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| IVAC > SEC Filings for IVAC > Form 10-Q on 27-Oct-2009 | All Recent SEC Filings |
27-Oct-2009
Quarterly Report
This Quarterly Report on Form 10-Q contains forward-looking statements, which
involve risks and uncertainties. Words such as "believes," "expects,"
"anticipates" and the like indicate forward-looking statements. These
forward-looking statements include comments related to Intevac's shipments,
projected revenue recognition, product costs, gross margin, operating expenses,
interest income, income taxes, cash balances and financial results in 2009;
projected customer requirements for Intevac's new and existing products, and
when, and if, Intevac's customers will place orders for these products;
Intevac's ability to proliferate its technology into major military programs and
to develop and introduce commercial imaging products; and the timing of delivery
and/or acceptance of the systems and products that comprise Intevac's backlog
for revenue; legal proceedings; and internal controls. Intevac's actual results
may differ materially from the results discussed in the forward-looking
statements for a variety of reasons, including those set forth under "Risk
Factors" and in other documents we file from time to time with the Securities
and Exchange Commission, including our Annual Report on Form 10-K filed in
March 2009 and amended in July 2009, and our periodic Form 10-Q's and Form
8-K's.
Overview
Intevac provides manufacturing equipment and solutions to the hard disk drive
industry and offers highly efficient technology solutions to the photovoltaic
industry and advanced etch systems to the semiconductor industry. In 2009,
Intevac announced a high-efficiency, low-cost thin film solar cell manufacturing
system for photovoltaic applications, LEAN SOLAR™ and began offering equipment
to photovoltaic cell manufacturers. Intevac also provides sensors, cameras and
systems for commercial applications in the inspection, medical, scientific and
security industries and for government applications such as night vision and
long-range target identification. Intevac's customers and potential customers
include manufacturers of hard disk drives, semiconductor chips and wafers,
photovoltaic cells as well as medical, scientific and security companies, law
enforcement and the U.S. government and its contractors. Intevac reports two
segments: Equipment and Intevac Photonics. Effective in the second quarter of
2008, Intevac renamed the Imaging Instrumentation segment to Intevac Photonics.
During the third quarter of 2008, Intevac completed the acquisition of certain
assets and liabilities of the magnetic media equipment business of OC Oerlikon
Balzers Ltd. ("Oerlikon").
Product development and manufacturing activities occur in North America and
Asia. Intevac has field offices in Asia to support its Equipment customers.
Intevac's equipment and service products are highly technical and, with the
exception of Japan, are sold primarily through a direct sales force. In Japan,
sales are typically made by Intevac's Japanese distributor, Matsubo. During the
third quarter of 2008, Intevac entered into an alliance with a Korean equipment
manufacturer and distributor, TES Co., Ltd. ("TES"). Under the agreement TES has
the rights to manufacture and sell Intevac's Lean Etch® system to the Korean and
Chinese markets, and Intevac has the rights to manufacture and sell TES'
chemical vapor deposition equipment to customers throughout the rest of the
world. To date no sales have been made pursuant to this contract.
Intevac's results are driven primarily by worldwide demand for hard disk
drives, which in turn depends on end-user demand for personal computers,
enterprise data storage, personal audio and video players and video game
platforms. Intevac's business is subject to cyclical industry conditions, as
demand for manufacturing equipment and services can change depending on supply
and demand for hard disk drives, chips, and other electronic devices, as well as
other factors, such as global economic conditions and technological advances in
fabrication processes.
