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| IVAC > SEC Filings for IVAC > Form 10-Q on 31-Jul-2009 | All Recent SEC Filings |
31-Jul-2009
Quarterly Report
The following table presents certain significant measurements for the three and six months ended June 27, 2009 and June 28 2008:
Three months ended Six months ended
June 27, June 28, % June 27, June 28, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages and per share amounts)
Net revenues $ 12,318 $ 32,132 (61.7 )% $ 24,626 $ 65,307 (62.3 )%
Gross profit $ 4,513 $ 13,133 (65.6 )% $ 8,778 $ 28,444 (69.1 )%
Gross margin percent 36.6 % 40.9 % (4.3 )% 35.7 % 43.6 % (7.9) %
Net income (loss) $ (4,487 ) $ (937 ) (378.9 )% $ (10,260 ) $ 626 (1,739.0 )%
Earnings (loss) per
diluted share $ (0.20 ) $ (0.04 ) (400.0 )% $ (0.47 ) $ 0.03 (1,666.7 )%
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Financial results for the second quarter and first six months of fiscal 2009
reflected a challenging environment as Intevac's Equipment customers reduced or
delayed capital expenditures as a result of reduced demand, price erosion and
industry consolidation. Net sales decreased during the second quarter and first
six months of fiscal 2009 primarily due to lower equipment sales to disk
manufacturers partially offset by increased Intevac Photonics' product sales.
The global economic climate and constrained financing environment have caused a
broad slowdown in capital equipment purchases by Intevac's hard drive customers.
The net loss for the second quarter and first six months of fiscal 2009
increased compared to the same periods in the prior year due to lower net sales
and lower investment income, partially offset by lower operating expenses and
higher income tax benefits. The decrease in operating expenses was a result of
the global cost reduction plan implemented in the fourth quarter of 2008 and
continuing focus on operating efficiency. As part of the global cost reduction
plan, Intevac has reduced its global workforce by 21% and reduced its global
infrastructure.
For the third quarter of 2009, Intevac expects its Equipment revenue to
increase from the second quarter of 2009 but remain below third quarter 2008
levels as a result of lower demand due to the global macroeconomic conditions as
hard drive customers experience tightening credit, inventory rationalization
throughout all channels and price competition. Intevac expects Intevac Photonics
revenues in the third quarter of 2009 to increase from the second quarter of
2009.
"200 Lean®", "AccuLuber™", "ExaminerR™", "Lean Etch®", "LIVAR®",
"MicroVista®", "NightVista®", "MOSIR®", "LithoPrime™", "Night Port™" and
"NanoVista™", among others, are our trademarks.
Results of Operations
Net revenues
Three months ended Six months ended
June 27, June 28, % June 27, June 28, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages)
Equipment $ 6,066 $ 25,730 (76.4 )% $ 12,184 $ 52,703 (76.9 )%
Intevac Photonics 6,252 6,402 (2.3 )% 12,442 12,604 (1.3 )%
Total net revenues $ 12,318 $ 32,132 (61.7 )% $ 24,626 $ 65,307 (62.3 )%
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Net revenues consist primarily of equipment sales used to manufacture thin-film disks, and, to a lesser extent, related equipment and system components; contract research and development related to the development of electro-optical sensors, cameras and systems, low-light imaging products and table-top and handheld Raman instruments.
Equipment revenue for the three months ended June 27, 2009 decreased over the
same period in the prior year as a result of lower sales of disk sputtering
systems and spare parts, offset in part by higher sales of disk equipment
technology upgrades. During the second quarter of 2009 Intevac recognized
revenue on one AccuLuberTM system, disk equipment technology upgrades and spare
parts. Equipment revenue for the six months ended June 27, 2009 decreased over
the same period in the prior year as a result of lower sales of disk sputtering
systems, disk equipment technology upgrades and spare parts. Equipment revenue
for the six months ended June 27, 2009 included revenue recognition for, five
AccuLuber systems, upgrades and spare parts. Equipment revenue for the three and
six months ended June 27, 2009 did not include any 200 Lean systems. During the
second quarter of fiscal 2008, Intevac recognized revenue on four 200 Lean
systems, disk equipment technology upgrades and spare parts. Equipment revenue
for the six months ended June 28, 2008 included revenue recognition for six 200
Lean systems, eleven disk lubrication systems including one AccuLuber system,
upgrades and spare parts. While the uncertainty of end market demand continues
to dampen expectations for the hard drive market, Intevac expects that in 2009
the demand for equipment will result primarily from the first shipments of
patterned media development systems, incremental research and development
systems, and the replacement of legacy systems with 200 Leans to support the
continued growth in mobile drives. Intevac does not expect any of its hard drive
customers to add new systems for capacity in 2009.
