IVAC Intevac Inc

Intevac, Inc. (Nasdaq: IVAC) today reported financial results for the quarter and nine months ended September 29, 2018.

“Our third-quarter results were better than forecast, with stronger levels of upgrades in our Hard Disk Drive (HDD) equipment business, higher Photonics gross margin, and continued close control of expenses,” commented Wendell Blonigan, president and chief executive officer of Intevac. “We made significant progress in our Thin-film Equipment (TFE) growth initiatives during the third quarter, and witnessed increasing interest in the differentiated decorative coatings enabled by our system, including transitioning and gradient colors as well as patterned effects for backside cover glass. We remain confident that this remains a significant revenue opportunity for us, diversified from the HDD business, and the third quarter was an exciting one for us in terms of the level of engagement with the industry’s leading companies.

“In our HDD business, growth in media units in 2018 is well outpacing industry estimates entering the year. Due to the strong growth of multi-disk, high-capacity nearline drives for the cloud, our outlook for both upgrades and new systems for our HDD business has strengthened, with TFE backlog growing to an eight-year record. In Photonics, we were pleased to return to profitability in the third quarter, with a strong rebound in revenues over the previous two quarters. The approval of the U.S. Military’s budget is an encouraging sign for a return to growth in 2019, when we expect to see increasing demand for digital night-vision cameras for the Joint Strike Fighter and Apache programs.” Mr. Blonigan concluded, “Progress in our TFE growth initiatives in 2018 and a strengthening outlook for HDD media and Photonics gives us increasing confidence for a resumption of revenue growth in 2019.”

    ($ Millions, except per share amounts) Q3 2018 Q3 2017 GAAP Results   Non-GAAP Results GAAP Results   Non-GAAP Results Net Revenues $ 19.5 $ 19.5 $ 26.7 $ 26.7 Operating Income (Loss) $ (1.1 ) $ (1.1 ) $ 1.3 $ 1.0 Net Income (Loss) $ (1.1 ) $ (1.1 ) $ 1.2 $ 0.9 Net Income (Loss) per Share $ (0.05 ) $ (0.05 ) $ 0.05 $ 0.04  

 

Nine Months Ended Nine Months Ended September 29, 2018 September 30, 2017 GAAP Results Non-GAAP Results GAAP Results Non-GAAP Results Net Revenues $ 63.5 $ 63.5 $ 88.1 $ 88.1 Operating Income (Loss) $ (6.1 ) $ (6.0 ) $ 4.7 $ 4.5 Net Income (Loss) $ (6.4 ) $ (6.3 ) $ 4.2 $ 4.0 Net Income (Loss) per Share $ (0.29 ) $ (0.28 ) $ 0.18 $ 0.17  

Intevac’s non-GAAP adjusted results exclude the impact of the following, where applicable: (1) changes in fair value of contingent consideration liabilities associated with business combinations; and (2) restructuring charges. A reconciliation of the GAAP and non-GAAP adjusted results is provided in the financial table included in this release. See also “Use of Non-GAAP Financial Measures” section.

Third Quarter 2018 Summary

The net loss for the quarter was $1.1 million, or $0.05 per diluted share, compared to net income of $1.2 million, or $0.05 per diluted share, in the third quarter of 2017. The non-GAAP net loss was $1.1 million or $0.05 per diluted share. This compares to the third quarter 2017 non-GAAP net income of $947,000 or $0.04 per diluted share.

Revenues were $19.5 million, including $12.1 million of TFE revenues and Photonics revenues of $7.4 million. TFE revenues included upgrades, spares and service. Photonics revenues included $2.3 million of research and development contracts. In the third quarter of 2017, revenues were $26.7 million, including $17.2 million of TFE revenues, which consisted of two 200 Lean HDD systems, upgrades, spares and service, and Photonics revenues of $9.5 million, which included $2.2 million of research and development contracts.

TFE gross margin was 40.2% compared to 45.5% in the third quarter of 2017 and 41.7% in the second quarter of 2018. The decline from the third quarter of 2017 and the second quarter of 2018 reflected a lower level of revenue and lower factory absorption.

Photonics gross margin was 35.5% compared to 36.5% in the third quarter of 2017 and 20.4% in the second quarter of 2018. The decline from the third quarter of 2017 was primarily due to lower revenue levels and a higher mix of lower-margin research and development contracts. The improvement from the second quarter of 2018 was primarily due to higher revenue levels and favorable product mix. Consolidated gross margin was 38.5%, compared to 42.3% in the third quarter of 2017 and 37.4% in the second quarter of 2018.

R&D and SG&A expenses were $8.6 million, compared to $10.3 million in the third quarter of 2017 and $9.7 million in the second quarter of 2018. The lower level of expenses primarily reflects cost control initiatives implemented in the first quarter of 2018.

Order backlog totaled $72.2 million on September 29, 2018, compared to $64.6 million on June 30, 2018 and $72.8 million on September 30, 2017. Backlog at both September 29, 2018 and June 30, 2018 included three 200 Lean HDD systems and twelve ENERGi solar ion implant systems. Backlog at September 30, 2017 included five 200 Lean HDD systems and twelve ENERGi solar ion implant systems.

