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Veeco Reports Fourth Quarter 2014 Financial Results

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Veeco Instruments Inc. (Nasdaq: VECO) announced its financial results for the fourth quarter and year ended December 31, 2014. Veeco reports its results in conformity with U.S. generally accepted accounting principles (“GAAP”) and also provides results adjusting for certain items. A reconciliation between GAAP and Non-GAAP operating results is provided at the end of this press release.

U.S. Dollars in millions, except per share data
GAAP Results

4th Quarter

Full Year
Q4 ’14 Q4 ’13 2014 2013
Revenues $113.6 $73.2 $392.9 $331.7
Net loss (56.9 ) (22.1 ) (66.9 ) (42.3 )
Earnings (loss) per share (1.44 ) (0.57 ) (1.70 ) (1.09 )
Non-GAAP Results 4th Quarter Full Year
Q4 ’14 Q4 ’13 2014 2013
Adjusted EBITDA $8.3 ($23.3 ) $2.6 ($36.7 )
Earnings (loss) per share 0.13 (0.42 ) (0.10 ) (0.72 )

CEO Commentary

“Veeco achieved significant milestones during 2014 as part of the transition back to growth and profitability,” commented John R. Peeler, Chairman and Chief Executive Officer. “For the full year, revenue increased 18% to $393 million, bookings were up more than 50% to $510 million, and we returned to adjusted EBITDA profitability. We developed differentiated new products, lowered operating expenses and improved gross margins. We also completed the acquisition of Solid State Equipment LLC (now Veeco Precision Surface Processing or “PSP”) in the fourth quarter, improving access to high growth markets through complementary technology that will drive increased sales and profitability.”

“Fourth quarter results were within our guidance for revenue and above guidance for gross margin and adjusted EBITDA performance. Bookings totaled $196 million, the highest quarterly level since 2011. MOCVD booked $142 million, primarily due to orders for our next generation EPIK700TM MOCVD system. Data Storage bookings of $45 million were also the highest level since 2011, as customers invested in both capacity and technology.”

ALD Business Update

Veeco successfully demonstrated its FAST-ALDTM technology for flexible OLED encapsulation, but at the same time the incumbent deposition technology has progressed to satisfy the current market requirements. As a result, Veeco lowered the near term revenue forecasts for its ALD technology and took an asset impairment charge (goodwill, intangibles and property, plant and equipment) in the fourth quarter. The Company will lower its spending rate in ALD, refocus R&D efforts on semiconductor and other applications, and continue to monitor the flexible OLED market opportunity.

Outlook

Veeco has begun shipping its new EPIK700 MOCVD system, which is a highly competitive product that improves LED customers’ productivity and yield and lowers their total cost of ownership. As is standard practice with new product introductions, accounting rules require deferral of revenue on initial system shipments. The Company expects to ship over $25 million of EPIK700 systems in the first quarter. The value of these shipments will largely appear as deferred revenue on the balance sheet, and, as a result, Veeco’s first quarter 2015 revenue is currently forecasted to be between $92 and $100 million. Loss per share is currently forecasted to be between ($0.59) to ($0.53) on a GAAP basis and ($0.13) to ($0.07) on a non-GAAP basis. Please refer to the attached financial table for more details.

Mr. Peeler added, “I am highly confident that 2015 will be another year of improved performance for Veeco, fueled by great new products targeted at growth opportunities in LED, power electronics and mobile devices. We have a strong team focused on keeping our organization streamlined and improving both gross margin and bottom line performance.”

Conference Call Information

A conference call reviewing these results has been scheduled for today at 5:00pm ET. To join the call, dial 1-888-724-9511 (toll free) or 913-312-1236 and use passcode 9582112. The call will also be webcast live on the Veeco website at ir.veeco.com. A replay of the call will be available beginning at 8:00pm ET tonight through 8:00pm ET on March 3, 2015 at 1-888-203-1112 (toll free) or 1-719-457-0820, using passcode 9582112, and on the Veeco website. We will post an accompanying slide presentation to our website prior to the beginning of the call.

