What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-22 compared with 2022-02-18 · 77 added, 106 removed, 204 unchanged (47% of the section changed)

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The Veeco United team executed well in a challenging environment during 2022, accomplishing a number of milestones, including:

● Significant progress on our San Jose capacity expansion project, including shipping the first systems out of this new facility;

● Greatly increased our emphasis on placing evaluation systems with customers.

We believe these evaluation systems are a final step in our customer’s selection process;

● Overall 28% revenue growth, led by the Semiconductor and Data Storage markets;

● Achieved $68 million in cash flow from operations;

● Grew backlog by $74 million to $440 million;

● Improved our capital structure by repurchasing $112 million of our 2023 Senior Convertible Notes;

● Improved financial flexibility by entering into revolving credit facility of $150 million;

● Improved our ESG efforts and disclosures, as reflected in our 2 nd Corporate Sustainability Report released in November 2021.

● Solidly executing our multi-year growth strategy, with progress advancing our product roadmaps for the Semiconductor and Compound Semiconductor markets, execution of our robust evaluation program with high customer acceptance rates, and completing our San Jose expansion

● Achieved 11% year-on-year revenue growth for the Company, including record revenue in the Semiconductor market, which grew 50% year-on-year

● Developed silicon carbide market strategy, culminating in the acquisition of Epiluvac, accelerating our SiC epitaxy equipment market penetration

● Reinforced our commitment to culture and corporate responsibility, including appointing an additional female Board member, publishing our third sustainability report, and implementing a leadership training program

● Positioned the Company for a solid performance expected in 2023, with an ending 2022 backlog of $500 million, and robust cash flow from operations of $108 million, strengthening our balance sheet

These accomplishments enabled us to exit 2022 well positioned to execute on our growth plans for 2023.

COVID-19 Update

As a result of the COVID-19 pandemic, governmental authorities have implemented and are continuing to implement numerous and constantly evolving measures to try to contain the virus, such as travel bans and restrictions, limits on gatherings, quarantines, shelter-in-place orders, vaccine mandates, and business shutdowns.

We have important internal and third-party manufacturing operations in the U.S.

and Singapore, and sales and support operations in China, Germany, Japan, Malaysia, Philippines, Singapore, South Korea, Thailand, Taiwan and the United Kingdom, all of which have been affected by the COVID-19 pandemic.

Measures providing for business shutdowns generally exclude certain essential services, and those essential services include critical infrastructure and the businesses that support that critical infrastructure.

Our operations are considered part of the critical and essential infrastructure defined by applicable government authorities and, although governmental measures to contain the pandemic may be modified or extended, our manufacturing facilities remain open.

We believe our diverse product offerings and the critical nature of certain of our products for infrastructure insulate us, to some extent, from the adverse effects of the pandemic;

however, a prolonged economic downturn will adversely affect our customers, which could have a material adverse effect on our revenues, particularly if customers from whom we derive a significant amount of revenue reduce or delay purchases to mitigate the impacts of the pandemic or fail to make payments to us on time or at all.

We serve a global and highly interconnected customer base across the Asia-Pacific region, Europe, and North America.

Our net sales to customers located outside of the United States represented approximately 62% of our total net sales for the year ended December 31, 2021, and 68% and 70% for the years ended December 31, 2020 and 2019, respectively, and we expect that net sales to customers outside the United States will continue to represent a significant percentage of our total net sales.

As a result, our business will be adversely impacted by further deterioration in global economic conditions, particularly in markets in Asia and Europe.

We are starting to see the effects of the macroeconomic inflationary cost environment and supply chain disruptions due to strained transportation capacity, labor shortages and absenteeism associated with COVID-19, and high global demand as markets reopen and economic stimulus drives growth.

These effects include longer lead times and increased costs.

We are taking proactive steps in an effort to manage the impact to our business, including buying in advance and re-sourcing components on a more frequent basis.

We continue to monitor our global supply chain and may experience additional disruptions in future periods, which could cause a disruption in our ability to obtain raw materials or components required to manufacture our products.

