Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to facilitate an understanding of our business and results of operations. This MD&A should be read in conjunction with our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included elsewhere in this Form 10-K. The following discussion contains forward-looking statements and should also be read in conjunction with the cautionary statement set forth at the beginning of this Form 10-K.
The following section generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2023 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on February 16, 2024.
Executive Summary
We are an innovative manufacturer of semiconductor process equipment. Our proven ion beam, laser annealing, lithography, MOCVD, and single wafer wet processing 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.
Veeco executed well during 2024, accomplishing a number of milestones, including:
● Solidly executing our multi-year growth strategy highlighted by several strategic wins. We shipped and recognized revenue on our first Nanosecond Annealing (“NSA”) system at a leading-edge logic customer, shipped a 300mm GaN on Si evaluation system to a Tier 1 power device customer, and reached an agreement to ship an LSA evaluation system to another leading memory customer in 2025;
● Shipped multiple Laser Annealing systems to Tier 1 logic and memory customers for new architectures and technologies such as Gate-All-Around and High Bandwidth Memory;
● Won additional customer orders in Advanced Packaging with our strong position in wet processing as PTOR for a process step in Heterogenous Integration and 3D Packaging for AI;
● Maintained investments toward our largest Served Available Market (“SAM”) growth opportunities in the Semiconductor and Compound Semiconductor markets, including strategic investments in R&D and our evaluation program;
● Achieved year-on-year revenue growth for the Company, including record revenue in the Semiconductor market, which grew 13% and outperformed Wafer Fabrication Equipment (“WFE”) spending growth for the fourth consecutive year.
We believe these accomplishments position us well to capture our largest SAM growth opportunities in the coming years.
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Business Update
The Semiconductor industry has historically demonstrated cyclicality based on fluctuations in global chip demand and production capacity. Sales in the Semiconductor industry are estimated to have increased year-over-year in 2024 to around $650 billion dollars. Looking ahead, industry analysts are forecasting long-term growth of the industry, driven by secular growth trends such as artificial intelligence, high-performance computing, mobile connectivity, and the electrification of the automotive industry. Additionally, government investments in the Semiconductor industry are projected to accelerate global spending in next-generation technologies.
Growth in the Semiconductor industry, coupled with increasing technological complexity of Semiconductor chips, are expected to drive long-term growth in WFE spending. In an effort to improve chip performance, optimize power consumption, and reduce costs, today’s most advanced Semiconductor manufacturers are shrinking device geometries, investing in more complex transistor designs such as Gate-All-Around and exploring 3D architectures. As a result, growth of the WFE market is forecasted to keep pace with long-term growth of the Semiconductor industry, which we believe should benefit semiconductor capital equipment providers, including Veeco.
Our strategy of investing in advanced logic and memory has enabled our Semiconductor business to outperform WFE growth for four consecutive years. Veeco’s technologies are at the forefront of enabling new technical innovations in the manufacture of high-performance AI chips and High-Bandwidth Memory (“HBM”). We continue to invest in new technologies to expand our SAM to a broad range of new applications.
Semiconductor revenue increased by 13% in 2024 from the prior year, comprising 65% of total revenue. This increase was driven by our Laser Annealing business with both leading and mature node customers. Our laser annealing solutions continue to gain acceptance at advanced logic nodes, highlighted by recent order activity involving both new and existing customers. In 2024, we received laser annealing orders from, and shipped systems to several leading-edge logic customers, including for customers’ Gate-All-Around processes. We also shipped and recognized revenue on our first NSA system to a leading logic customer in the fourth quarter. In the memory market, we continue to ship systems to a Tier 1 customer for high volume production of HBM and advanced DRAM devices. While our growth strategy is predominately focused on advanced node logic and memory, LSA shipments to mature node customers have continued to increase in 2023 and 2024, predominantly driven by new greenfield fabs and capacity additions in China.
We have two next generation laser annealing systems under evaluation at Tier 1 foundry and logic customers. This next generation system, the NSA500, covers the nano-second annealing regime and complements our LSA product. This new system is part of our continued effort to enable our customers’ product roadmap by providing innovative annealing solutions. Nanosecond annealing provides Veeco with an opportunity to expand our laser annealing SAM for new advanced node logic and memory applications, including low thermal budget anneals for Gate-All-Around transistors and advanced 3D devices.