The Company ended the quarter with $45.7 million of total cash, restricted cash and investments and $78.3 million in tangible book value.

First Nine Months 2018 Summary

The net loss was $6.4 million, or $0.29 per diluted share, compared to net income of $4.2 million, or $0.18 per diluted share, for the first nine months of 2017. The non-GAAP net loss was $6.3 million or $0.28 per diluted share. This compares to the first nine months of 2017 non-GAAP net income of $4.0 million or $0.17 per diluted share.

Revenues were $63.5 million, including $45.7 million of TFE revenues and Photonics revenues of $17.8 million, compared to revenues of $88.1 million, including $61.1 million of TFE revenues and Photonics revenues of $27.0 million, for the first nine months of 2017. We recognized revenue on three 200 Lean HDD systems in the first nine months of 2018. We recognized revenue on four 200 Lean HDD systems, one pilot INTEVAC MATRIX solar ion implant system, two ENERGi solar ion implant systems and four VERTEX coating systems for display cover panels in the first nine months of 2017.

TFE gross margin was 39.6%, compared to 42.0% in the first nine months of 2017. The decline from the first nine months of 2017 reflected a lower level of revenue and lower factory absorption. Photonics gross margin was 22.5% compared to 37.5% in the first nine months of 2017. The decline from the first nine months of 2017 was primarily due lower revenue levels, a higher mix of lower-margin research and development contracts and incremental loss provisions recorded on several contracts. Consolidated gross margin was 34.8%, compared to 40.7% in the first nine months of 2017.

R&D and SG&A expenses were $28.3 million compared to $31.3 million in the first nine months of 2017. The lower level of expenses reflects cost control initiatives implemented in the first quarter of 2018, lower legal expenses for patent activity and contracts and decreased accruals for variable compensation programs.

Use of Non-GAAP Financial Measures

Intevac's non-GAAP results exclude the impact of the following, where applicable: changes in fair value of contingent consideration liabilities associated with business combinations and restructuring. A reconciliation of the GAAP and non-GAAP results is provided in the financial tables included in this release.

Management uses non-GAAP results to evaluate the Company’s operating and financial performance in light of business objectives and for planning purposes. These measures are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Intevac believes these measures enhance investors’ ability to review the Company’s business from the same perspective as the Company’s management and facilitate comparisons of this period’s results with prior periods. The presentation of this additional information should not be considered a substitute for results prepared in accordance with GAAP.

Conference Call Information

The Company will discuss its financial results and outlook in a conference call today at 1:30 p.m. PDT (4:30 p.m. EDT). To participate in the teleconference, please call toll-free (877) 334-0811 prior to the start time. For international callers, the dial-in number is (408) 427-3734. You may also listen live via the Internet at the Company's website, www.intevac.com, under the Investors link, or at www.earnings.com. For those unable to attend, these web sites will host an archive of the call. Additionally, a telephone replay of the call will be available for 48 hours beginning today at 7:30 p.m. EDT. You may access the replay by calling (855) 859-2056 or, for international callers, (404) 537-3406, and providing Replay Passcode 7267648.

About Intevac

Intevac was founded in 1991 and has two businesses: Thin-Film Equipment and Photonics.

In our Thin-film Equipment business, we are a leader in the design and development of high-productivity, thin-film processing systems. Our production-proven platforms are designed for high-volume manufacturing of substrates with precise thin film properties, such as the hard drive media, display cover panel, and solar photovoltaic markets we serve currently.

In our Photonics business, we are a recognized leading developer of advanced high-sensitivity digital sensors, cameras and systems that primarily serve the defense industry. We are the provider of integrated digital imaging systems for most U.S. military night vision programs.

For more information call 408-986-9888, or visit the Company's website at www.intevac.com.

200 Lean®, INTEVAC MATRIX®, INTEVAC VERTEX®, oDLC® and ENERGi® are registered trademarks of Intevac, Inc.

Safe Harbor Statement

This press release includes statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Intevac claims the protection of the safe-harbor for forward-looking statements contained in the Reform Act. These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “expects,” or “anticipates,” and do not reflect historical facts. Specific forward-looking statements contained in this press release include, but are not limited to: customer adoption of our products, an increase in the revenue opportunity pipeline for Photonics, and the future financial performance of Intevac, such as achieving profitability. The forward-looking statements contained herein involve risks and uncertainties that could cause actual results to differ materially from the Company’s expectations. These risks include, but are not limited to: technology risk and challenges achieving customer adoption and revenue recognition in Thin-film Equipment markets and delays in Photonics programs, each of which could have a material impact on our business, our financial results, and the Company's stock price. These risks and other factors are detailed in the Company’s periodic filings with the U.S. Securities and Exchange Commission.

