player, and rapidly declining LED prices. In fact, we estimate that over 50% of our first half 2011 MOCVD shipments were for lighting, up from 28% in 2010. While accurately predicting industry investment cycles is difficult, our forecast of an MOCVD market opportunity of 5,000 reactors from 2011 to 2105 appears conservative given the industry’s growth potential.”

Conference Call Information

A conference call reviewing these results has been scheduled for 5:00pm ET today at 1-888-389-5979 (toll free) or 1-719-457-2689 using passcode 4992731. The call will also be webcast live on the Veeco website at www.veeco.com. A replay of the call will be available beginning at 8:00pm ET today through midnight on August 11, 2011 at 888-203-1112 or 719-457-0820, using passcode 4992731, or on the Veeco website. Please follow along with our slide presentation also posted on the website.

About Veeco

Veeco makes equipment to develop and manufacture LEDs, solar panels, hard disk drives and other devices. We support our customers through product development, manufacturing, sales and service sites in the U.S., Korea, Taiwan, China, Singapore, Japan, Europe and other locations. Please visit us at www.veeco.com.

To the extent that this news release discusses expectations or otherwise makes statements about the future, such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These factors include the risks discussed in the Business Description and Management’s Discussion and Analysis sections of Veeco’s Annual Report on Form 10-K for the year ended December 31, 2010 and in our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K and press releases. Veeco does not undertake any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements.

Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
								Three months ended June 30,													Six months ended June 30,
									2011							2010						2011							2010
Net sales								$	264,815						$	221,389					$	519,491						$	356,139
Cost of sales									164,747							122,589						290,091							200,599
Gross profit									100,068							98,800						229,400							155,540
Operating expenses (income):
Selling, general and administrative									28,838							20,557						52,771							38,283
Research and development									28,831							16,600						53,413							29,556
Amortization									1,489							1,238						2,624							2,476
Restructuring									11,125							–						11,125							(179	)
Asset impairment									6,211							–						6,211							–
Other, net									(95	)						525						(82	)						350
Total operating expenses									76,399							38,920						126,062							70,486
Operating income									23,669							59,880						103,338							85,054
Interest expense, net									86							1,762						1,385							3,544
Loss on extinguishment of debt									3,045							–						3,349							–
Income from continuing operations before income taxes									20,538							58,118						98,604							81,510
Income tax provision									1,326							8,188						26,309							8,755
Income from continuing operations									19,212							49,930						72,295							72,755
Discontinued operations:
(Loss) income from discontinued operations before income taxes									(397	)						3,895						(895	)						7,857
Income tax (benefit) provision									(391	)						1,432						(448	)						2,175
(Loss) income from discontinued operations									(6	)						2,463						(447	)						5,682
Net income								$	19,206						$	52,393					$	71,848						$	78,437
Income (loss) per common share:
Basic:
Continuing operations								$	0.47						$	1.26					$	1.79						$	1.85
Discontinued operations									–							0.06						(0.01	)						0.15
Income								$	0.47						$	1.32					$	1.78						$	2.00
Diluted:
Continuing operations								$	0.45						$	1.15					$	1.69						$	1.75
Discontinued operations									–							0.05						(0.01	)						0.13
Income								$	0.45						$	1.20					$	1.68						$	1.88
Weighted average shares outstanding:
Basic									40,998							39,761						40,433							39,283
Diluted									43,002							43,506						42,780							41,683

Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
								June 30,						December 31,
								2011						2010
								(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents								$	197,668					$	245,132
Short-term investments									380,506						394,180
Restricted cash									54,484						76,115
Accounts receivable, net									128,000						150,528
Inventories, net									113,339						108,487
Prepaid expenses and other current assets									69,880						34,328
Assets held for sale									2,341						–
Deferred income taxes, current									7,000						13,803
Total current assets									953,218						1,022,573
Property, plant and equipment, net									62,397						42,320
Goodwill									67,107						52,003
Deferred income taxes									2,998						9,403
Other assets, net									34,723						21,735
Total assets								$	1,120,443					$	1,148,034
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable								$	60,046					$	32,220
Accrued expenses and other current liabilities									195,017						183,010
Deferred profit									3,948						4,109
Income taxes payable									4,193						56,369
Liabilities of discontinued segment held for sale									5,359						5,359
Current portion of long-term debt									238						101,367
Total current liabilities									268,801						382,434
Long-term debt									2,532						2,654
Other liabilities									306						434
Total liabilities									271,639						385,522
Equity									848,804						762,512
Total liabilities and equity								$	1,120,443					$	1,148,034

Veeco Instruments Inc. and Subsidiaries
Reconciliation of GAAP to non-GAAP results
(In thousands, except per share data)
(Unaudited)
								Three months ended														Six months ended
								June 30,														June 30,
								2011							2010							2011							2010
Adjusted EBITA
Operating income								$	23,669						$	59,880						$	103,338						$	85,054
Adjustments:
Amortization									1,489							1,238							2,624							2,476
Equity-based compensation									4,063							2,523							7,161							4,389
Restructuring									11,125			(4)				–							11,125			(4)				(179	)		(1)
Asset impairment									6,211			(4)				–							6,211			(4)				–
Inventory write-off									33,375			(4)				–							33,375			(4)				–
Earnings from continuing operations before interest, income taxes and amortization excluding certain items (“Adjusted EBITA”)
								$	79,932						$	63,641						$	163,834						$	91,740
Non-GAAP Net Income
Net income from continuing operations (GAAP basis)								$	19,212						$	49,930						$	72,295						$	72,755
Non-GAAP adjustments:
Amortization									1,489							1,238							2,624							2,476
Equity-based compensation									4,063							2,523							7,161							4,389
Restructuring									11,125			(4	)			–							11,125			(4	)			(179	)		(1	)
Loss on extinguishment of debt									3,045							–							3,349							–
Asset impairment									6,211			(4	)			–							6,211			(4	)			–
Inventory write-off									33,375			(4	)			–							33,375			(4	)			–
Non-cash portion of interest expense									490			(2	)			760			(2	)			1,260			(2	)			1,501			(2	)
Income tax effect of non-GAAP adjustments									(21,375	)		(3	)			(13,736	)		(3	)			(23,213	)		(3	)			(22,639	)		(3	)
Non-GAAP Net Income								$	57,635						$	40,715						$	114,187						$	58,303
Non-GAAP earnings per diluted share excluding certain items (“Non-GAAP EPS”)								$	1.34						$	0.94						$	2.67						$	1.40
Diluted weighted average shares outstanding									43,002							43,506							42,780							41,683

(1) During the first quarter of 2010, we recorded a restructuring credit of $0.2 million associated with a change in estimate.

(2) Adjustment to exclude non-cash interest expense on convertible subordinated notes.

(3) By the end of 2010, the Company had fully utilized all prior NOL and tax credit carryfowards. As a result, beginning in 2011, the Company utilized the with and without method, at a 30.25% effective rate forecasted for the full year, to determine the income tax effect of non-GAAP adjustments. During the second quarter of 2010 we provided for income taxes at a 35% statutory rate to determine the income tax effect of non-GAAP adjustments.

(4) During the second quarter of 2011, we recorded a $6.2 million asset impairment charge related to long-lived assets, a $33.4 million inventory write-off and a $11.1 charge for settlement of contracts in our Solar business due to the discontinuance of our CIGS solar systems business. The inventory write-off was included in cost of sales in the GAAP income statement.

NOTE – This reconciliation is not in accordance with, or an alternative method for, generally accepted accounting principles in the United States, and may be different from similar measures presented by other companies. Management of the Company evaluates performance of its business units based on adjusted EBITA, which is the primary indicator used to plan and forecast future periods. The presentation of this financial measure facilitates meaningful comparison with prior periods, as management of the Company believes adjusted EBITA reports baseline performance and thus provides useful information.