Like many in our industry, we are managing through the effects of the COVID-19 pandemic.

Although the full extent of the COVID-19 pandemic’s impact on our business, results of operations, supply chain, and growth can not be predicted or quantified, we proactively endeavor to identify potential challenges to our business and have been executing business continuity activities to manage disruptions in our business and continue to provide critical infrastructure to our customers.

In response to the pandemic, we have taken, or intend to take, the following steps, among others, to keep our employees safe and minimize the spread of the virus, while continuing to serve our customers:

● implemented rigorous health and safety protocols at our manufacturing facilities, including extensively and frequently disinfecting our facilities, limiting access to our facilities, checking temperatures of individuals entering our facilities, staggering shifts to minimize employee overlap in gowning areas, and providing protective equipment;

● mandated remote working arrangements for employees who do not need to be physically present on the manufacturing floor or at customer facilities;

● implemented virtual meetings, customer demos, and factory acceptances to enable customers to review data and performance of their system in our factory remotely via live video;

● performing service and support activities remotely, when possible, to resolve customer issues and enable our customers to maintain their operations;

● proactively identified gaps in our supply chain and re-sourced a number of components in order to maintain our customer shipment commitments and mitigate single points of failure;

● monitoring our IT systems and implementing contingency and disaster recovery plans to support our IT infrastructure to ensure that our systems remain continuously operative;

● continuing to monitor and, if necessary, reduce our operating expenses and capital expenditures to maintain financial flexibility and profit margins.

While these steps have been effective so far, there could be additional challenges ahead that may impact either our operations or those of our customers, which could have a negative effect on our financial performance, including productivity and capacity impacts as a result of the ongoing pandemic.

We expect to continue to implement these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business, and we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers and suppliers.

As a result, we may incur additional expenses in future periods in response to the pandemic, which could adversely affect our financial position, results of operations, or cash flows.

In addition, we may revise our approach to these initiatives or take additional actions to meet the needs of our employees and customers, and mitigate the impact of the pandemic on our business.

Business Update

We categorize our revenue by the end-markets into which we sell.

Our four end-markets are:

Macroeconomic challenges across the industry have been well publicized, including supply chain constraints, an inflationary environment with a potential recession ahead, new China-export regulations, 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.

Material lead times 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.

We are also experiencing increasing labor, logistics, and material costs, creating additional gross margin pressures.

We expect supply shortages and related challenges to persist into 2023, and 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.

Additionally, we have seen a slow-down in certain shorter lead time products such as wet processing, advanced packaging lithography, and 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 additional 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.

Finally, like many in our industry, we continue to manage through the effects of the COVID-19 pandemic.

While new variants of COVID-19 have emerged and additional variants may emerge in the future, we continue to proactively implement precautionary measures if and when necessary to keep our workplaces healthy and safe.

Our top priority steadfastly remains protecting the health and safety of our employees, customers, suppliers and community.

While our actions have been effective so far, there could be additional challenges ahead that may impact either our operations or those of our customers, which could have a negative effect on our financial performance, including productivity and capacity impacts as a result of the ongoing pandemic.

We expect these measures to continue until we determine that the COVID-19 pandemic is adequately contained for purposes of our operations, and we may take further actions as government authorities require or as we determine to be in the best interests of our employees, customers, suppliers and community.

We may incur additional expenses in future periods in response to the pandemic, which could adversely affect our operations and financial condition.

While we work to overcome these macroeconomic challenges, we continue to serve our customers in the following four end-markets:

Semiconductor;

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and Scientific & Other.

Sales in the Semiconductor market grew 49% in 2021 and were driven by our laser annealing systems for logic devices and lithography systems for Advanced Packaging.

We continue to build momentum for our laser annealing solutions with advanced node logic customers.

We have been winning additional application steps with leading manufacturers.

We have evaluation systems at a DRAM manufacturer and are working with new and existing logic customers on their next manufacturing nodes.

We also continue to deliver our laser annealing systems to trailing node logic manufacturers.