The ongoing adoption of EUV Lithography for advanced node semiconductor manufacturing continues to drive demand for our Ion Beam Deposition LDD system for mask blanks. Leading logic and memory customers expect EUV and High-Numerical Aperture (“High-NA”) lithography to be integral to their future roadmaps, which our Ion Beam Deposition technology is a key enabler of. Our product roadmap is well positioned as the industry adopts next-generation High-NA EUV lithography, and we are expanding our EUV related business to new mask blank applications.
We also have two Ion Beam Deposition “IBD300” systems under evaluation at leading memory customers. Our IBD300 system provides Veeco with another opportunity to expand our SAM to advanced node applications where low resistance films are critical. These initial systems are being evaluated for advanced memory applications, such as DRAM bitline.
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In Advanced Packaging, our Wet Processing systems are used for several applications, and we continue to see strong demand driven by Heterogenous Integration and 3D Packaging for AI. In the fourth quarter, we announced over $50 million in orders for our Wet Processing systems from a leading foundry, a HBM manufacturer, and OSATs. Our Advanced Packaging lithography systems are used for packaging applications such as fan out wafer level packaging and other advanced packaging solutions. After two years of slow order activity driven by consumer markets, we are beginning to see an increase in quoting and order activity from IDM’s, foundries, and OSAT’s driven by capacity expansions for AI and mobile markets.
Looking ahead, we anticipate seeing growth in leading-edge investment driven by new nodes and AI-related demand, including investment in Gate-All-Around nodes, High-Bandwidth Memory, and 3D packaging for AI. At the same time, recent engagement with customers in China has moderated, and we expect a decline in China revenue heading into 2025.
Veeco also serves customers in the Compound Semiconductor, Data Storage, and Scientific & Other markets. We address the Compound Semiconductor market with a broad portfolio of technologies, including Wet Processing, MOCVD, MBE and Ion Beam, for Power Electronics, Photonics, and 5G RF applications. Sales in the Compound Semiconductor market declined in 2024 from the prior year. Looking ahead, in the Silicon Carbide market, the slowdown in EV adoption has weakened demand as some customers continue their transition to 200mm production. Additionally, market penetration of our previously acquired Silicon Carbide technology has not met our expectations. In GaN Power, emerging use cases have driven some traditional silicon power electronics manufacturers to consider adoption of GaN at 300mm, and we have an evaluation system outstanding at a Tier 1 Power device customer. We are also seeing photonics opportunities in areas such as solar and MicroLEDs.
We address the Data Storage market with sales of our Ion Beam technology. Demand for our Ion Beam products is driven by demand for cloud-based storage. Revenue from our Data Storage products increased in 2024 as compared to the prior year. Looking ahead, while customer utilizations are improving, they remain well below peak levels from a few years ago and customers are not investing to expand new system capacity in 2025 as they bring idle capacity back on line. As a result, we expect an approximate $60 to $70 million reduction in revenue in our Data Storage business in 2025.
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, and IBD/IBE, which support scientific, optical coating and other applications, and sales in this market declined slightly in 2024 from the prior year.
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Results of Operations
Years Ended December 31, 2024 and 2023
The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for 2024 and 2023 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.
For the year ended December 31,
Change
2024
2023
Period to Period
(dollars in thousands)
Net sales
$
717,301
100
%
$
666,435
100
%
$
50,866
8
%
Cost of sales
413,296
58
%
381,376
57
%
31,920
8
%
Gross profit
304,005
42
%
285,059
43
%
18,946
7
%
Operating expenses, net:
Research and development
124,507
17
%
112,853
17
%
11,654
10
%
Selling, general, and administrative
99,663
14
%
92,756
14
%
6,907
7
%
Amortization of intangible assets
6,983
1
%
8,481
1
%
(1,498)
(18)
%
Asset impairment
28,131
4
%
—
—
%
28,131
*
Other operating expense (income), net
(22,260)
(3)
%
1,029
—
%
(23,289)
*
%
Total operating expenses, net
237,024
33
%
215,119
32
%
21,905
10
%
Operating income
66,981
9
%
69,940
10
%
(2,959)
(4)
%
Interest income (expense), net
1,853
0
%
(1,187)
(0)
%
3,040
*
%
Other income (expense), net
—
—
%
(97,091)
(15)
%
97,091
*
Income (loss) before income taxes
68,834
10
%
(28,338)
(4)
%
97,172
*
Income tax expense (benefit)
(4,880)
(1)
%
2,030
—
%
(6,910)
*