The following table presents certain significant measurements for the three and nine months ended September 26, 2009 and September 27, 2008:
Three months ended Nine months ended
September 26, September 27, % September 26, September 27, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages and per share amounts)
Net revenues $ 19,155 $ 28,560 (32.9 )% $ 43,781 $ 93,867 (53.4 )%
Gross margin $ 8,678 $ 9,085 (4.5 )% $ 17,456 $ 37,529 (53.5 )%
Gross margin percent 45.3 % 31.8 % 13.5 % 39.9 % 40.0 % (0.1) %
Net loss $ (1,792 ) $ (3,353 ) 46.6 % $ (12,052 ) $ (2,727 ) (342.0 )%
Loss per diluted share $ (0.08 ) $ (0.15 ) 46.7 % $ (0.55 ) $ (0.13 ) (323.1 )%
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Financial results for the third quarter and first nine months of fiscal 2009
reflected a challenging environment as Intevac's Equipment customers reduced or
delayed capital expenditures primarily as a result of reduced demand and
overcapacity in the hard disk drive industry which occurred in the first half of
2009. Net sales decreased during the third quarter and first nine months of
fiscal 2009 compared to the same periods in the prior year primarily due to
lower Equipment sales to disk manufacturers partially offset by increased
Intevac Photonics sales. The global economic climate caused a broad slowdown in
capital equipment purchases by Intevac's hard drive customers. The net loss for
the third quarter of fiscal 2009 decreased compared to the same period in the
prior year due to lower operating expenses, partially offset by lower net sales,
lower investment income and lower income tax benefits. The net loss for the
first nine months of fiscal 2009 increased compared to the same period 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 fourth quarter of 2009, Intevac expects its Equipment revenue to
increase from the third quarter of 2009 and from fourth quarter 2008 levels as a
result of increased demand as customers take delivery of systems to be used in
research and development including next generation patterned media production
and the first new systems for manufacturing capacity increases since 2008.
Intevac expects Intevac Photonics revenues in the fourth quarter of 2009 to
increase from the third quarter of 2009.
For fiscal 2009, Intevac expects its Equipment revenue to decrease from 2008
levels as a result of decreased demand due to the global macroeconomic
conditions as hard drive manufacturers did not add to capacity in 2009. Intevac
expects Intevac Photonics revenues in fiscal 2009 to increase from fiscal 2008
levels.
200 Lean®," "AccuLuber™," "ExaminerR™," "Lean Etch®," "LEAN SOLAR™," "LIVAR®,"
"MicroVista®," "NightVista®," "MOSIR®," "LithoPrime™," "Night Port™,"
"NanoVista™" and "RAPID-ID™" among others, are our trademarks.
Results of Operations
Net revenues
Three months ended Nine months ended
September 26, September 27, % September 26, September 27, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages)
Equipment $ 12,293 $ 22,855 (46.2 )% $ 24,477 $ 75,558 (67.6 )%
Intevac Photonics 6,862 5,705 20.3 % 19,304 18,309 5.4 %
Total net revenues $ 19,155 $ 28,560 (32.9 )% $ 43,781 $ 93,867 (53.4 )%
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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 September 26, 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 third quarter of 2009 Intevac
recognized revenue on one 200 Lean system, disk equipment technology upgrades
and spare parts. Equipment revenue for the nine months ended September 26, 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 nine months ended September 26, 2009 included revenue
recognition for one 200 Lean system, five AccuLuber™ systems, upgrades and spare
parts. During the third quarter of fiscal 2008, Intevac recognized revenue on
four 200 Lean systems, disk equipment technology upgrades and spare parts.
Equipment revenue for the nine months ended September 27, 2008 included revenue
recognition for ten 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 need to produce 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 Photonics revenue for the three and nine months ended September 26,
2009 increased over the same periods in the prior year. Intevac Photonics
revenues for the three months ended September 26, 2009 consisted of $4.5 million
of research and development contract revenue and $2.3 million of product sales
as compared to $3.3 million of research and development contract revenue and
$2.4 million of product sales for the three months ended September 27, 2008.
Intevac Photonics revenues for the nine months ended September 26, 2009
consisted of $11.5 million of research and development contract revenue and
$7.8 million of product sales as compared to $11.5 million of research and
development contract revenue and $6.8 million of product sales for the nine
months ended September 27, 2008. The increase in contract research and
development revenue for the three months ended September 26, 2009 compared to
the same period in the prior year was the result of a higher volume of
contracts. The increase in product revenue for the nine months ended
September 26, 2009 over the same period in the prior year resulted from higher
sales of digital night vision camera modules, systems and commercial products.