Our lithography systems for Advanced Packaging are aligned with longer-term growth of FOWLP and other Advanced Packaging applications such as heterogeneous integration.

Additionally, the ongoing adoption of EUV Lithography for advanced node, semiconductor manufacturing continues to drive demand for our mask blank systems.

Overall, our technology and market strategy is well aligned with trends such as artificial intelligence, mobile connectivity and high performance computing that drive the Semiconductor market.

We expect continued growth in this market.

Finally, we have begun shipping systems from our new San Jose facility, and expect to fully transition to this new location in 2022.

We address the Compound Semiconductor market with a broad portfolio of technologies including primarily 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, Gallium Nitride power electronics, and photonics applications including edge-emitting lasers and micro-LEDs.

Sales in the Compound Semiconductor market were flat in 2021.

However, we did experience strong growth in equipment shipments for RF Devices and we expect future growth to come from MOCVD and other system shipments in the Photonics market.

Sales in the Data Storage market have been growing for several years, primarily driven by shipments of Ion Beam systems.

Demand for our Ion Beam products was driven by cloud-based storage growth.

In order to be successful, hard disk drive manufacturers are required to improve areal density of magnetic heads for hard disk drives and are manufacturing drives with an increasing number of heads.

After multiple years of customers accelerating their capacity additions, contributing to growth in 2021 of 37%, we expect a period of slowing capacity adds by our data storage customers, resulting in an expected revenue decline in our data storage business in 2022 from recent levels.

With data proliferation forecasted to continue to grow, however, we feel confident about the long-term prospects of our data storage business.

Sales in the Semiconductor market grew 50% in 2022 and were driven by our laser annealing systems for both advanced and trailing node logic devices, ion beam deposition systems for EUV mask blank production, and lithography systems for Advanced Packaging.

We continue to build momentum for our laser annealing solutions with advanced node logic customers by winning application steps with leading manufacturers.

We have also been receiving orders and shipping systems for trailing node applications in China and other regions.

In addition to logic, we introduced laser annealing to the memory market and received an acceptance for an evaluation system at a DRAM manufacturer.

Our lithography systems for Advanced Packaging are aligned with packaging approaches such as fan out wafer level packaging and other advanced packaging applications.

Additionally, the ongoing adoption of EUV Lithography for advanced node semiconductor manufacturing continues to drive demand for our Ion Beam mask blank systems.

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.

Given recent order activity and current backlog in the Semiconductor market, we expect revenue in 2023 to outpace (“WFE”) spending growth, which is forecasted to be down 20% or more.

Finally, we have completed our new San Jose leased facility buildout, and have fully transitioned to this new location.

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 grew 13% in 2022.

We experienced growth in system shipments for photonics applications.

We continue to invest for future growth in the Compound Semiconductor market in areas like power electronics and Micro-LEDs.

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 st , 2023 Veeco acquired SiC technology to address the high-growth SiC power epitaxy equipment market, which is driven by electric vehicles.

With this acquisition, Veeco is accelerating its entry into this market, and expects revenue in 2024.

The purchase price for the transaction, all payable in cash, was $30 million paid at the time of closing with a potential additional $35 million in performance based earn-outs.

After several years of growth, sales in the Data Storage market were down 48% in 2022.

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 and they are introducing advanced technologies which require increased capital intensity.

With data proliferation forecasted to continue to grow, and based on orders we received in 2022, we feel optimistic about the long-term prospects of our data storage business.

Sales in the Scientific & Other market are largely driven by sales to governments, universities, and research institutions.

Revenue was slightly higher in 2021 compared to 2020, and we expect sales in this market to grow modestly in the long run, in line with GDP.

Overall, we enter 2022 with strong backlog in our semiconductor and compound semiconductor markets which, along with our customer engagements and order activity, lead us to expect revenue growth in the coming year as we make progress toward our long-term financial target model.

Revenue was up 12% in 2022 compared to 2021, and we expect sales in this market to grow modestly in the long run, in line with GDP.

Overall, given our strong backlog in the semiconductor, data storage and scientific markets, offset by near-term weakness in compound semiconductor, we expect total 2023 revenue to be in the range of $630 million to $670 million.

