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Intevac Announces Second Quarter 2018 Financial Results

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Intevac, Inc. (NASDAQ:IVAC) today reported financial results for the
quarter and six months ended June 30, 2018.

"Our second-quarter results were stronger than forecast, with higher
upgrade revenues in HDD equipment, favorable gross margin performance in
both Thin-film Equipment ("TFE") and Photonics, and close control of
expenses, leading to a net loss of one cent per share," commented
Wendell Blonigan, president and chief executive officer of Intevac. "We
announced the receipt of multiple orders for our industry-leading 200
Lean® system for the HDD industry, with one system expected to ship
later this year, and two in backlog for 2019. These orders demonstrate
the close partnerships we have with our HDD customers to support their
technology roadmaps, and the new orders also provide confidence for
continued strong results in our HDD equipment business.

"We continued to make progress in our Thin-film Equipment growth
initiatives during the second quarter. A global Top-3 Cellphone maker is
now shipping handsets that incorporate our oDLC® protective coating,
which protects the vibrant decorative color deposited on the back cover
glass of a portion of their flagship models. In Photonics, we have
secured additional government funding for the development of our
next-generation night-vision sensor, which is important validation of
our industry-leading position to provide digital night-vision technology
to the U.S. Military. In all, our outlook for 2018 is consistent with
our last quarterly update, reflecting a pause in our growth after three
straight years of increasing revenues, orders and earnings." Mr.
Blonigan concluded, "Our technology leadership positions and future
growth story remain very much intact, and we believe the execution of
our growth initiatives in 2018 will drive the resumption of growth in
2019."

   
($ Millions, except per share amounts) Q2 2018

Q2 2017

GAAP Results   Non-GAAP Results GAAP Results   Non-GAAP Results
Net Revenues $ 26.1 $ 26.1

$

31.0

$ 31.0
Operating Income $ 0.1 $ 0.1

$

1.3

$ 1.4
Net Income (Loss) $ (0.2 ) $ (0.2 )

$

1.1

$ 1.1
Net Income (Loss) per Share $ (0.01 ) $ (0.01 )

$

0.05

$ 0.05
 
Six Months Ended

Six Months Ended

June 30, 2018

July 1, 2017

GAAP Results Non-GAAP Results

GAAP Results

Non-GAAP Results

Net Revenues $ 44.1 $ 44.1 $ 61.4

$

61.4

Operating Income (Loss) $ (5.1 ) $ (5.0 ) $ 3.4

$

3.5

Net Income (Loss) $ (5.3 ) $ (5.2 ) $ 2.9

$

3.0

Net Income (Loss) per Share $ (0.24 ) $ (0.23 ) $ 0.13

$

0.13

 
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.
 

Second Quarter 2018 Summary

The net loss for the quarter was $167,000, or $0.01 per diluted share,
compared to net income of $1.1 million, or $0.05 per diluted share, in
the second quarter of 2017. The non-GAAP net loss was $158,000 or
$0.01 per diluted share, compared to second-quarter 2017 non-GAAP net
income of $1.1 million or $0.05 per diluted share.

Revenues were $26.1 million, including $20.8 million of TFE revenues and
Photonics revenues of $5.3 million. TFE revenues consisted of two
200 Lean HDD systems, upgrades, spares and
service. Photonics revenues consisted of $2.8 million of research and
development contracts and $2.5 million of product sales. In the second
quarter of 2017, revenues were $31.0 million, including $22.4 million of
TFE revenues, which consisted of one 200 Lean HDD
system, one pilot INTEVAC MATRIX® solar ion implant system,
two ENERGi® solar ion implant systems, upgrades,
spares and service, and Photonics revenues of $8.5 million, which
included $7.4 million of product sales and $1.1 million of research and
development contracts.

TFE gross margin was 41.7% compared to 38.4% in the second quarter of
2017 and 35.6% in the first quarter of 2018. The improvement from the
second quarter of 2017 was primarily due to product mix, with an
increase in HDD upgrades in the second quarter of 2018 compared to the
second quarter of 2017, which also had included a lower-margin pilot
INTEVAC MATRIX solar ion implant system. The improvement from the first
quarter of 2018 was primarily due to a higher mix of higher-margin
upgrades, higher revenues and improved factory absorption.

Photonics gross margin was 20.4% compared to 33.4% in the second quarter
of 2017 and 6.2% in the first quarter of 2018. The decline from the
second quarter of 2017 was primarily due to lower revenue levels, a
higher mix of lower-margin research and development contracts and
incremental loss provisions recorded on several contracts. The
improvement from the first quarter of 2018 was primarily due to improved
margins on research and development contracts and smaller loss
provisions recorded on contracts. Consolidated gross margin was 37.4%,
compared to 37.0% in the second quarter of 2017 and 27.1% in the first
quarter of 2018.

R&D and SG&A expenses were $9.7 million, compared to $10.1 million in
the second quarter of 2017 and $10.0 million in the first quarter of
2018. The lower level of expenses primarily reflects cost control
initiatives implemented in the first quarter.

Order backlog totaled $64.6 million on June 30, 2018, compared to
$66.9 million on March 31, 2018 and $68.9 million on July 1, 2017.
Backlog at June 30, 2018 included three 200 Lean HDD systems and twelve
ENERGi solar ion implant systems. Backlog at March 31, 2018
included two 200 Lean HDD systems and twelve ENERGi solar
ion implant systems. Backlog at July 1, 2017 included five 200 Lean HDD
systems and twelve ENERGi solar ion implant systems.

The Company ended the quarter with $39.1 million of total cash,
restricted cash and investments and $77.4 million in tangible book value.