Net income (loss)
$
73,714
10
%
$
(30,368)
(5)
%
$
104,082
*
* Not meaningful
Net Sales
The following is an analysis of sales by end-market and by region:
Year ended December 31,
Change
2024
2023
Period to Period
(dollars in thousands)
Sales by end-market
Semiconductor
$
466,611
65
%
$
412,724
62
%
$
53,887
13
%
Compound Semiconductor
77,591
11
%
87,258
13
%
(9,667)
(11)
%
Data Storage
98,852
14
%
88,473
13
%
10,379
12
%
Scientific & Other
74,247
10
%
77,980
12
%
(3,733)
(5)
%
Total
$
717,301
100
%
$
666,435
100
%
$
50,866
8
%
Sales by geographic region
United States
$
164,564
23
%
$
162,790
24
%
$
1,774
1
%
EMEA
61,730
9
%
76,697
12
%
(14,967)
(20)
%
China
255,619
36
%
217,942
33
%
37,677
17
%
Rest of APAC
234,591
32
%
208,693
31
%
25,898
12
%
Rest of World
797
—
%
313
—
%
484
155
%
Total
$
717,301
100
%
$
666,435
100
%
$
50,866
8
%
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Total sales increased for the year ended December 31, 2024 against the comparable prior year period in the Semiconductor and Data Storage markets, partially offset by a decrease in the Compound Semiconductor, and Scientific & Other markets. By geography, sales increased in the China, and Rest of APAC regions, partially offset by a decrease in the EMEA region. Included within the Rest of APAC region for the year ended December 31, 2024 were sales in Taiwan and Japan of $115.3 million and $67.4 million, respectively, while sales within Rest of APAC region for the year ended December 31, 2023 included sales in Japan, Taiwan, and Singapore of $74.7 million, $62.7 million, and $32.2 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
In 2024, gross profit increased compared to 2023 primarily due to an increase in sales volume, partially offset by decreased gross margins. Gross margins decreased principally due to unfavorable product mix of sales and higher service costs. 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 2024 compared to 2023 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. However, expenses as a percentage of revenue have remained flat when compared to the prior period.
Selling, General, and Administrative
Selling, general, and administrative expenses increased in 2024 compared to 2023. However, expenses as a percentage of revenue have remained flat when compared to the 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 in 2024 compared to 2023 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 2023.
Asset Impairment
During 2024, we recorded a non-cash impairment charge of $28.1 million related to intangible assets of our SiC technology acquired from Epiluvac in 2023, due to our market penetration not meeting expectations.
Other Operating Expense (Income), Net
Net other operating income in 2024 was primarily due to a $21.2 million reduction in the expected earn-out payments to be made to the previous shareholders of Epiluvac, as well as proceeds from the sale of productive assets .
Interest Income (Expense)
For the year ended December 31, 2024, we recorded net interest income of $1.9 million, compared to $1.2 million of net interest expense for the prior year. The increase in net interest income was primarily related to an increase of interest income of approximately $2.3 million due to a higher interest rate environment for 2024 compared to 2023.
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Additionally, the Company had a decrease of interest expense of approximately $0.7 million due to a reduction in convertible note and bank guarantee interest expenses.
Other Income (Expense)
For the year ended December 31, 2023, we recorded a loss on extinguishment of approximately $97.1 million related to the repurchase and retirement of approximately $206.0 million aggregate principal amount of our 2025 and 2027 Notes.
Income Taxes
Our income tax benefit for the year ended December 31, 2024, was $4.9 million, compared to income tax expense of $2.0 million for the prior year. The 2024 income tax benefit was primarily attributed to 1) $12.2 million of income tax benefits associated with asset impairments, 2) a $7.9 million income tax benefit related to research and development tax credits, and 3) a $5.1 million income tax benefit related to Foreign-Derived Intangible Income, partially offset by 4) a $20.3 million income tax expense related to pre-tax income from operations. The 2023 income tax expense of $2.0 million was primarily comprised of 1) a $16.2 million income tax expense related to pre-tax income from operations, and 2) a $2.0 million income tax expense related to share-based compensation, partially offset by 3) a $7.5 million income tax benefit related to Foreign-Derived Intangible Income, 4) a $7.7 million income tax benefit associated with research and development tax credits, and 5) a $1.0 million income tax benefit associated with the loss on extinguishment of convertible notes under Section 249 of the Internal Revenue Code of 1986, as amended (Section 249).