About Veeco

Our process equipment solutions enable the manufacture of LEDs, power electronics, wireless devices, hard disk drives, and semiconductors. We are the market leader in MOCVD, MBE, Ion Beam and other advanced thin film process technologies. Our high performance systems drive innovation in energy efficiency, consumer electronics and network storage allowing our customers to maximize productivity and achieve a lower cost of ownership. For information on our Company, products, or worldwide service and support, please visit 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, 2013 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
Consolidated Statements of Operations
(In thousands, except per share data)
For the three months ended For the year ended
December 31, December 31,
2014 2013 2014 2013
Net sales $ 113,569 $ 73,209 $ 392,873 $ 331,749
Cost of sales 75,695 57,567 257,991 228,607
Gross profit 37,874 15,642 134,882 103,142
Operating expenses, net:
Selling, general and administrative 24,490 26,409 89,760 85,486
Research and development 20,424 20,824 81,171 81,424
Amortization 4,195 2,961 13,146 5,527
Restructuring 884 (286 ) 4,394 1,485
Asset impairment 55,306 1,220 58,170 1,220
Changes in contingent consideration 829 (29,368 ) 829
Other income, net (2,848 ) (876 ) (3,182 ) (1,017 )
Total operating expenses, net 102,451 51,081 214,091 174,954
Operating loss (64,577 ) (35,439 ) (79,209 ) (71,812 )
Interest income (expense), net 314 (18 ) 855 602
Loss before income taxes (64,263 ) (35,457 ) (78,354 ) (71,210 )
Income tax benefit (7,351 ) (13,372 ) (11,414 ) (28,947 )
Net loss $ (56,912 ) $ (22,085 ) $ (66,940 ) $ (42,263 )
Loss per common share:
Basic $ (1.44 ) $ (0.57 ) $ (1.70 ) $ (1.09 )
Diluted $ (1.44 ) $ (0.57 ) $ (1.70 ) $ (1.09 )
Weighted average number of shares:
Basic 39,446 38,904 39,350 38,807
Diluted 39,446 38,904 39,350 38,807
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
December 31, December 31,
2014 2013
Assets
Current assets:
Cash and cash equivalents $ 270,811 $ 210,799
Short-term investments 120,572 281,538
Restricted cash 539 2,738
Accounts receivable, net 60,085 23,823
Inventories 61,471 59,726
Deferred cost of sales 5,076 724
Prepaid expenses and other current assets 23,132 22,579
Assets held for sale 6,000
Deferred income taxes 7,976 11,716

Total current assets

555,662 613,643
Property, plant and equipment at cost, net 78,752 89,139
Goodwill 114,959 91,348
Deferred income taxes 1,180 397
Intangible assets, net 159,308 114,716
Other assets 19,594 38,726
Total assets $ 929,455 $ 947,969
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 18,111 $ 35,755
Accrued expenses and other current liabilities 48,418 51,084
Customer deposits and deferred revenue 96,004 34,754
Income taxes payable 5,441 6,149
Deferred income taxes 120 159
Current portion of long-term debt 314 290
Total current liabilities 168,408 128,191
Deferred income taxes 16,397 28,052
Long-term debt 1,533 1,847
Other liabilities 4,185 9,649
Total liabilities 190,523 167,739
Total stockholders’ equity 738,932 780,230
Total liabilities and stockholders’ equity $ 929,455 $ 947,969
Veeco Instruments Inc. and Subsidiaries
Reconciliation GAAP to Non-GAAP Financial Data
(In thousands, except per share data)
(Unaudited)
Non-GAAP Adjustments
For the three months ended December 31, 2014 GAAP

Share-based
Compensation

Acquisition
Related

Other Non-GAAP
Net sales $ 113,569 $ $ $ $ 113,569
Cost of sales 75,695 (657 ) (5,175 ) (a) - 69,863
Gross profit 37,874 657 5,175 43,706
Gross margin 33.3 % 38.5 %
Operating expenses, net:
Selling, general and administrative 24,490 (2,667 ) (3,242 ) (b) 18,581
Research and development 20,424 (1,185 ) 19,239
Amortization 4,195 (4,195 )
Restructuring 884 (884 )
Asset impairment 55,306 (55,306 )
Other expense (income), net (2,848 ) - - 3,142 (c) 294
Total operating expenses, net 102,451 (3,852 ) (7,437 ) (53,048 ) 38,114
Operating income (loss) (64,577 ) 4,509 12,612 53,048 5,592
Interest income, net 314 - - - 314
Income (loss) before income taxes (64,263 ) 4,509 12,612 53,048 5,906
Income tax provision (benefit) (7,351 ) - 2,705 (d) 5,428 (e) 782
Net income (loss) $ (56,912 ) $ 4,509 $ 9,907 $ 47,620 $ 5,124
Basic EPS $ (1.44 ) $ 0.13
Diluted EPS $ (1.44 ) $ 0.13
Basic shares 39,446 39,446
Diluted shares 39,446 40,072
Non-GAAP operating income $ 5,592
Depreciation 2,728
Adjusted EBITDA $ 8,320
Note: Amounts may not calculate precisely due to rounding.