First Six Months 2018 Summary

The net loss was $5.3 million, or $0.24 per diluted share, compared to
net income of $2.9 million, or $0.13 per diluted share, for the first
six months of 2017. The non-GAAP net loss was $5.2 million or $0.23 per
diluted share. This compares to first-half 2017 non-GAAP net income of
$3.0 million or $0.13 per diluted share.

Revenues were $44.1 million, including $33.6 million of TFE revenues and
Photonics revenues of $10.4 million, compared to revenues of
$61.4 million, including $43.9 million of TFE revenues and Photonics
revenues of $17.4 million, for the first six months of 2017.

TFE gross margin was 39.4%, compared to 40.7% in the first six months of
2017. We recognized revenue on three 200 Lean HDD
systems in the first half of 2018. We recognized revenue on two 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 half of 2017. Photonics gross margin was 13.4%
compared to 38.1% in the first six months of 2017. The decline from the
first half 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
33.2%, compared to 40.0% in the first six months of 2017.

R&D and SG&A expenses were $19.7 million compared to $21.0 million in
the first six months of 2017. The lower level of expenses reflects cost
control initiatives implemented in the first quarter, 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 1778375.

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   Six months ended

June 30,
2018

 

July 1,
2017

June 30,
2018

 

July 1,
2017

Net revenues    
TFE $ 20,848 $ 22,426 $ 33,637 $ 43,910
Photonics   5,250     8,537   10,435     17,441
Total net revenues 26,098 30,963 44,072 61,351
 
Gross profit 9,761 11,470 14,636 24,517
Gross margin
TFE 41.7% 38.4% 39.4% 40.7%
Photonics   20.4%     33.4%   13.4%     38.1%
Consolidated 37.4% 37.0% 33.2% 40.0%
 
Operating expenses
Research and development 4,984 4,418 9,151 9,100
Selling, general and administrative 4,703 5,691 10,533 11,885
Acquisition-related1   9     22   8     102
Total operating expenses   9,696     10,131   19,692     21,087
Total operating income (loss) 65 1,339 (5,056) 3,430
 
Income (loss) from operations
TFE 1,220 1,749 (1,289) 3,608
Photonics (444) 764 (1,654) 2,228
Corporate   (711)     (1,174)   (2,113)     (2,406)
Total operating income (loss) 65 1,339 (5,056) 3,430
 
Interest and other income (expense)   133     127   278     237
Income (loss) before income taxes 198 1,466 (4,778) 3,667
Provision for income taxes   365     366   525     738
Net income (loss) $ (167)   $ 1,100 $ (5,303)   $ 2,929
 
Net income (loss) per share
Basic $ (0.01) $ 0.05 $ (0.24) $ 0.14
Diluted $ (0.01) $ 0.05 $ (0.24) $ 0.13
 
Weighted average common shares outstanding
Basic 22,461 21,495 22,284 21,356
Diluted 22,461 23,209 22,284 22,999
 

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)

 
 

June 30,
2018

 

December 30,
2017

(Unaudited) (see Note)
ASSETS
 
Current assets
Cash, cash equivalents and short-term investments $ 33,800 $ 35,639
Accounts receivable, net 24,691 20,474
Inventories 33,036 33,792
Prepaid expenses and other current assets   2,434   2,524
Total current assets 93,961 92,429
 
Long-term investments 4,279 6,849
Restricted cash 1,000 1,000
Property, plant and equipment, net 11,079 12,478
Intangible assets, net 1,196 1,503
Other long-term assets   746   764
Total assets $ 112,261 $ 115,023
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities
Accounts payable $ 5,218 $ 3,949
Accrued payroll and related liabilities 4,825 6,818
Other accrued liabilities 10,538 7,688
Customer advances   10,552   11,026
Total current liabilities 31,133 29,481
 
Other long-term liabilities 2,542 2,879
 
Stockholders' equity
Common stock ($0.001 par value) 23 22
Additional paid in capital 180,426 177,521
Treasury stock, at cost (28,489) (28,489)
Accumulated other comprehensive income 444 490
Accumulated deficit   (73,818)   (66,881)
Total stockholders' equity   78,586   82,663
Total liabilities and stockholders' equity $ 112,261 $ 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

 

Six months ended

June 30,
2018

 

July 1,
2017

June 30,
2018

 

July 1,
2017

Non-GAAP Income (Loss) from Operations    
Reported operating income (loss) (GAAP basis) $ 65 $ 1,339 $ (5,056) $ 3,430

Change in fair value of contingent consideration obligations1

9 22 8 102

Restructuring charges2

        95    
Non-GAAP Operating Income (Loss) $ 74   $ 1,361 $ (4,953)   $ 3,532
 
Non-GAAP Net Income (Loss)
Reported net income (loss) (GAAP basis) $ (167) $ 1,100 $ (5,303) $ 2,929

Change in fair value of contingent consideration obligations1

9 22 8 102

Restructuring charges2

        95    
Non-GAAP Net Income (Loss) $ (158)   $ 1,122 $ (5,200)   $ 3,031
 
Non-GAAP Net Income (Loss) Per Diluted Share
Reported net income (loss) per diluted share (GAAP basis) $ (0.01) $ 0.05 $ (0.24) $ 0.13

Change in fair value of contingent consideration obligations1

$ $ $ $

Restructuring charges2

$ $ $ $
Non-GAAP Net Income (Loss) Per Diluted Share $ (0.01) $ 0.05 $ (0.23) $ 0.13
Weighted average number of diluted shares 22,461 23,209 22,284 22,999
 

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 six months ended June 30, 2018 include
severance and other employee-related costs related to a
restructuring program.

 

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