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Intevac: Fiscal 2Q20 Financial Results

Revenues of $16.6 million for thin-film equipment, consisting of two 200 Lean HDD systems, upgrades, spares and service

(in $ million) 2Q19 2Q20 6 mo. 19 6 mo. 20
Revenue 22.3 28.8 47.1 47.7
Growth   29%   1%
Net income (loss) (1.2) 1.5 (3.6) 0.3

Intevac, Inc. reported financial results for the quarter and six months ended June 27, 2020.

We are pleased to report profitable second-quarter financial results, demonstrating excellent execution by our team in delivering strong levels of business to our HDD customers and a record quarter in photonics,” commented Wendell Blonigan, president and CEO. “In light of the constraints placed on our operations and supply chain as a result of the Covid-19 pandemic, our financial results are indicative of the essential role Intevac plays within the critical IT and defense infrastructure sectors. While 2020 will be an immensely challenging year overall, we are on very strong financial footing and further strengthened the balance sheet in the second quarter, increasing total cash and investments to $45 million. In our thin-film equipment (TFE) growth initiatives, we continue to experience pandemic-related delays in our evaluation and development work. Nonetheless, we expect solid levels of business with our HDD customers and a record year in photonics will enable us to deliver operating profitability for the year and maintain our strong balance sheet until revenue growth resumes.

2FQ20 Summary
Net income was $1.5 million, or $0.06 per diluted share, compared to a net loss of $1.2 million, or $0.05 per diluted share, in 2FQ19. Non-GAAP net income was $1.5 million or $0.06 per diluted share, compared to 2FQ19 non-GAAP net loss of $1.2 million or $0.05 per diluted share.

Revenues were $28.8 million, including $16.6 million of TFE revenues and $12.2 million of photonics revenues. TFE revenues consisted of two 200 Lean HDD systems, upgrades, spares and service.

Photonics revenues consisted of $6.1 million of R&D contracts and $6.1 million of product sales. 2FQ19, revenues were $22.3 million, including $13.3 million of TFE revenues, which consisted of one 200 Lean HDD system, upgrades, spares and service, and photonics revenues of $9.1 million, which included $5.1 million of R&D contracts and $4.0 million of product sales.

TFE gross margin was 36.4% compared to 38.9% in 2FQ19 and 44.0% in 1FQ20. The decline 1FQ20 and 2FQ19 was primarily due to less favorable product mix.

Photonics gross margin was 43.9% compared to 35.4% in 2FQ19 and 42.8% in 1FQ20. The improvement was primarily due to higher revenue levels and improved margins on both product sales and R&D contracts. Consolidated gross margin was 39.6%, compared to 37.5% in 2FQ1919 and 43.3% in the first quarter of 2020.

R&D and SG&A expenses were $9.3 million, compared to $9.3 million in 2FQ19 and $9.3 million in 1FQ20.

Order backlog totaled $69.0 million on June 27, 2020, compared to $87.2 million on March 28, 2020 and $93.7 million on June 29, 2019. Backlog at June 27, 2020 did not include any 200 Lean HDD systems. Backlog at March 28, 2020 included two 200 Lean HDD systems. Backlog at June 29, 2019 included four 200 Lean HDD systems and five ENERGi solar ion implant systems.

The company ended the quarter with $44.8 million of total cash, restricted cash and investments and $97.6 million in tangible book value, defined as total stockholders’ equity, less intangible assets.

1FH20 Summary
Net income was $0.3 million, or $0.01 per diluted share, compared to a net loss of $3.6 million, or $0.16 per diluted share, for 1FH19. Non-GAAP net income was $0.3 million or $0.01 per diluted share, compared to 1FH19 non-GAAP net loss of $3.6 million or $0.16 per diluted share.

Revenues were $47.7 million, including $24.6 million of TFE revenues and $23.1 million of Photonics revenues, compared to 1FH19 revenues of $47.1 million, which included $32.2 million of TFE revenues and $14.9 million of photonics revenues.

TFE gross margin was 38.9%, an improvement compared to 34.6% in 1FH19, as a result of more favorable product mix. Photonics gross margin was 43.4% compared to 29.9% in 1FH19. The improvement was primarily due to higher revenue levels and improved margins on both product sales and R&D contracts. Consolidated gross margin was 41.1%, compared to 33.1% in the 1FH19.

R&D and SG&A expenses were $18.6 million compared to $18.5 million in 1FH19.

 

 

Our Comments

Covid-19 has negatively impacted Intevac's thin-film equipment (TFE) growth initiatives, on the flip side so far, but it has had a relatively positive impact on HDD media growth.

Strong demand for nearline drives driven by the work-from-home and distance learning transitions have resulted in strong Y/Y growth in media units to date in 2020. In 1FQ20, the company saw record shipments of nearline drives. "And at this point, midway through the year, data center spending is holding up better than some had predicted," stated the manufacturer.

Over a year now, it presented its view that the number of 200 Lean systems needed by its customers in the 2019 to 2023 period would be about the same as for the prior 5 years or 17 tools. 6 of these tools have shipped in 2019 and 2020. So the expectation is another 11 tools, plus or minus, will ship into 2021 to 2023 time frame.

The average number of disks per drive or tie ratio jumped 18% in 1FQ20 to 3.3 disks per drive exceeding all prior records. The longer-term secular drivers for data center spending are improving, which could also result in future upside to nearline drive growth and in turn media unit growth. The most recent long-term forecast for media, which were published in February before any impact of Covid-19, were factored in, model an 8% annual growth rate for media units.

The company calculated the upside in 200 Leans needed for each 1% increase in the media growth rate. Applying its historical market share estimates of about 65%, this figure is around 1.5 Leans required per year for every 1% increase in media demand. So if media unit growth would have increased from the 8% to the 10% to 12% range, that additional 3 percentage points of growth could end up doubling the industry's needs for 200 Leans over the next few years.

Company's factory in Singapore was given notice by the Singapore government to suspend all on-site activities on April 27, 2020. The manufacturer appealed this notice and was provided an exemption on May 14, 2020. It was temporarily required to limit the number of employees on site at its Singapore factory, but these restrictions were lifted on June 2, 2020.

Meanwhile, in the shorter-term, the firm forecasts a modestly down year in its HDD business, due to fewer system shipments as compared to 2019.

Earning call transcript