Intevac Photonics revenue for the three and six months ended June 27, 2009
decreased over the same periods in the prior year which was the result of
decreased contract research and development work, offset in part by increased
product sales. Intevac Photonics revenues for the three months ended June 27,
2009 consisted of $3.3 million of research and development contract revenue and
$2.9 million of product sales as compared to $4.0 million of research and
development contract revenue and $2.4 million of product sales for the three
months ended June 28, 2008. Intevac Photonics revenues for the six months ended
June 27, 2009 consisted of $7.0 million of research and development contract
revenue and $5.5 million of product sales as compared to $8.2 million of
research and development contract revenue and $4.4 million of product sales for
the six months ended June 28, 2008. The increase in product revenue resulted
from higher sales of digital night vision camera modules, systems and commercial
products. The decrease in contract research and development revenue was the
result of a lower volume of contracts and no revenue from contract close-outs.
Intevac expects that in the remainder of 2009, Intevac Photonics revenues will
grow driven by government spending as well as growth in commercial products.
Substantial growth in future Intevac Photonics revenues is dependent on
proliferation of Intevac's technology into major military programs, continued
defense spending, the ability to obtain export licenses for foreign customers,
obtaining production subcontracts for these programs, and development and sale
of commercial products.
Intevac's backlog of orders at June 27, 2009 was $44.0 million, as compared
to $20.2 million at December 31, 2008 and $27.7 million at June 28, 2008. The
$44.0 million of backlog at June 27, 2009 consisted of $34.0 million of
Equipment backlog and $10.0 million of Intevac Photonics backlog. The
$20.2 million of backlog at December 31, 2008 consisted of $11.4 million of
Equipment backlog and $8.8 million of Intevac Photonics backlog. Backlog at
June 27, 2009 included five 200 Lean systems as compared to one at December 31,
2008 and four at June 28, 2008.
International sales decreased by 76.2% to $5.9 million for the three months
ended June 27, 2009 from $24.7 million for the three months ended June 28, 2008
and by 77.0% to $11.8 million for the six months ended June 27, 2009 from
$51.1 million for the six months ended June 28, 2008. International sales
include products shipped to overseas operations of U.S. companies. The decrease
in international sales was primarily due to a decrease in net revenues from disk
sputtering systems, upgrades and spare parts. Substantially all of Intevac's
international sales are to customers in Asia. International sales constituted
47.8% of net revenues for the three months ended June 27, 2009 and 76.9% of net
revenues for the three months ended June 28, 2008. International sales
constituted 48.0% of net revenues for the six months ended June 27, 2009 and
78.3% of net revenues for the six months ended June 28, 2008. The mix of
domestic versus international sales will change from period to period depending
on the location of Intevac's largest customers in each period.
Gross profit
Three months ended Six months ended
June 27, June 28, % June 27, June 28, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages)
Equipment gross profit $ 2,379 $ 10,898 (78.2 )% $ 4,207 $ 23,606 (82.2 )%
% of Equipment net
revenues 39.2 % 42.4 % 34.5 % 44.8 %
Intevac Photonics
gross profit $ 2,134 $ 2,235 (4.5 )% $ 4,571 $ 4,838 (5.5 )%
% of Intevac Photonics
net revenues 34.1 % 34.9 % 36.7 % 38.4 %
Total gross profit $ 4,513 $ 13,133 (65.6 )% $ 8,778 $ 28,444 (69.1 )%
% of net revenues 36.6 % 40.9 % 35.6 % 43.6 %
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Cost of net revenues consists primarily of purchased materials and costs
attributable to contract research and development, and also includes
fabrication, assembly, test and installation labor and overhead,
customer-specific engineering costs, warranty costs, royalties, provisions for
inventory reserves and scrap. Cost of net revenues for the three and six months
ended June 27, 2009 included $104,000 and $211,000 of equity-based compensation
expense, respectively. Cost of net revenues for the three and six months ended
June 28, 2008 included $204,000 and $453,000 of equity-based compensation
expense, respectively.
