Veeco Instruments Inc. (Veeco) has reported revenues of $442.8 million for the year-end 2008, compared with the revenues of $402.5 million in the previous year-end. It has also reported a net loss of $71.1 million, or $2.27 loss per share, for the year-end 2008, compared with the net loss of $17.4 million, or $0.56 loss per share, in the previous year-end.
The company’s results for the fourth quarter of 2008 include the impact of $80.1 million in charges ($73.0 million for impairment of goodwill and other long lived assets, triggered by the decline in the company’s market capitalization and weak business environment, and $7.1 million in restructuring and other charges).
John R. Peeler, Veeco’s chief executive officer, said, “We are pleased that, despite the extremely challenging market environment that necessitated a significant impairment charge, fourth quarter results were in line with guidance, with Veeco revenues of $110 million and non-GAAP EPS of $0.11 per share. In addition, we significantly improved our balance sheet during the fourth quarter, generating $19 million in free cash flow and retiring $37 million of convertible debt. Our year-end cash balance stood at a healthy $104 million. For the full year, we delivered on our commitments to refocus the business, grow the top line, improve profitability and contain spending, and I am proud of the progress we made to strengthen the organization and increase effectiveness across the company. In 2008, we grew revenue by 10% to $443 million, without significantly increasing our operating expenses, resulting in a 163% increase in EBITA. LED & Solar became our largest business, with revenues increasing by 43% to $166 million and EBITA growing by 89%.”
Peeler added, “Veeco’s fourth quarter 2008 bookings were $89 million, flat with the third quarter of 2008 despite a 57% decline in Data Storage bookings to a historically low level of $14 million, as customers froze capital spending. LED & Solar orders increased 69% sequentially to $44 million. This solid performance resulted from record orders for our molecular beam epitaxy systems for solar and other emerging applications, customer purchases of our thermal sources for solar cells, and two large multi-unit orders for metal organic chemical vapor deposition systems. Metrology bookings were down 4% sequentially.”
Fourth Quarter 2008 Summary:
The company’s revenue for the fourth quarter of 2008 was $110.3 million, compared to $106.8 million in the fourth quarter of 2007. The company’s fourth quarter operating loss was $77.1 million which included asset impairment, restructuring and other charges of $80.1 million, compared to an operating loss of $8.6 million in the fourth quarter of 2007 which also included restructuring charges. Excluding the above mentioned charges, The company’s fourth quarter 2008 earnings before interest, taxes and amortization excluding certain charges (EBITA) was $6.2 million compared to $4.1 million in the prior year. Fourth quarter 2008 net loss was $72 million, or $2.29 per share, compared to a net loss of $9.4 million, or $0.30 per share, 2008.
Full Year 2008 Summary:
The company’s 2008 operating loss was $70.6 million, including $88.3 million in asset impairment, restructuring and other charges, compared to an operating loss of $12.1 million in 2007, which also included restructuring charges. 2008 EBITA was $28.5 million compared to $10.8 million in 2007, excluding certain charges in both periods. Excluding amortization expenses and using a 35% tax rate, and excluding charges in both periods, earnings per share were $0.51 in 2008, compared to $0.17 in 2007.
Overall Business Outlook and Restructuring Plan:
Peeler said, “We anticipate a very weak start to 2009. Some of Veeco’s key LED and data storage customers have pushed out approximately $30 million of equipment deliveries originally slotted for revenue in the first quarter due to current industry overcapacity, financing constraints and their weak business outlook. As a result, nearly half of our $147 million end-of-year backlog is currently forecasted for revenue in the second half of 2009.”
Due to deteriorating business conditions tied to the global economic slowdown, the company implemented a significant restructuring program during the fourth quarter of 2008 which included a 26% reduction in force, a majority having already occurred. All other impacted employees have been notified and will transition out of the company through 2009. This workforce reduction is being achieved by organizational changes that centralize the company’s supply chain and operations, consolidate business units, increase outsourced manufacturing and decrease the number of manufacturing sites from eight to four. Other key cost cutting actions which are part of the company’s restructuring program include: senior management pay cuts, a reduction in board of director’s compensation and an employee wage freeze.
Peeler added, “We have moved swiftly to restructure Veeco to lower our quarterly breakeven level to $80 million, with a goal to return to EBITA profitability by the fourth quarter of 2009. We currently anticipate that restructuring actions will result in annualized savings of over $36 million: approximately $20 million reduction in manufacturing labor and overhead and service costs which are included in cost of goods sold, and $16 million reduction in operating spending.”
“While we are dramatically changing the organization and cutting spending overall in 2009, we are also continuing to invest in R&D for high growth opportunities, with particular emphasis on LED & Solar and new applications for Metrology instruments. Despite the current pause in capacity spending, we anticipate strong multi-year LED industry growth tied to further adoption in applications such as TVs and laptops. Veeco’s solar growth strategy is based on building an integrated equipment offering for CIGS thin film solar cells, emerging as the next generation low cost, high efficiency solar technology. It is our goal to emerge from this downturn with a strong product portfolio well aligned to our customers’ technology needs; a solid balance sheet; and a leaner, more cost-effective organizational structure that can achieve 15% EBITA when end market conditions improve.”
First Quarter 2009 Outlook:
The company’s first quarter revenues are currently forecasted to be between $60-70 million, and bookings are anticipated to decline sequentially from the fourth quarter of 2008. Veeco is currently forecasting a per share loss of between $0.72 and $0.56 on a GAAP basis for the first quarter of 2009.
Beginning in 2009, the company’s non-GAAP EPS calculation will exclude equity-based compensation and non cash interest pertaining to its convertible subordinated notes. Veeco expects to incur charges to earnings of $5.0 to $6.0 million related to restructuring activities during the first quarter. Excluding these charges, amortization of $1.8 million, equity compensation of $1.7 million and non cash interest of $0.7 million, and using a 35% tax rate, the company’s first quarter loss per share is currently forecasted to be between $0.25 and $0.17 on a non-GAAP basis.