Substantial growth in future Intevac Photonics revenues is dependent on
proliferation of Intevac's technology into major military programs, obtaining
production subcontracts for these programs, continued defense spending, the
ability to obtain export licenses for foreign customers, and development and
sale of commercial products.
Intevac's backlog of orders at September 26, 2009 was $52.2 million, as
compared to $20.2 million at December 31, 2008 and $18.5 million at
September 27, 2008. The $52.2 million of backlog at September 26, 2009 consisted
of $38.7 million of Equipment backlog and $13.5 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 September 26, 2009 included five 200 Lean systems as compared to one
at both December 31, 2008 and September 27, 2008.
International sales decreased by 59.4% to $7.6 million for the three months
ended September 26, 2009 from $18.6 million for the three months ended
September 27, 2008 and by 72.2% to $19.4 million for the nine months
ended September 26, 2009 from $69.8 million for the nine months ended
September 27, 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 39.6% of net revenues for the three
months ended September 26, 2009 and 65.3% of net revenues for the three months
ended September 27, 2008. International sales constituted 44.3% of net revenues
for the nine months ended September 26, 2009 and 74.3% of net revenues for the
nine months ended September 27, 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 Nine months ended
September 26, September 27, % September 26, September 27, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages)
Equipment gross
profit $ 5,925 $ 7,263 (18.4 )% $ 10,132 $ 30,869 (67.2 )%
% of Equipment net
revenues 48.2 % 31.8 % 41.4 % 40.9 %
Intevac Photonics
gross profit $ 2,753 $ 1,822 51.1 % $ 7,324 $ 6,660 10.0 %
% of Intevac
Photonics net
revenues 40.1 % 31.9 % 37.9 % 36.4 %
Total gross profit $ 8,678 $ 9,085 (4.5 )% $ 17,456 $ 37,529 (53.5 )%
% of net revenues 45.3 % 31.8 % 39.9 % 40.0 %
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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 nine months
ended September 26, 2009 included $72,000 and $283,000 of equity-based
compensation expense, respectively. Cost of net revenues for the three and nine
months ended September 27, 2008 included $155,000 and $607,000 of equity-based
compensation expense, respectively.
Equipment gross margin was 48.2% in the three months ended September 26, 2009
compared to 31.8% in the three months ended September 27, 2008 and was 41.4% in
the nine months ended September 26, 2009 compared to 40.9% in the nine months
ended September 27, 2008. The higher gross margin for the three months ended
September 26, 2009 compared to the same period in the prior year was due
primarily to changes in product mix to higher-margin technology upgrades,
improved factory utilization and the savings from the global cost reduction plan
implemented in the fourth quarter of 2008, offset in part by lower revenues. The
higher gross margin for the nine months ended September 26, 2009 compared to the
same period in the prior year was due primarily to 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, offset in part by lower revenues
and costs from an acquired business. In general, 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
inventory provisions.
Intevac Photonics gross margin was 40.1% in the three months ended
September 26, 2009 compared to 31.9% in the three months ended September 27,
2008 and was 37.9% in the nine months ended September 26, 2009 compared to 36.4%
in the nine months ended September 27, 2008. The increase in gross margin in the
three months ended September 26, 2009 compared to the same period in the prior
year resulted primarily from higher-margin research and development contracts
and improved factory absorption. The increase in gross margin in the nine months
ended September 26, 2009 compared to the same period in the prior year resulted
primarily from changes in product mix to higher-margin product sales, offset in
part by higher manufacturing costs, warranty costs and provisions for excess and
obsolete inventory.