Liquidity and Capital Resources
Our cash and cash equivalents, restricted cash, and short-term investments are as follows:
December 31,
December 31,
2024
2023
(in thousands)
Cash and cash equivalents
$
145,595
$
158,781
Restricted cash
224
339
Short-term investments
198,719
146,664
Total
$
344,538
$
305,784
A portion of our cash and cash equivalents is held by our subsidiaries throughout the world, frequently in each subsidiary’s respective functional currency, which is typically the U.S. dollar. At December 31, 2024 and 2023, cash and cash equivalents of $45.1 million and $46.8 million, respectively, were held outside the United States. As of December 31, 2024, we had $21.2 million of accumulated undistributed earnings generated by our non-U.S. subsidiaries for which the U.S. repatriation tax has been provided. Approximately $9.6 million of undistributed earnings would be subject to foreign withholding taxes if distributed back to the United States and we accrued $1.2 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 required under our operating leases.
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A summary of the cash flow activity for the year ended December 31, 2024 and 2023 is as follows:
Cash Flows from Operating Activities
Year Ended December 31,
2024
2023
(in thousands)
Net income (loss)
$
73,714
$
(30,368)
Non-cash items:
Depreciation and amortization
25,143
24,966
Non-cash interest expense
1,257
1,118
Deferred income taxes
(8,729)
(2,211)
Share-based compensation expense
35,879
28,558
Loss on extinguishment of debt
—
97,091
Asset impairment
28,131
—
Impairment of equity investment
404
—
Provision for bad debts
—
316
Change in contingent consideration
(21,242)
701
Changes in operating assets and liabilities
(70,742)
(58,497)
Net cash provided by (used in) operating activities
$
63,815
$
61,674
Net cash provided by operating activities was $63.8 million for the year ended December 31, 2024 and was due to net income of $73.7 million and adjustments for non-cash items of $60.8 million, partially offset by a decrease in cash flow from changes in operating assets and liabilities of $70.7 million. The changes in operating assets and liabilities were largely attributable to an increase in inventories largely related to higher work-in-process and evaluation systems at customer facilities, an increase in contract assets, and a decrease in contract liabilities.
Net cash provided by operating activities was $61.7 million for the year ended December 31, 2023 and was due to net loss of $30.4 million and adjustments for non-cash items of $150.5 million, partially offset by a decrease in cash flow from changes in operating assets and liabilities of $58.5 million. The changes in operating assets and liabilities were largely attributable to increases in inventories largely related to evaluation systems at customer facilities, contract assets, prepaid expenses and other current assets, and decreases in accounts payable, and contract liabilities.
Cash Flows from Investing Activities
Year Ended December 31,
2024
2023
(in thousands)
Capital expenditures
$
(18,113)
$
(27,930)
Changes in investments, net
(48,467)
4,973
Acquisitions of businesses, net of cash acquired
—
(30,373)
Proceeds from the sale of productive assets
2,033
—
Net cash provided by (used in) investing activities
$
(64,547)
$
(53,330)
The cash used in investing activities during the year ended December 31, 2024 was primarily attributable to net cash used for capital expenditures, and net investment activity, partially offset by proceeds from the sale of productive assets. The cash used in investing activities during the year ended December 31, 2023 was attributable to net cash used in the acquisition of Epiluvac, and capital expenditures, partially offset by changes in net investment activity.
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Cash Flows from Financing Activities
Year Ended December 31,
2024
2023
(in thousands)
Settlement of equity awards, net of withholding taxes
$
(10,761)
$
(6,391)
Contingent consideration payment
(1,818)
(2,500)
Proceeds from issuance of 2029 Notes, net of issuance costs
—
223,202
Extinguishment of Convertible Notes
—
(218,991)
Net cash provided by (used in) financing activities
$
(12,579)
$
(4,680)
The cash used in financing activities for the year ended December 31, 2024 was related to cash used to settle taxes related to employee equity programs and a contingent consideration payment related to the Epiluvac acquisition, partially offset by cash received under the Employee Stock Purchase Plan. The net cash used in financing activities for the year ended December 31, 2023 was related to the partial repurchase of the 2025 Notes and 2027 Notes, repayment of the 2023 Notes, a contingent consideration payment related to the Epiluvac acquisition, as well as cash used to settle taxes related to employee equity programs, partially offset by proceeds from issuance of the 2029 Notes.
Convertible Senior Notes and Revolving Credit Facility
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. These 2025 Notes subsequently matured in January 2025 and were settled through the issuance of Company shares to the noteholders. 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. These 2027 Notes are currently convertible by shareholders and callable by the Company until March 31, 2025. 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.