(a) The inventory fair value step-up associated with the PSP acquisition’s purchase accounting.

(b) One-time PSP acquisition related transaction costs.

(c) One-time cumulative translation gain related to the liquidation of our Japanese subsidiary.

(d) Valuation allowance reversal associated with the recognition of deferred tax liabilities related to the PSP acquisition.

(e) $4.9 million tax liability reversal related to an incentive tax rate in a foreign subsidiary as well as utilization of the ‘with or without’ method.

This table includes financial measures adjusted for the impact of certain items; these financial measures are therefore not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). These Non-GAAP financial measures consider exclusion of: share-based compensation expense; one-time charges relating to restructuring initiatives, non-cash asset impairments, certain other non-operating gains and losses, and acquisition-related items such as one-time transaction costs, non-cash amortization of acquired intangible assets, and the stepped-up cost of sales associated with the purchase accounting of acquired inventory.

These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. By excluding these items, non-GAAP financial measures are intended to facilitate meaningful comparisons to historical operating results, competitors’ operating results, and estimates made by securities analysts. Management is evaluated on key performance metrics including adjusted EBITDA, which is used to determine management incentive compensation as well as to forecast future periods. These non-GAAP financial measures may be useful to investors in allowing for greater transparency of supplemental information used by management in its financial and operational decision-making. In addition, similar non-GAAP financial measures have historically been reported to investors; the inclusion of comparable numbers provides consistency in financial reporting. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this news release to their most directly comparable GAAP financial measures.

Veeco Instruments Inc. and Subsidiaries
Reconciliation GAAP to Non-GAAP Financial Data
(In thousands, except per share data)
(Unaudited)
Non-GAAP Adjustments
For the three months ended December 31, 2013 GAAP

Share-based
Compensation

Other Non-GAAP
Net sales $ 73,209 $ $ $ 73,209
Cost of sales 57,567 (462 ) - 57,105
Gross profit 15,642 462 16,104
Gross margin 21.4 % 22.0 %
Operating expenses, net:
Selling, general and administrative 26,409 (2,414 ) 23,995
Research and development 20,824 (1,199 ) 19,625
Amortization 2,961 (2,961 )
Restructuring (286 ) 286
Asset impairment 1,220 (1,220 )
Changes in contingent consideration 829 (829 )
Other income, net (876 ) - - (876 )
Total operating expenses, net 51,081 (3,613 ) (4,724 ) 42,744
Operating income (loss) (35,439 ) 4,075 4,724 (26,640 )
Interest expense, net (18 ) - - (18 )
Income (loss) before income taxes (35,457 ) 4,075 4,724 (26,658 )
Income tax provision (benefit) (13,372 ) 1,419 1,645 (10,308 ) *
Net income (loss) $ (22,085 ) $ 2,656 $ 3,079 $ (16,350 )
Basic EPS $ (0.57 ) $ (0.42 )
Diluted EPS $ (0.57 ) $ (0.42 )
Basic shares 38,904 38,904
Diluted shares 38,904 38,904
Non-GAAP operating loss $ (26,640 )
Depreciation 3,384
Adjusted EBITDA $ (23,256 )
Note: Amounts may not calculate precisely due to rounding.
* The ‘with or without method’ is utilized to determine the income tax effect of the non-GAAP adjustments.

This table includes financial measures adjusted for the impact of certain items; these financial measures are therefore not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). These Non-GAAP financial measures consider exclusion of: share-based compensation expense; one-time charges relating to restructuring initiatives, non-cash asset impairments, certain other non-operating gains and losses, and acquisition-related items such as one-time transaction costs, non-cash amortization of acquired intangible assets, and the stepped-up cost of sales associated with the purchase accounting of acquired inventory.

These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. By excluding these items, non-GAAP financial measures are intended to facilitate meaningful comparisons to historical operating results, competitors’ operating results, and estimates made by securities analysts. Management is evaluated on key performance metrics including adjusted EBITDA, which is used to determine management incentive compensation as well as to forecast future periods. These non-GAAP financial measures may be useful to investors in allowing for greater transparency of supplemental information used by management in its financial and operational decision-making. In addition, similar non-GAAP financial measures have historically been reported to investors; the inclusion of comparable numbers provides consistency in financial reporting. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this news release to their most directly comparable GAAP financial measures.