Results of Operations

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Amortization of intangible assets

Restructuring

Asset impairment

Other operating expense (income), net

Total operating expenses, net

Operating income (loss)

Operating income

Interest income (expense), net

Other income (expense), net

Income (loss) before income taxes

Income before income taxes

Income tax expense (benefit)

Net income (loss)

* Not meaningful

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Rest of World

Total sales increased for the year ended December 31, 2021 against the comparable prior year period primarily in the Semiconductor and Data Storage markets.

By geography, sales increased in the United States, China, and Rest of APAC

regions, partially offset by decreases in the EMEA region.

The increase in sales in the United States was primarily driven by shipments to Data Storage and Compound Semiconductor customers, while the increase in sales in the Rest of APAC region was primarily driven by shipments to Semiconductor and Data Storage customers.

The increase in sales in the China region was primarily driven by shipments to Semiconductor customers.

The decrease in sales in the EMEA region was primarily driven by a decrease in shipments to Data Storage customers.

Included within the Rest of APAC region for the year ended December 31, 2021 were sales in Taiwan and South Korea of $65.2 million and $50.4 million, respectively, while sales within Rest of APAC region for the year ended December 31, 2020 included sales in Singapore and Taiwan of $49.4 million and $40.0 million, respectively.

Total sales increased for the year ended December 31, 2022 against the comparable prior year period in the Semiconductor, Compound Semiconductor, and Scientific & Other markets, partially offset by a decline in the Data Storage market.

By geography, sales increased in the EMEA, China, and Rest of APAC regions, partially offset by a decrease in the United States.

Included within the Rest of APAC region for the year ended December 31, 2022 were sales in Taiwan, South Korea, Singapore, and Japan of $105.0 million, $40.3 million, $38.4 million, and $30.8 million, respectively, while sales within Rest of APAC region for the year ended December 31, 2021 included sales in Taiwan and South Korea of $65.2 million and $50.4 million, respectively.

We expect there will continue to be year-to-year variations in our future sales distribution across markets and geographies.

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In 2022, gross profit increased compared to 2021 primarily due to an increase in sales volume, partially offset by decreased gross margins.

Gross margins decreased principally due to an increase in spending as we invested in service infrastructure and capacity expansion to meet the growing demands for our semiconductor product lines and supporting our evaluation systems at customers , as well as product and region mix of sales in the period.

We expect our gross margins to fluctuate each period due to product mix and other factors, while we remain committed to increasing our overall gross margins.

Gross margins decreased principally due to increased logistics costs, as well as an increase in spending as we invested in service infrastructure and capacity expansion to meet the growing demands for our semiconductor product lines.

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 in 2021 compared to 2020 primarily from 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.

However, expenses as a percentage of revenue have decreased when compared to the prior period.

Research and development expenses increased in 2022 compared to 2021 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 increased in 2022 compared to 2021 primarily due to higher variable expenses associated with the increase in revenue, profitability, and order in-take.

However, expenses as a percentage of revenue have decreased when compared to the prior year period.

Given the uncertainty regarding the impacts on our business resulting from the COVID-19 pandemic, we are focused on the proactive management of expenses.

In future periods, we may incur additional selling, general and administrative expenses to support our responses to the COVID-19 pandemic.

In addition, we are currently experiencing some duplicate operating expenses for the transition from our existing facility in San Jose, California to our new leased facility, and we expect to continue to do so until this transition is completed over the next several quarters.

In future periods, we may incur additional selling, general and administrative expenses to support our

responses to the COVID-19 pandemic.

In addition, we experienced some duplicate operating expenses for the transition from our existing facility in San Jose, California to our new leased facility, which is substantially complete at this time.

Amortization Expense

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For the year ended December 31, 2022, we recorded net interest expense of $9.3 million, compared to $26.0 million for the comparable prior period.