Equipment gross margin was 39.2% in the three months ended June 27, 2009
compared to 42.4% in the three months ended June 28, 2008 and was 34.5% in the
six months ended June 27, 2009 compared to 44.8% in the six months ended
June 28, 2008. The lower gross margin was due primarily to lower revenues, lower
factory utilization, and costs from an acquired business partially offset by
changes in product mix to higher-margin technology upgrades and the savings from
the global cost reduction plan implemented in the fourth quarter of 2008.
Intevac expects the gross margin for the Equipment business in the third quarter
of 2009 will improve over the first half of 2009 due to improved factory
utilization and product mix and decline over the third quarter of 2008 due to
lower revenue levels. Gross margins in the Equipment business will vary
depending on a number of factors, including product mix, product cost, system
configuration and pricing, factory utilization, and provisions for excess and
obsolete inventory.
Intevac Photonics gross margin was 34.1% in the three months ended June 27,
2009 compared to 34.9% in the three months ended June 28, 2008 and was 36.7% in
the six months ended June 27, 2009 compared to 38.4% in the six months ended
June 28, 2008. The decrease in gross margin resulted primarily from higher
manufacturing costs and higher contract R & D costs as a percentage of net
revenues. Intevac expects the gross margin for the Intevac Photonics business in
the third quarter of 2009 to improve over the first half of 2009 and the third
quarter of 2008, primarily as a result of the projected increase in product
sales, which typically carry higher gross margins.
Research and development
Three months ended Six months ended
June 27, June 28, % June 27, June 28, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages)
Research and
development expense $ 7,385 $ 8,418 (12.3 )% $ 15,415 $ 17,806 (13.4 )%
% of net revenues 60.0 % 26.2 % 62.6 % 27.3 %
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Research and development spending decreased in Equipment and increased in Intevac Photonics during the three and six months ended June 27, 2009 as compared to the three and six months ended June 28, 2008. The decrease in Equipment spending was due primarily to a reduction in spending on the Lean Etch product line (as the
product design phase is substantially complete and on-going efforts are
primarily related to continuous improvement) and savings from the global cost
reduction plan implemented in the fourth quarter of 2008, offset by initial
investment in photovoltaic development. The increase in Intevac Photonics
research and development reflected increased spending for sensor yield
improvements, sensor development and digital night vision goggle development.
Intevac expects that research and development spending will decrease in the
third quarter of 2009 over the second quarter of 2009 primarily as a result of
the lower level of spending on Intevac's Lean Etch product line and lower
Photonics research and development costs. Intevac expects that research and
development spending will decrease in the third quarter of 2009 over the same
quarter in the previous year primarily as a result of the lower level of
spending on Intevac's Lean Etch product line. Research and development expense
for the three and six months ended June 27, 2009 included $394,000 and $838,000
of equity-based compensation expense, respectively. Research and development
expense for the three and six months ended June 28, 2008 included $463,000 and
$929,000 of equity-based compensation expense, respectively. Research and
development expenses do not include costs of $2.0 million and $4.0 million for
the three and six months ended June 27, 2009 respectively, or $2.4 million and
$4.9 million for the three and six months ended June 28, 2008, respectively,
which are related to Intevac Photonics contract research and development and
included in cost of net revenues.
Selling, general and administrative
Three months ended Six months ended
June 27, June 28, % June 27, June 28, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages)
Selling, general and
administrative expense $ 5,394 $ 7,413 (27.2 )% $ 11,103 $ 14,477 (23.3 )%
% of net revenues 43.8 % 23.1 % 45.1 % 22.2 %
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Selling, general and administrative expense consists primarily of selling,
marketing, customer support, financial and management costs. The decrease in
selling, general and administrative spending in the three and six months ended
June 27, 2009 compared to the three and six months ended June 28, 2008 was
primarily the result of savings from the global cost reduction plan implemented
in the fourth quarter of 2008. Intevac expects that selling, general and
administrative expenses will also decrease in the third quarter of 2009 over the
amount spent in the same quarter in the previous year and remain flat as
compared to the second quarter of 2009. Selling, general and administrative
expense for the three and six months ended June 27, 2009 included $814,000 and
$1.7 million of equity-based compensation expense, respectively. Selling,
general and administrative expense for the three and six months ended June 28,
2008 included $976,000 and $1.9 million of equity-based compensation expense,
respectively.