Veeco Instruments Inc. and Subsidiaries
Reconciliation GAAP to Non-GAAP Financial Data
(In thousands, except per share data)
(Unaudited)
Non-GAAP Adjustments
For the twelve months ended December 31, 2014 GAAP

Share-based
Compensation

Acquisition
Related

Other Non-GAAP
Net sales $ 392,873 $ $ $ $ 392,873
Cost of sales 257,991 (2,456 ) (5,175 ) (a) - 250,360
Gross profit 134,882 2,456 5,175 142,513
Gross margin 34.3 % 36.3 %
Operating expenses, net:
Selling, general and administrative 89,760 (11,859 ) (3,242 ) (b) 74,659
Research and development 81,171 (4,498 ) 76,673
Amortization 13,146 (13,146 )
Restructuring 4,394 (4,394 )
Asset impairment 58,170 (58,170 )
Changes in contingent consideration (29,368 ) 29,368
Other expense (income), net (3,182 ) - - 3,142 (c) (40 )
Total operating expenses, net 214,091 (16,357 ) (16,388 ) (30,054 ) 151,292
Operating income (loss) (79,209 ) 18,813 21,563 30,054 (8,779 )
Interest income, net 855 - - - 855
Income (loss) before income taxes (78,354 ) 18,813 21,563 30,054 (7,924 )
Income tax provision (benefit) (11,414 ) - 2,705 (d) 4,908 (e) (3,801 )
Net income (loss) $ (66,940 ) $ 18,813 $ 18,858 $ 25,146 $ (4,123 )
Basic EPS $ (1.70 ) $ (0.10 )
Diluted EPS $ (1.70 ) $ (0.10 )
Basic shares 39,350 39,350
Diluted shares 39,350 39,350
Non-GAAP operating loss $ (8,779 )
Depreciation 11,426
Adjusted EBITDA $ 2,647
Note: Amounts may not calculate precisely due to rounding.
(a) The inventory fair value step-up associated with the PSP acquisition’s purchase accounting.
(b) One-time PSP acquisition related transaction costs.
(c) One-time cumulative translation gain related to the liquidation of our Japanese subsidiary.
(d) Valuation allowance reversal associated with the recognition of deferred tax liabilities related to the PSP acquisition.
(e) $4.9 million tax liability reversal related to an incentive tax rate in a foreign subsidiary as well as utilization of the ‘with or without’ method.

This table includes financial measures adjusted for the impact of certain items; these financial measures are therefore not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). These Non-GAAP financial measures consider exclusion of: share-based compensation expense; one-time charges relating to restructuring initiatives, non-cash asset impairments, certain other non-operating gains and losses, and acquisition-related items such as one-time transaction costs, non-cash amortization of acquired intangible assets, and the stepped-up cost of sales associated with the purchase accounting of acquired inventory.

These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. By excluding these items, non-GAAP financial measures are intended to facilitate meaningful comparisons to historical operating results, competitors’ operating results, and estimates made by securities analysts. Management is evaluated on key performance metrics including adjusted EBITDA, which is used to determine management incentive compensation as well as to forecast future periods. These non-GAAP financial measures may be useful to investors in allowing for greater transparency of supplemental information used by management in its financial and operational decision-making. In addition, similar non-GAAP financial measures have historically been reported to investors; the inclusion of comparable numbers provides consistency in financial reporting. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this news release to their most directly comparable GAAP financial measures.

Veeco Instruments Inc. and Subsidiaries

Reconciliation GAAP to Non-GAAP Financial Data

(In thousands, except per share data)

(Unaudited)