The increase in interest expense was primarily related to the issuance of the 2027 Notes in May 2020 and the 2025 Notes in November 2020, partially offset by the partial repurchases and exchange of the 2023 Notes in 2020 and 2021, as well as an increase in interest income of approximately $0.8 million as compared to the prior period.

Included in interest expense for both of the years ended December 31, 2021 and 2020 were non-cash charges of

$13.8 million related to the amortization of debt discount and transaction costs of the 2023 Notes, 2025 Notes, and 2027 Notes.

The decrease in interest expense was primarily related to the adoption of ASU 2020-06, as non-cash charges related to the amortization of debt discount and transaction costs of the 2023 Notes, 2025 Notes, and 2027 Notes decreased approximately $12.9 million for 2022 compared to 2021.

Additionally, cash interest expense on the Notes decreased approximately $2.6 million from the comparable prior year due to the partial repurchase of the 2023 Notes in November 2021.

Other Income (Expense)

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In addition, we recorded a non-cash impairment charge of approximately $1.0 million related to an equity investment without a readily observable market price.

On May 18, 2020, in connection with the completion of a private offering of $125 million aggregate principal amount of 3.75% convertible senior notes, we repurchased and retired approximately $88.3 million in aggregate principal amount of our outstanding 2023 Notes, with a carrying amount of $78.1 million, for approximately $81.2 million of cash.

Additionally, on November 11, 2020, we entered into a privately negotiated exchange agreement with a holder of our outstanding 2023 Notes, under which we agreed to retire $125.0 million in aggregate original principal amount of the 2023 Notes, with a carrying amount of $113.1 million, in exchange for the issuance of $132.5 million in aggregate principal amount of new 3.50% convertible senior notes.

We accounted for both transactions as an extinguishment of the 2023 Notes, and as such, recorded a loss on extinguishment of approximately $7.8 million for the year ended December 31, 2020.

At each reporting date, we consider new evidence, both positive and negative, that could affect our view of the future realization of our deferred tax assets.

As of December 31, 2022, we achieved three years of cumulative pretax income for our United States (“domestic”) operations.

In addition, we evaluated additional positive evidence and concluded that it is more likely than not our deferred tax assets are realizable on a more likely than not basis with the exception of certain state tax attributes.

The 2022 income tax benefit of $116.0 million was primarily comprised of a $117.0 million domestic tax benefit primarily in connection with release of $105.5 million valuation allowance, partially offset by a $1.0 million income tax expense related to our foreign operations.

The 2021 income tax benefit of $0.4 million is comprised of a $0.7 million income tax benefit related to the reduction of uncertain tax positions based upon settlements with tax authorities, partially offset by a $0.3 million income tax expense attributable to the foreign income taxes and foreign withholding taxes.

The 2020 income tax benefit of $0.1 million is comprised of:

(i) a $0.8 million income tax benefit related to the amortization and subsequent sale of certain intangible assets during the year, which was partially offset by (ii) a $0.5 million income tax expense attributed to the profitable non-U.S.

operations, as well as withholding tax to repatriate certain foreign earnings as a result of changes in tax laws under the 2017 Tax Act, and (iii) a $0.2 million income tax expense related primarily to U.S.

tax amortization of our indefinite-lived intangible assets that is not available to offset existing deferred tax assets, as well as state and local income taxes.

Years Ended December 31, 2021 and 2020

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(in thousands)

Net income (loss)

Non-cash items:

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Loss on extinguishment of debt

Asset impairment

Impairment of equity investment

Provision for bad debts

Changes in operating assets and liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities was $108.5 million for the year ended December 31, 2022 and was due to net income of $166.9 million and an increase in cash flow from operating activities due to changes in operating assets and liabilities of $10.0 million, partially offset by adjustments for non-cash items of $68.5 million.

The changes in operating assets and liabilities was largely attributable to an increase in customer deposits, partially offset by an increase in inventories and accounts receivables.

Net cash provided by operating activities was $67.7 million for the year ended December 31, 2021 and was due to net income of $26.0 million and adjustments for non-cash items of $59.5 million, partially offset by a decline in cash flow from operating activities due to changes in operating assets and liabilities of $17.8 million.