 

INTEVAC, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)

    Three months ended     Nine months ended

September 29,2018

 

September 30,2017

   

September 29,2018

 

September 30,2017

Net revenues     TFE $ 12,108 $ 17,177 $ 45,745 $ 61,087 Photonics   7,358       9,549     17,793       26,990   Total net revenues 19,466 26,726 63,538 88,077   Gross profit 7,486 11,298 22,122 35,816 Gross margin TFE 40.2 % 45.5 % 39.6 % 42.0 % Photonics   35.5 %     36.5 %   22.5 %     37.5 % Consolidated 38.5 % 42.3 % 34.8 % 40.7 %   Operating expenses Research and development 3,737 4,535 12,889 13,635 Selling, general and administrative 4,842 5,778 15,374 17,663 Acquisition-related1   —       (283 )   8       (181 ) Total operating expenses   8,579       10,030     28,271       31,117   Total operating income (loss) (1,093 ) 1,268 (6,149 ) 4,699   Operating income (loss) TFE (907 ) 1,213 (2,197 ) 4,821 Photonics 688 1,417 (966 ) 3,646 Corporate   (874 )     (1,362 )   (2,986 )     (3,768 ) Total operating income (loss) (1,093 ) 1,268 (6,149 ) 4,699   Interest income and other income (expense), net   186       28     464       265   Net income (loss) before income taxes (907 ) 1,296 (5,685 ) 4,964 Provision for income taxes   192       66     717       805   Net income (loss) $ (1,099 )   $ 1,230   $ (6,402 )   $ 4,159     Net income (loss) per share Basic $ (0.05 ) $ 0.06 $ (0.29 ) $ 0.19 Diluted $ (0.05 ) $ 0.05 $ (0.29 ) $ 0.18   Weighted average common shares outstanding Basic 22,719 21,714 22,429 21,475 Diluted 22,719 22,970 22,429 22,989

1Results for all periods presented include changes in fair value of contingent consideration obligations associated with the Solar Implant Technology (SIT) acquisition in 2010.

 

INTEVAC, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

   

September 29,2018

December 30,2017

(Unaudited) (see Note) ASSETS   Current assets Cash, cash equivalents and short-term investments $ 38,928 $ 35,639 Accounts receivable, net 18,835 20,474 Inventories 34,679 33,792 Prepaid expenses and other current assets   2,610     2,524   Total current assets 95,052 92,429   Long-term investments 5,164 6,849 Restricted cash 1,569 1,000 Property, plant and equipment, net 11,046 12,478 Intangible assets, net 1,042 1,503 Other long-term assets   744     764   Total assets $ 114,617   $ 115,023     LIABILITIES AND STOCKHOLDERS’ EQUITY   Current liabilities Accounts payable $ 5,956 $ 3,949 Accrued payroll and related liabilities 4,272 6,818 Other accrued liabilities 10,995 7,688 Customer advances   11,616     11,026   Total current liabilities 32,839 29,481   Other long-term liabilities 2,436 2,879   Stockholders’ equity Common stock ($0.001 par value) 23 22 Additional paid-in capital 182,354 177,521 Treasury stock, at cost (28,489 ) (28,489 ) Accumulated other comprehensive income 371 490 Accumulated deficit   (74,917 )   (66,881 ) Total stockholders’ equity   79,342     82,663   Total liabilities and stockholders’ equity $ 114,617   $ 115,023  

Note: Amounts as of December 30, 2017 are derived from the December 30, 2017 audited consolidated financial statements.

 

INTEVAC, INC.

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

(Unaudited, in thousands, except per share amounts)

        Three months ended   Nine months ended

September 29,2018

 

September 30,2017

 

September 29,2018

 

September 30,2017

Non-GAAP Income (Loss) from Operations     Reported operating income (loss) (GAAP basis) $ (1,093 ) $ 1,268 $ (6,149 ) $ 4,699 Change in fair value of contingent consideration obligations1 — (283 ) 8 (181 ) Restructuring charges2   —       —     95       —   Non-GAAP Operating Income (Loss) $ (1,093 )   $ 985   $ (6,046 )   $ 4,518     Non-GAAP Net Income (Loss) Reported net income (loss) (GAAP basis) $ (1,099 ) $ 1,230 $ (6,402 ) $ 4,159 Change in fair value of contingent consideration obligations1 — (283 ) 8 (181 ) Restructuring charges2   —       —     95       —   Non-GAAP Net Income (Loss) $ (1,099 )   $ 947   $ (6,299 )   $ 3,978     Non-GAAP Net Income (Loss) Per Diluted Share Reported net income (loss) per diluted share (GAAP basis) $ (0.05 ) $ 0.05 $ (0.29 ) $ 0.18 Change in fair value of contingent consideration obligations1 — (0.01 ) — (0.01 ) Restructuring charges2 — — — — Non-GAAP Net Income (Loss) Per Diluted Share $ (0.05 ) $ 0.04 $ (0.28 ) $ 0.17 Weighted average number of diluted shares 22,719 22,970 22,429 22,989

1Results for all periods presented include changes in fair value of contingent consideration obligations associated with the Solar Implant Technology (SIT) acquisition in 2010.

2Results for the nine months ended September 29, 2018 include severance and other employee-related costs related to a restructuring program.

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Intevac, Inc.James Moniz, 408-986-9888Chief Financial OfficerorClaire McAdams, 530-265-9899Investor Relations