Non-GAAP Adjustments
For the twelve months ended December 31, 2013 GAAP

Share-based
Compensation

Other Non-GAAP
Net sales $ 331,749 $ $ $ 331,749
Cost of sales 228,607 (1,446 ) - 227,162
Gross profit 103,142 1,446 104,588
Gross margin 31.1 % 31.5 %
Operating expenses, net:
Selling, general and administrative 85,486 (8,338 ) 77,148
Research and development 81,424 (3,347 ) 78,077
Amortization 5,527 (5,527 )
Restructuring 1,485 (1,485 )
Asset impairment 1,220 (1,220 )
Changes in contingent consideration 829 (829 )
Other income, net (1,017 ) - - (1,017 )
Total operating expenses, net 174,954 (11,685 ) (9,061 ) 154,208
Operating income (loss) (71,812 ) 13,130 9,061 (49,621 )
Interest income, net 602 - - 602
Income (loss) before income taxes (71,210 ) 13,130 9,061 (49,019 )
Income tax provision (benefit) (28,947 ) 4,733 3,266 (20,948 ) *
Net income (loss) $ (42,263 ) $ 8,398 $ 5,795 $ (28,071 )
Basic EPS $ (1.09 ) $ (0.72 )
Diluted EPS $ (1.09 ) $ (0.72 )
Basic shares 38,807 38,807
Diluted shares 38,807 38,807
Non-GAAP operating income (loss) $ (49,621 )
Depreciation 12,898

Adjusted EBITDA

$ (36,723 )
Note: Amounts may not calculate precisely due to rounding.
* The ‘with or without method’ is utilized to determine the income tax effect of the non-GAAP adjustments.

This table includes financial measures adjusted for the impact of certain items; these financial measures are therefore not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). These Non-GAAP financial measures consider exclusion of: share-based compensation expense; one-time charges relating to restructuring initiatives, non-cash asset impairments, certain other non-operating gains and losses, and acquisition-related items such as one-time transaction costs, non-cash amortization of acquired intangible assets, and the stepped-up cost of sales associated with the purchase accounting of acquired inventory.

These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. By excluding these items, non-GAAP financial measures are intended to facilitate meaningful comparisons to historical operating results, competitors’ operating results, and estimates made by securities analysts. Management is evaluated on key performance metrics including adjusted EBITDA, which is used to determine management incentive compensation as well as to forecast future periods. These non-GAAP financial measures may be useful to investors in allowing for greater transparency of supplemental information used by management in its financial and operational decision-making. In addition, similar non-GAAP financial measures have historically been reported to investors; the inclusion of comparable numbers provides consistency in financial reporting. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this news release to their most directly comparable GAAP financial measures.

Veeco Instruments Inc. and Subsidiaries
Reconciliation GAAP to Non-GAAP Financial Data
(In millions, except per share data)
(Unaudited)
Non-GAAP Adjustments
Guidance for the three months ended March 31, 2015 GAAP

Share-based
Compensation

Acquisition
Related

Other Non-GAAP
Net sales $ 92 $ 100 $

$ $ $ 92 $ 100
Gross profit 31.0 35.5 0.7 1.8 (a) 33.5 38.0
Gross margin 33 % 35 % 36 % 38 %
Operating expenses, net 52.4 54.4 (4.5 ) (8.4 ) (b) (3.0 ) (c) 36.5 38.5
Operating income (loss) (21.4 ) (18.9 ) (3.0 ) (0.5 )
Depreciation 3.0 3.0
Adjusted EBITDA $ 0.0 $ 2.5
Net income (loss) (23.6 ) (21.0 ) 5.2 10.2 3.0 (5.2 ) (2.6 )
Income (loss) per diluted common share: $ (0.59 ) $ (0.53 ) $ (0.13 ) $ (0.07 )
Weighted average number of diluted shares: 39.7 39.7
Note: Amounts may not calculate precisely due to rounding.
(a) The inventory fair value step-up associated with the PSP acquisition’s purchase accounting.
(b) Acquisition related amortization expense.
(c) Restructuring charges.

This table includes financial measures adjusted for the impact of certain items; these financial measures are therefore not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). These Non-GAAP financial measures consider exclusion of: share-based compensation expense; one-time charges relating to restructuring initiatives, non-cash asset impairments, certain other non-operating gains and losses, and acquisition-related items such as one-time transaction costs, non-cash amortization of acquired intangible assets, and the stepped-up cost of sales associated with the purchase accounting of acquired inventory.

These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. By excluding these items, non-GAAP financial measures are intended to facilitate meaningful comparisons to historical operating results, competitors’ operating results, and estimates made by securities analysts. Management is evaluated on key performance metrics including adjusted EBITDA, which is used to determine management incentive compensation as well as to forecast future periods. These non-GAAP financial measures may be useful to investors in allowing for greater transparency of supplemental information used by management in its financial and operational decision-making. In addition, similar non-GAAP financial measures have historically been reported to investors; the inclusion of comparable numbers provides consistency in financial reporting. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this news release to their most directly comparable GAAP financial measures.

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