Intevac: Fiscal 3Q18 Financial Results

Intevac, Inc. 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 HDD equipment business, higher Photonics gross margin, and continued close control of expenses,” commented Wendell Blonigan, president and CEO. “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 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. 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.”

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.

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 R&D 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 R&D 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 R&D 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. The manufacturer recognized revenue on three 200 Lean HDD systems in the first nine months of 2018. The company 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 R&D 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.