Veeco Instruments Inc. and Subsidiaries
Reconciliation of GAAP to non-GAAP results
(In thousands, except per share data)
(Unaudited)
						Guidance for
						the three months ending September 30, 2011
						LOW						HIGH
Adjusted EBITA
Operating income						$	54,200					$	77,725
Adjustments:
Amortization							1,278						1,278
Equity-based compensation							3,535						3,535
Earnings from continuing operations before interest, income taxes and amortization excluding certain items (“Adjusted EBITA”)						$	59,013					$	82,538
Non-GAAP Net Income
Net income from continuing operations (GAAP basis)						$	38,125					$	54,605
Non-GAAP adjustments:
Amortization							1,278						1,278
Equity-based compensation							3,535						3,535
Income tax effect of non-GAAP adjustments							(1,619)	(1)					(1,690)	(1)
Non-GAAP Net Income						$	41,319					$	57,728
Non-GAAP earnings per diluted share excluding certain items (“Non-GAAP EPS”)						$	1.00					$	1.40
Diluted weighted average shares outstanding							41,250						41,250

(1) By the end of 2010, the Company had fully utilized all prior NOL and tax credit carryfowards. As a result, beginning in 2011, the Company utilized the with and without method, at a 30.25% effective rate forecasted for the full year, to determine the income tax effect of non-GAAP adjustments.

NOTE – This reconciliation is not in accordance with, or an alternative method for, generally accepted accounting principles in the United States, and may be different from similar measures presented by other companies. Management of the Company evaluates performance of its business units based on adjusted EBITA, which is the primary indicator used to plan and forecast future periods. The presentation of this financial measure facilitates meaningful comparison with prior periods, as management of the Company believes adjusted EBITA reports baseline performance and thus provides useful information.

Veeco Instruments Inc. and Subsidiaries
Segment Bookings, Revenues, and Reconciliation
of Operating Income (Loss) to Adjusted EBITA (Loss)
(In thousands)
(Unaudited)
								Three months ended												Six months ended
								June 30,												June 30,
									2011					2010							2011					2010
LED & Solar
Bookings								$	273,282				$	260,439						$	471,547				$	472,102
Revenues								$	219,135				$	185,647						$	433,833				$	297,152
Operating income								$	17,907				$	55,930						$	90,179				$	83,025
Amortization									1,108					796							1,822					1,592
Equity-based compensation									1,238					671							2,215					1,138
Restructuring									11,125					–							11,125					–
Asset impairment									6,211					–							6,211					–
Inventory write-off									33,375					–							33,375					–
Adjusted EBITA								$	70,964				$	57,397						$	144,927				$	85,755
Data Storage
Bookings								$	37,546				$	50,025						$	70,161				$	76,397
Revenues								$	45,680				$	35,742						$	85,658				$	58,987
Operating income								$	12,342				$	8,914						$	23,902				$	11,372
Amortization									356					383							719					766
Equity-based compensation									352					308							660					523
Restructuring									–					–							–					(179)
Adjusted EBITA								$	13,050				$	9,605						$	25,281				$	12,482
Unallocated Corporate
Operating loss								$	(6,580)				$	(4,964)						$	(10,743)				$	(9,343)
Amortization									25					59							83					118
Equity-based compensation									2,473					1,544							4,286					2,728
Adjusted loss								$	(4,082)				$	(3,361)						$	(6,374)				$	(6,497)
Total
Bookings								$	310,828				$	310,464						$	541,708				$	548,499
Revenues								$	264,815				$	221,389						$	519,491				$	356,139
Operating income								$	23,669				$	59,880						$	103,338				$	85,054
Amortization									1,489					1,238							2,624					2,476
Equity-based compensation									4,063					2,523							7,161					4,389
Restructuring									11,125					–							11,125					(179)
Asset impairment									6,211					–							6,211					–
Inventory write-off									33,375					–							33,375					–
Adjusted EBITA								$	79,932				$	63,641						$	163,834				$	91,740

 

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