Unprecedented Cancellation of $54 Million in Intevac 200 Lean System Orders Last Month

Intevac, Inc. has retained investment banking firm Houlihan Lokey Capital, Inc. to advise management and the board of directors on strategic alternatives.

Additionally, the board has formed a strategic committee comprised of independent directors David Dury and Kevin Barber to work with management and Houlihan Lokey in evaluating options to increase stockholder value.

“The ongoing challenges within the HDD industry resulted in the unprecedented cancellation of $54 million in 200 Lean system orders late last month,” commented Nigel Hunton, president and CEO. “In our nearly 20 years of supplying these industry-leading media processing tools, this is the very first time one of our customers has elected to cancel an order. Our purchase order terms with this customer include very specific contractual protections related to our working capital exposure, and these include not only advanced deposits to fund the receipt of long-lead-time materials, but all inventory related to these systems. As we discussed on our Q1 earnings call, we previously made commitments to our suppliers that are resulting in continued material receipts for HDD systems year-to-date. These material receipts will continue through the second quarter, which will further increase our HDD inventory levels from 1Q levels, and therefore will have a temporarily negative impact on cash at the end of 2Q, yet it is critical to communicate that any material receipts not already funded by advanced deposits will be funded by our customer, and not by Intevac.”

Given that Intevac expects to have no exposure to inventory risk related to these cancelled systems, the company has reaffirmed its prior outlook reported on the earnings call held on May 3, 2023 that the expected balance of cash, restricted cash, and investments at its FY23 year-end will be in the range of $75 to $80 million.

Furthermore, the company is providing updated guidance for FY23 revenue, which is now expected to be in the range of $43 to $48 million, and is expected to be comprised of one 200 Lean system, HDD service, and HAMR upgrades. This revised revenue outlook for FY23 does not include any customer payments for inventory, as the accounting treatment will require these payments to be recorded as pass-through revenue.

Commenting on the strategic process, chairman David Dury said: “There is no question that our outlook for the HDD business over the 2024 to 2026 time period has changed materially year-to-date, especially as a result of the recent order cancellations. As we entered 2023, we had a strong outlook for growth, and a return to profitability and positive free cash flow generation expected in our 2024 forecast, which was supported by over $120 million in HDD backlog as well as a minimum revenue requirement for our joint development partner to maintain exclusivity for the TRIO in the consumer electronics market. With the continued softening ofHDD demand and the unprecedented cancellation of a meaningful portion of our order backlog, the board of directors has made the decision to evaluate strategic options for the company, which includes appointing investment banking firm Houlihan Lokey and a strategic committee within our board to evaluate strategic options to maximize stockholder value. In our view, the Intevac enterprise has significant unrealized value embedded across the range of our products, technology, and customer relationships that we’ve developed over the years, and we believe our current market capitalization does not fully reflect the growth potential of the Company once we get beyond this challenging period.”

Hunton concluded: “While the year-to-date changes to our mid- and longer-term HDD forecasts are significant, we wish to convey that our outlook for 2023 has actually strengthened since our last earnings call. Whereas previously we conveyed concern of as much as 10% risk to our $40 million HDD revenue forecast for FY23, with our current visibility we are now forecasting FY23 revenues of $43 to $48 million. We also plan to ship one TRIO system and remain confident in the significant growth potential ahead for the TRIO, where our joint development agreement continues to progress towards qualification and first purchase order before year-end. This expected TRIO order also supports our reaffirmed cash forecast for year-end, as does our expectation that our aged HDD accounts receivable will be resolved in the second half of the year.”

Regarding the appointment of Houlihan Lokey and a strategic committee of the board of directors, there can be no assurance that the exploration process will result in any transaction or other strategic alternative, and Intevac has not set a definitive timetable for completion of this process. The company does not expect to disclose further developments relating to this strategic evaluation process, unless and until the board of directors approves a specific transaction or otherwise concludes this review of strategic alternatives.

Founded in 1991, Intevac is a provider of thin-film process technology and manufacturing platforms for high-volume manufacturing environments. As a long-time supplier to the HDD industry, over the last 20 years, it has delivered over 180 of 200 Lean systems, which currently represent the majority of the world’s capacity for HDD disk media production.