Research and Development
Three months ended Nine months ended
September 26, September 27, % September 26, September 27, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages)
Research and
development
expense $ 6,840 $ 8,620 (20.6 )% $ 22,255 $ 26,426 (15.8 )%
% of net revenues 35.7 % 30.2 % 50.8 % 28.2 %
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Research and development spending decreased in Equipment and increased in Intevac Photonics during the three and nine months ended September 26, 2009 as compared to the three and nine months ended September 27, 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 development of photovoltaic manufacturing systems. The increase in Intevac Photonics research and development reflected increased spending for sensor yield improvements, sensor development and digital night vision system development. Research and development expense for the three and nine months ended September 26, 2009 included $312,000 and $1.2 million of equity-based compensation expense, respectively. Research and development expense for the three and nine months ended September 27, 2008 included $507,000 and $1.4 million of equity-based compensation expense, respectively. Research and development expenses do not include costs of $2.3 million and $6.4 million for the three and nine months ended September 26, 2009 respectively, or $1.8 million and $6.7 million for the three and nine months ended September 27, 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 Nine months ended
September 26, September 27, % September 26, September 27, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages)
Selling, general
and administrative
expense $ 5,551 $ 7,341 (24.4 )% $ 16,654 $ 21,818 (23.7 )%
% of net revenues 29.0 % 25.7 % 38.0 % 23.2 %
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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 nine months ended September 26, 2009 compared to the three and nine months ended September 27, 2008 was primarily the result of savings from the global cost reduction plan implemented in the fourth quarter of 2008. Selling, general and administrative expense for the three and nine months ended September 26, 2009 included $615,000 and $2.3 million of equity-based compensation expense, respectively. Selling, general and administrative expense for the three and nine months ended September 27, 2008 included $1.1 million and $3.0 million of equity-based compensation expense, respectively.
Interest income and other, net
Three months ended Nine months ended
September 26, September 27, % September 26, September 27, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages)
Interest income
and other, net $ 122 $ 884 (86.2 )% $ 780 $ 3,101 (74.8 )%
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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 nine months ended September 26, 2009 resulted from
lower average invested balances, lower interest rates and fluctuations in
foreign currency gains and losses.
Income tax benefit
Three months ended Nine months ended
September 26, September 27, % September 26, September 27, %
2009 2008 Change 2009 2008 Change
(in thousands, except percentages)
Income tax benefit $ 1,799 $ 2,639 (31.8 )% $ 8,621 $ 4,887 76.4 %
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Intevac's effective income tax rate for the three and nine months ended
September 26, 2009 was 50.1% and 46.7%, respectively. Intevac's effective income
tax rate for the three and nine months ended September 27, 2008 was 44.0% and
64.2%, 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.
The fiscal 2009 income tax benefit is net of $460,000 of unfavorable federal
adjustments recorded in the third fiscal quarter related to prior year estimates
for research tax credits.
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 September 26, 2009, Intevac had $97.7 million in cash, cash equivalents,
and investments compared to $105.5 million at December 31, 2008. During the
first nine months of 2009, cash and cash equivalents and investments decreased
by $7.8 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:
September 26, December 31,
2009 2008
(In thousands)
Cash and cash equivalents $ 19,769 $ 39,201
Short-term investments 11,997 -
Long-term investments 65,973 66,328
Total cash, cash equivalents and investments $ 97,739 $ 105,529
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Operating activities used cash of $8.5 million and $6.0 million during the
first nine months of 2009 and 2008, respectively. The increase in cash used by
operating activities was due primarily to the increase in the net loss partially
offset by changes in working capital during the first nine months of 2009.
Accounts receivable totaled $12.3 million at September 26, 2009, compared to
$15.0 million at December 31, 2008. The decrease of $2.7 million in the
receivable balance was due to lower revenues and improved collection activities.
Total net inventories increased to $22.8 million at September 26, 2009, compared
to $17.7 million at December 31, 2008 primarily as a result of inventory build
for planned shipments in the fourth quarter of 2009. Accounts payable increased
to $5.2 million at September 26, 2009 compared to $4.2 million at December 31,
. . .
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