Furthermore, we have access to a $225.0 million revolving credit facility 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, including purchase obligations of $177.4 million as of December 31, 2024 for inventory used in the manufacture 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. At December 31, 2024, we have $18.7 million of offsetting supplier deposits that will be applied against these purchase commitments. We expect to fund these contractual arrangements with cash generated from operations in the normal course of business, as well as existing cash and cash equivalents and short-term investments. In addition, we have bank guarantees and letters of credit issued by a financial institution on our behalf as needed. At December 31, 2024, outstanding bank guarantees and letters of credit totaled $18.1 million and unused bank guarantees and letters of credit of $21.6 million were available to be drawn upon.
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Lease Obligations
As of December 31, 2024, our operating lease obligation was $53.1 million relating to various operating lease arrangements for certain facilities. Refer to Note 10, “Commitments and Contingencies”, of the Notes to the Consolidated Financial Statements for further discussion related to our lease obligations.
We believe that we have sufficient capital resources and cash flows from operations to support the above mentioned short-term obligations.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires a high degree of judgment, either in the application and interpretation of existing accounting literature or in the development of estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. We continuously evaluate our estimates and judgments based on historical experience, as well as other factors that we believe to be reasonable under the circumstances. The results of our evaluation form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. These estimates may change in the future if underlying assumptions or factors change, and actual results may differ from these estimates.
We consider the following estimates within our significant accounting policies to be critical because of their complexity and the high degree of judgment involved in maintaining them. See Note 1 Significant Accounting Policies of our Consolidated Financial Statements for additional information regarding our accounting policies.
Revenue Recognition
We recognize revenue upon the transfer of control of the promised product or service to the customer in an amount that reflects the consideration we expect to receive in exchange for such product or service. We perform the following five steps to determine when to recognize revenue: (1) identification of the contract(s) with customers, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when, or as, a performance obligation is satisfied. Management uses judgements in identifying performance obligations, determining stand-alone selling price (“SSP”) for each distinct performance obligation and allocating consideration from an arrangement to the individual performance obligations based on the SSP. The SSPs are determined based on the prices at which we separately sell systems, upgrades, components, spare parts, installation, maintenance, and service plans. For items that are not sold separately, we estimate SSPs generally using an expected cost plus margin approach. Any material changes in the identification of performance obligations, determination and allocation of the transaction price to performance obligations, and determination of when transfer of control occurs to the customer, could impact the timing and amount of revenue recognition, which could have a material effect on our financial condition and results of operations.
Inventory Valuation
Inventories are stated at the lower of cost and net realizable value, with cost determined on a first-in, first-out basis. Each quarter we assess the valuation and recoverability of all inventories: materials (raw materials, spare parts, and service inventory); work-in-process; finished goods; and evaluation inventory at customer facilities. Obsolete inventory or inventory in excess of our estimated usage requirements is written down to its estimated net realizable value if less than cost. We evaluate usage requirements by analyzing historical usage, anticipated demand, alternative uses of materials, and other qualitative factors. Unanticipated changes in demand for our products may require a write down of inventory that could materially affect our operating results.
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Long-lived Assets
The carrying values of long-lived assets, including identifiable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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. Fair value is determined through various valuation techniques including discounted cash flow models or, when available, quoted market values and third-party appraisals. It is not possible for us to predict the likelihood of any possible future impairments or, if such an impairment were to occur, the magnitude of any impairment. Intangible assets with finite useful lives, including purchased technology, customer-related intangible assets, patents, trademarks, backlog, and software licenses, are subject to amortization over the expected period of economic benefit to us. We evaluate whether events or circumstances have occurred that warrant a revision to the remaining useful lives of intangible assets. In cases where a revision is deemed appropriate, the remaining carrying amounts of the intangible assets are amortized over the revised remaining useful life.
Income Taxes
We estimate our income taxes in each of the jurisdictions in which we operate. The calculation of our provision for income taxes and effective tax rate involves significant judgment in estimating the impact of uncertainties in the application of complex and evolving tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial condition. Deferred income taxes reflect the net tax effect of temporary differences between the asset and liability balances recognized for financial reporting purposes and the balances used for income tax purposes, as well as the tax effect of carry forwards. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. These estimates consider future operational results including realizability of our deferred tax assets. Deferred tax assets and liabilities are adjusted to reflect the effects of enacted changes in tax rates, laws and status, including changes in tax incentives.
Recent Accounting Pronouncements
We adopted ASU 2020-06 effective January 1, 2022 and ASU 2023-07 effective December 31, 2024. We are also evaluating other pronouncements recently issued but not yet adopted, including ASU 2023-09 and ASU 2024-03. The adoption of these pronouncements is not expected to have a material impact on our consolidated financial statements. Refer to Note 1, “Significant Accounting Policies,” for additional information.