Interest income and other, net
Three months ended Six months ended
June 27, June 28, % June 27, June 28, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages)
Interest income and
other, net $ 228 $ 806 (71.7 )% $ 658 $ 2,217 (70.3 )%
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Interest income and other, net consists primarily of interest income on investments and foreign currency gains and losses. The decrease in interest and other income in the three and six months ended June 27, 2009 resulted from lower average invested balances, lower interest rates and fluctuations in foreign currency gains and losses. Intevac expects interest income to decrease in the third quarter of 2009 over the same period in the previous year due primarily to lower investment portfolio balances and interest rates.
Income tax benefit
Three months ended Six months ended
June 27, June 28, % June 27, June 28, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages)
Income tax benefit $ 3,551 $ 955 271.8 % $ 6,822 $ 2,248 203.5 %
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Intevac's effective income tax rate for the three and six months ended
June 27, 2009 was 44.2% and 45.9%, respectively. Intevac's effective income tax
rate for the three and six months ended June 28, 2008 was 50.5% and 138.6%,
respectively. Intevac adjusts its effective income tax rate each quarter to be
consistent with the estimated annual effective income tax rate. The effective
income tax rate differs from the applicable statutory rates due primarily to the
utilization of deferred and current credits, the effect of permanent differences
and the geographical composition of Intevac's worldwide earnings. Intevac's
effective income tax rate is highly dependent on the availability of tax credits
and the geographic composition of Intevac's worldwide earnings.
During the first quarter of 2009, Intevac established an additional valuation
allowance to fully reserve its California state deferred tax assets due to the
impact of California tax legislation that was enacted in February 2009. This
additional valuation allowance decreased the income tax benefit by $1.0 million.
Intevac recognized the effect of the change in valuation allowance as a discrete
item during the period.
Liquidity and Capital Resources
At June 27, 2009, Intevac had $96.2 million in cash, cash equivalents, and
investments compared to $105.5 million at December 31, 2008. During the first
six months of 2009, cash and cash equivalents and investments decreased by
$9.3 million due primarily to cash used by operating activities, a scheduled
payment to the owners of DeltaNu, LLC, and purchases of fixed assets partially
offset by cash received from the sale of Intevac common stock to Intevac's
employees through Intevac's employee benefit plans.
Cash, cash-equivalents and investments consist of the following:
June 27, December 31,
2009 2008
(In thousands)
Cash and cash equivalents $ 17,990 $ 39,201
Short-term investments 11,990 -
Long-term investments 66,187 66,328
Total cash, cash equivalents and investments $ 96,167 $ 105,529
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Operating activities used cash of $9.7 million and $20.0 million during the
first six months of 2009 and 2008, respectively. The decrease in cash used by
operating activities was due primarily to changes in working capital, partially
offset by the reduction in net income, and non-cash changes in deferred taxes
during the first six months of 2009.
Accounts receivable totaled $17.1 million at June 27, 2009, compared to
$15.0 million at December 31, 2008. The increase of $2.1 million in the
receivable balance was due to billings at the end of the second quarter for
deposits on new orders, partially offset by lower revenues and improved
collection activities. Total net inventories increased to $19.6 million at
June 27, 2009, compared to $17.7 million at December 31, 2008 primarily as a
result of inventory build for planned shipments in the latter half of 2009.
Accounts payable increased slightly to $4.5 million at June 27, 2009 compared to
$4.2 million at December 31, 2008. Accrued payroll and related liabilities
increased by $454,000 during the six months ended June 27, 2009. Customer
advances increased by $1.7 million during the first six months of 2009, as a
result of new orders received from Intevac's customers in the second quarter.
Investing activities in the first six months of 2009 used cash of
$9.9 million. Purchases of investments, net of proceeds from maturities of
investments, totaled $8.5 million. Capital expenditures for the six months ended
June 27, 2009 were $1.5 million.
Financing activities in the first six months of 2009 used cash of
$1.5 million. Intevac made a scheduled payment of $2.0 million to the owners of
DeltaNu, LLC, which Intevac acquired in the first quarter of 2007. Intevac
generated $513,000 during the six months ended June 27, 2009 from the sale of
Intevac common stock to Intevac's employees through Intevac's employee benefit
plans.
It is anticipated that market conditions may remain weak, but Intevac
anticipates that its efforts to reduce costs through its global cost reduction
. . .
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