The changes in operating assets and liabilities was largely attributable to increases in accounts receivable and inventories and decreases in deferred revenue, partially offset by increases in accounts payable and cash received for landlord reimbursements for leasehold improvements.

Net cash provided by operating activities was $43.0 million for the year ended December 31, 2020 and was due to the net loss of $8.4 million plus a decline in cash flow from operating activities due to changes in operating assets and liabilities of $13.7 million, being more than offset by adjustments for non-cash items of $65.2 million.

Cash Flows from Investing Activities

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Net cash provided by (used in) investing activities

The net cash used in investing activities during the year ended December 31, 2022 was attributable to the net change in investments, as well as capital expenditures.

The net cash provided by investing activities during the year ended December 31, 2021 was attributable to the net change in investments, partially offset by capital expenditures.

We experienced increased capital expenditures associated

with the build-out of our newly leased facility in San Jose, California during 2021, and expect to complete this build-out over the next several quarters.

In addition, we expect a period of some duplicate operating expenses until the transition from our pre-existing facility to our new facility is completed.

The net cash used in investing activities during the year ended December 31, 2020 was attributable to net change in investments as well as capital expenditures, partially offset by the proceeds from the sale of a non-core product line.

We experienced a high level of capital expenditures during 2021 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

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(in thousands)

Proceeds from issuance of 2027 Notes, net of issuance costs

Purchase of capped calls

Repurchase of 2023 Notes

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Net cash provided by (used in) financing activities

The net cash used in financing activities for the year ended December 31, 2022 was primarily related to the settlement of equity awards.

The net cash used in financing activities for the year ended December 31, 2021 was primarily related to the cash used to repurchase $111.5 million principal amount of our 2023 Notes as well as the settlement of equity awards.

The net cash provided by financing activities for the year ended December 31, 2020 was primarily related to the net cash proceeds received from the issuance of the 2027 Notes, net of issuance costs, partially offset by the cash used to repurchase the 2023 Notes as well as the purchase of capped calls.

Convertible Senior Notes and Revolving Credit Facility

We have $20.2 million outstanding principal balance of 2.70% convertible senior notes that bear interest at a rate of 2.70% per year, payable semiannually in arrears on January 15 and July 15 of each year, and mature on January 15, 2023, unless earlier purchased by the Company, redeemed, or converted.

These notes matured on January 15, 2023 and were paid in cash and settled by the Company at that time.

In addition, we have $132.5 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.

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Purchase commitments (1)

(1) Purchase commitments are generally for inventory used in the manufacturing of our products.

(1) Purchase commitments are generally for inventory used in the manufacturing of our products, as well as equipment and project materials used to support research and development activities.

We generally do not enter into purchase commitments extending beyond one year.

However, material shortages and supply chain challenges have caused some of these commitments to extend beyond one year.

At December 31, 2022, we have $9.4 million of offsetting supplier deposits that will be applied against these purchase commitments.

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● Identification of performance obligations and allocation of contract price:

Our contracts with customers frequently contain multiple deliverables, such as systems, upgrades, components, spare parts, installation, maintenance, and service plans.

Our contracts with customers frequently contain multiple deliverables, such as systems, upgrades, components, spare parts, installation,

maintenance, and service plans.

We allocate revenue to each performance obligation on a relative stand-alone selling price basis.

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If circumstances require a long-lived asset or asset group be tested for possible impairment, a recoverability test is performed utilizing undiscounted cash flows expected to be generated by that asset or asset group compared to its carrying amount.

If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash

flow basis, impairment is recognized to the extent the carrying amount exceeds its fair value.

If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent the carrying amount exceeds its fair value.

Fair value is determined through various valuation techniques including discounted cash flow models or, when available, quoted market values and third-party appraisals.

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We adopted ASU 2019-12 in the second quarter of 2020.

Additionally, we will adopt ASU 2020-06 effective January 1, 2022.

We have also adopted ASU 2020-06 effective January 1, 2022.

Refer to Note 1, “Significant Accounting Policies,” for additional information.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis