INTEVAC INC (Form: 10-Q, Received: 08/03/2021 16:05:29)

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

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PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

INTEVAC, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	July 3, 2021			January 2, 2021
	(Unaudited) (In thousands, except par value)
ASSETS

Current assets:
Cash and cash equivalents	$	32,856		$	29,341
Short-term investments		15,805			14,839
Trade and other accounts receivable, net of allowances of $0 a t both July 3, 2021 and January 2, 2021		14,356			28,646
Inventories		20,524			21,689
Prepaid expenses and other current assets		1,691			1,893

Total current assets		85,232			96,408
Long-term investments		4,679			5,388
Restricted cash		787			787
Property, plant and equipment, net		9,683			11,004
Operating lease right-of-use-assets		6,988			8,165
Deferred income taxes and other long-term assets		5,700			5,486

Total assets	$	113,069		$	127,238

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Current operating lease liabilities	$	2,981		$	2,853
Accounts payable		3,890			4,259
Accrued payroll and related liabilities		6,334			7,679
Other accrued liabilities		2,421			3,631

Total current liabilities		15,626			18,422
Noncurrent liabilities:
Noncurrent operating lease liabilities		5,267			6,803
Other long-term liabilities		428			457

Total noncurrent liabilities		5,695			7,260
Stockholders’ equity:
Common stock, $0.001 par value		24			24
Additional paid-in capital		196,064			193,173
Treasury stock, 5,087 shares at both July 3, 2021 and at January 2, 2021		(29,551	)		(29,551	)
Accumulated other comprehensive income		571			640
Accumulated deficit		(75,360	)		(62,730	)

Total stockholders’ equity		91,748			101,556

Total liabilities and stockholders’ equity	$	113,069		$	127,238

Note: Amounts as of January 2, 2021 are derived from the January 2, 2021 audited consolidated financial statements.

See accompanying notes to the condensed consolidated financial statements.

INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended					Six Months Ended
	July 3, 2021			June 27, 2020		July 3, 2021			June 27, 2020
	(Unaudited) (In thousands, except per share amounts)

Net revenues:
Systems and components	$	10,651		$	22,725	$	23,710		$	36,561
Technology development		3,162			6,117		6,344			11,121

Total net revenues		13,813			28,842		30,054			47,682
Cost of net revenues:
Systems and components		8,624			13,812		18,588			21,579
Technology development		2,081			3,610		5,304			6,526

Total cost of net revenues		10,705			17,422		23,892			28,105

Gross profit		3,108			11,420		6,162			19,577
Operating expenses:
Research and development		3,894			3,707		7,519			6,991
Selling, general and administrative		5,525			5,609		11,455			11,581

Total operating expenses		9,419			9,316		18,974			18,572

Income (loss) from operations		(6,311	)		2,104		(12,812	)		1,005
Interest income and other income (expense), net		20			62		50			204

Income (loss) before provision for (benefit from) income taxes		(6,291	)		2,166		(12,762	)		1,209
Provision for (benefit from) income taxes		(165	)		642		(132	)		909

Net income (loss)	$	(6,126	)	$	1,524	$	(12,630	)	$	300


Net income (loss) per share:
Basic	$	(0.25	)	$	0.06	$	(0.52	)	$	0.01
Diluted	$	(0.25	)	$	0.06	$	(0.52	)	$	0.01

Weighted average common shares outstanding:
Basic		24,241			23,561		24,137			23,522
Diluted		24,241			23,906		24,137			23,953

See accompanying notes to the condensed consolidated financial statements.

INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


	Three Months Ended					Six Months Ended
	July 3, 2021			June 27, 2020		July 3, 2021			June 27, 2020
	(Unaudited) (In thousands)

Net income (loss)	$	(6,126	)	$	1,524	$	(12,630	)	$	300

Other comprehensive income (loss), before tax:
Change in unrealized net gain on available-for-sale investments		(9	)		51		(29	)		53
Foreign currency translation gains (losses)		28			20		(40	)		(75	)

Other comprehensive income (loss), before tax		19			71		(69	)		(22	)
Income taxes related to items in other comprehensive income (loss)		—			—		—			—

Other comprehensive income (loss), net of tax		19			71		(69	)		(22	)

Comprehensive income (loss)	$	(6,107	)	$	1,595	$	(12,699	)	$	278

See accompanying notes to the condensed consolidated financial statements.

INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six months ended
	July 3, 2021			June 27, 2020
	(Unaudited) (In thousands)

Operating activities
Net income (loss)	$	(12,630	)	$	300
Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by operating activities:
Depreciation and amortization		1,686			1,797
Net amortization (accretion) of investment premiums and discounts		62			(26	)
Equity-based compensation		1,987			1,328
Straight-line rent adjustment and amortization of lease incentives		(231	)		(142	)
Deferred income taxes		(202	)		426
Changes in operating assets and liabilities		12,692			(148	)

Total adjustments		15,994			3,235

Net cash and cash equivalents provided by operating activities		3,364			3,535
Investing activities
Purchases of investments		(10,163	)		(12,213	)
Proceeds from sales and maturities of investments		9,815			14,510
Purchases of leasehold improvements and equipment		(365	)		(1,837	)

Net cash and cash equivalents provided by (used in) investing activities		(713	)		460
Financing activities
Net proceeds from issuance of common stock		1,436			994
Common stock repurchases		—			(393	)
Taxes paid related to net share settlement		(532	)		(345	)

Net cash and cash equivalents provided by financing activities		904			256
Effect of exchange rate changes on cash and cash equivalents		(40	)		(74	)

Net increase in cash, cash equivalents and restricted cash		3,515			4,177
Cash, cash equivalents and restricted cash at beginning of period		30,128			20,554

Cash, cash equivalents and restricted cash at end of period	$	33,643		$	24,731


Non-cash investing and financing activity
Additions to right-of-use-assets obtained from new operating lease liabilities	$	—		$	128

See accompanying notes to the condensed consolidated financial statements.

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Description of Business and Basis of Presentation

Description of Business

Intevac, Inc. (together with its subsidiaries “Intevac,” the “Company” or “we”) is a provider of vacuum deposition equipment for a wide variety of thin-film applications, and a leading provider of digital night-vision technologies and products to the defense industry. The Company leverages its core capabilities in high-volume manufacturing of small substrates to provide process manufacturing equipment solutions to the hard disk drive (“HDD”), display cover panel (“DCP”), photovoltaic (“PV”) solar cell and advanced semiconductor packaging (“ASP”) industries. Intevac also provides sensors, cameras and systems for government applications such as night vision. Intevac’s customers include manufacturers of hard disk media, DCPs and solar cells as well as the U.S. government and its agencies, allies and contractors. Intevac reports two segments: Thin-film Equipment (“TFE”) and Photonics.

Basis of Presentation

In the opinion of management, the unaudited interim condensed consolidated financial statements of Intevac included herein have been prepared on a basis consistent with the January 2, 2021 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments, necessary to fairly present the information set forth therein.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

COVID-19

Update

The COVID-19

outbreak, which was declared a global pandemic by the World Health Organization in March 2020, has impacted all countries in which we operate. The impact of

COVID-19,

including changes in consumer behavior, pandemic fears, and market downturns as well as restrictions on business and individual activities has created significant volatility in the global economy and led to reduced economic activity. There have been extraordinary actions taken by federal, state, and local public health and governmental authorities to contain the spread of

COVID-19

and although many restrictions that were in place have eased in many localities, some areas that had previously eased restrictions have reverted to more stringent limitations. There remains significant uncertainty concerning the magnitude of the impact and the duration of the

COVID-19

pandemic. Given that, we are unable to predict the ultimate impact it may have on our business, future operations, financial position or cash flows. The extent that our operations will continue to be impacted by the

COVID-19

pandemic will depend on future developments, including any new potential waves of the virus, new strains of the virus, and the success of vaccination programs, all of which are highly uncertain and cannot be accurately predicted. However, we are monitoring the progression of the pandemic and its potential effect on our financial position, results of operations, and cash flows.

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Revenue

The following tables represent a disaggregation of revenue from contracts with customers for the three and six months ended July 3, 2021 and June 27, 2020 along with the reportable segment for each category.

Major Products and Service Lines


TFE	Three Months Ended July 3, 2021										Three Months Ended June 27, 2020
	(In thousands)
	HDD		DCP		PV		ASP		Total		HDD		PV		Total
Systems, upgrades and spare parts	$	3,955	$	3	$	47	$	—	$	4,005	$	15,226	$	61	$	15,287
Field service		1,364		—		—		—		1,364		1,306		2		1,308

Total TFE net revenues	$	5,319	$	3	$	47	$	—	$	5,369	$	16,532	$	63	$	16,595


	Six Months Ended July 3, 2021										Six Months Ended June 27, 2020
	(In thousands)
	HDD		DCP		PV		ASP		Total		HDD		PV		Total
Systems, upgrades and spare parts	$	7,539	$	3	$	158	$	3,850	$	11,550	$	21,587	$	269	$	21,856
Field service		3,001		14		42		—		3,057		2,699		2		2,701

Total TFE net revenues	$	10,540	$	17	$	200	$	3,850	$	14,607	$	24,286	$	271	$	24,557


	Three Months Ended				Six Months Ended
Photonics	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
	(In thousands)
Products:

Military products	$	4,958	$	5,446	$	8,209	$	10,811
Commercial products		50		39		178		118
Repair and other services		274		645		716		1,075

Total Photonics product net revenues		5,282		6,130		9,103		12,004
Technology development:
Firm Fixed Price (“FFP”)		1,543		5,462		3,348		9,892
Cost Plus Fixed Fee (“CPFF”)		1,619		655		2,996		1,229
Time and materials		—		—		—		—

Total technology development net revenues		3,162		6,117		6,344		11,121

Total Photonics net revenues	$	8,444	$	12,247	$	15,447	$	23,125

Primary Geographical Markets


	Three Months Ended						Three Months Ended
	July 3, 2021						June 27, 2020
	(In thousands)
	TFE		Photonics		Total		TFE		Photonics		Total
United States	$	2,121	$	8,371	$	10,492	$	313	$	12,125	$	12,438
Asia		3,248		—		3,248		16,282		—		16,282
Europe		—		73		73		—		122		122

Total net revenues	$	5,369	$	8,444	$	13,813	$	16,595	$	12,247	$	28,842


	Six Months Ended						Six Months Ended
	July 3, 2021						June 27, 2020
	(In thousands)
	TFE		Photonics		Total		TFE		Photonics		Total
United States	$	2,488	$	15,331	$	17,819	$	832	$	22,981	$	23,813
Asia		8,269		—		8,269		23,725		—		23,725
Europe		3,850		116		3,966		—		144		144

Total net revenues	$	14,607	$	15,447	$	30,054	$	24,557	$	23,125	$	47,682

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Timing of Revenue Recognition


	Three Months Ended						Three Months Ended
	July 3, 2021						June 27, 2020
	(In thousands)
	TFE		Photonics		Total		TFE		Photonics		Total
Products transferred at a point in time	$	5,369	$	274	$	5,643	$	16,595	$	645	$	17,240
Products and services transferred over time		—		8,170		8,170		—		11,602		11,602

	$	5,369	$	8,444	$	13,813	$	16,595	$	12,247	$	28,842


	Six Months Ended						Six Months Ended
	July 3, 2021						June 27, 2020
	(In thousands)
	TFE		Photonics		Total		TFE		Photonics		Total
Products transferred at a point in time	$	14,607	$	645	$	15,252	$	24,557	$	1,075	$	25,632
Products and services transferred over time		—		14,802		14,802		—		22,050		22,050

	$	14,607	$	15,447	$	30,054	$	24,557	$	23,125	$	47,682

The following table reflects the changes in our contract assets, which we classify as accounts receivable, unbilled or retainage, and our contract liabilities, which we classify as deferred revenue and customer advances, for the six months ended July 3, 2021:


	July 3, 2021		January 2, 2021		Six Months Change
	(In thousands)
TFE:
Contract assets:
Accounts receivable, unbilled	$	—	$	369	$	(369	)

Contract liabilities:
Deferred revenue	$	195	$	482	$	(287	)
Customer advances		1		33		(32	)

	$	196	$	515	$	(319	)


Photonics:
Contract assets:
Accounts receivable, unbilled	$	1,410	$	5,439	$	(4,029	)
Retainage		127		126		1

	$	1,537	$	5,565	$	(4,028	)

Contract liabilities:
Deferred revenue	$	275	$	779	$	(504	)

Accounts receivable, unbilled in our TFE segment represents a contract asset for revenue that has been recognized in advance of billing the customer. For our system and certain upgrade sales, our TFE customers generally pay in three installments, with a portion of the system price billed upon receipt of an order, a portion of the price billed upon shipment, and the balance of the price due upon completion of installation and acceptance of the system at the customer’s factory. Accounts receivable, unbilled in our TFE segment generally represents the balance of the system price that is due upon completion of installation and acceptance, less the amount that has been deferred as revenue for the performance of the installation tasks. During the six months ended July 3, 2021, contract assets in our TFE segment decreased by $369,000 primarily due to the recognition of revenue for the installation portion of revenue for one system that completed installation and acceptance.

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Customer advances in our TFE segment generally represent a contract liability for amounts billed to the customer prior to transferring goods. The Company has elected to use the practical expedient to disregard the effect of the time value of money in a significant financing component when its payment terms are less than one year. These contract advances are liquidated when revenue is recognized. Deferred revenue in our TFE segment generally represents a contract liability for amounts billed to a customer for completed systems at the customer site that are undergoing installation and acceptance testing where transfer of control has not yet occurred, as Intevac does not yet have a demonstrated history of meeting the acceptance criteria upon the customer’s receipt of product. During the six months ended July 3, 2021, we recognized revenue in our TFE segment of $33,000 and $296,000 that was included in customer advances and deferred revenue, respectively, at the beginning of the period.

Accounts receivable, unbilled in our Photonics segment represents a contract asset for revenue that has been recognized in advance of billing the customer, which is common for contracts in the defense industry. In our Photonics segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly) or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. Our contracts with the U.S. government may also contain retainage provisions. Retainage represents a contract asset for the portion of the contract price earned by us for work performed, but held for payment by the U.S. government as a form of security until satisfactory completion of the contract. The retainage is billable upon completion of the contract performance and approval of final indirect expense rates by the government. During the six months ended July 3, 2021, contract assets in our Photonics segment decreased by $4.0 million primarily due to the billing of contractual milestones, offset in part by the accrual of revenue for incurred costs under FFP and CPFF contracts.

Deferred revenue in our Photonics segment generally represents a contract liability for amounts billed to the customer upon achievement of contractual milestones. These amounts are liquidated when revenue is recognized. During the six months ended July 3, 2021, we recognized revenue in our Photonics segment of $

779

,000 that was included in deferred revenue at the beginning of the period.

On July 3, 2021, we had $51.7 million of remaining performance obligations, which we also refer to as backlog. Backlog at July 3, 2021 consisted of $18.9 million of TFE backlog and $32.7 million of Photonics backlog. We expect to recognize approximately 52% of our remaining performance obligations as revenue in 2021, 29% in 2022, and 19% in 2023.

3.	Inventories

Inventories are stated at the lower of average cost or net realizable value and consist of the following:


	July 3, 2021		January 2, 2021
	(In thousands)
Raw materials	$	11,007	$	9,999
Work-in-progress		5,046		4,832
Finished goods		4,471		6,858

	$	20,524	$	21,689

Finished goods inventory at July 3, 2021 included one VERTEX SPECTRA system for DCP at a customer’s factory previously under evaluation for which the evaluation period has ended but the tool is being considered for another application at that site. Finished goods inventory at January 2, 2021 included one VERTEX SPECTRA system for DCP under evaluation at a customer’s factory and one MATRIX PVD system for advanced semiconductor packaging under evaluation at a customer’s factory.

4.	Equity-Based Compensation

At July 3, 2021, Intevac had equity-based awards outstanding under the 2020 Equity Incentive Plan and the 2012 Equity Incentive Plan (together, the “Plans”) and the 2003 Employee Stock Purchase Plan (the “ESPP”). Intevac’s stockholders approved all of these plans. The Plans permit the grant of incentive or

non-statutory

stock options, performance-based stock options (“PSOs”), restricted stock, stock appreciation rights, restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”) and performance shares.

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The ESPP provides that eligible employees may purchase Intevac’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value at the entry date of the applicable offering period or at the end of each applicable purchase interval. Offering periods are generally two years in length, and consist of a series of

six-month

purchase intervals. Eligible employees may join the ESPP at the beginning of any

six-month

purchase interval. Under the terms of the ESPP, employees can choose to have up to 50% of their base earnings withheld to purchase Intevac common stock (not to exceed $25,000 per year).

Compensation Expense

The effect of recording equity-based compensation for the three and six months ended July 3, 2021 and June 27, 2020 was as follows:


	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
	(In thousands)
Equity-based compensation by type of award:
Stock options	$	57	$	149	$	132	$	364
RSUs		656		450		1,200		816
Employee stock purchase plan		306		57		655		148

Total equity-based compensation	$	1,019	$	656	$	1,987	$	1,328

Stock Options and ESPP

The fair value of stock options and ESPP awards is estimated at the grant date using the Black-Scholes option valuation model. The determination of fair value of stock options and ESPP awards on the date of grant using an option-pricing model is affected by Intevac’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual employee stock option exercise behavior. Intevac accounts for forfeitures as they occur, rather than estimating expected forfeitures.

Option activity as of July 3, 2021 and changes during the six months ended July 3, 2021 were as follows:


	Shares			Weighted-Average Exercise Price
Options outstanding at January 2, 2021		1,814,467		$	6.66
Options granted		—		$	—
Options cancelled and forfeited		(205,324	)	$	6.72
Options exercised		(65,462	)	$	5.89

Options outstanding at July 3, 2021		1,543,681		$	6.57

Options exercisable at July 3, 2021		1,317,356		$	6.78

Intevac issued 208,516 shares of common stock under the ESPP during the six months ended July 3, 2021.

Intevac estimated the weighted-average fair value of stock options and ESPP purchase rights using the following weighted-average assumptions:


	Six Months Ended
	June 27, 2020
Stock Options:
Weighted-average fair value of grants per share		$1.82
Expected volatility		46.06%
Risk-free interest rate		0.44%
Expected term of options (in years)		4.39
Dividend yield		None

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)


	Six Months Ended
	July 3, 2021		June 27, 2020
ESPP Purchase Rights:
Weighted-average fair value of grants per share		$2.69		$1.66
Expected volatility		58.56%		36.69%
Risk-free interest rate		0.08%		1.56%
Expected term of purchase rights (in years)		1.0		0.5
Dividend yield		None		None

The computation of the expected volatility assumptions used in the Black-Scholes calculations for new stock option grants and ESPP purchase rights is based on the historical volatility of Intevac’s stock price, measured over a period equal to the expected term of the stock option grant or purchase right. The risk-free interest rate is based on the yield available on U.S. Treasury Strips with an equivalent remaining term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the equity-based awards and vesting schedules. The expected term of purchase rights represents the period of time remaining in the current offering period. The dividend yield assumption is based on Intevac’s history of not paying dividends and the assumption of not paying dividends in the future.

RSUs

RSU activity as of July 3, 2021 and changes during the six months ended July 3, 2021 were as follows:


	Shares			Weighted-Average Grant Date Fair Value
Non-vested RSUs at January 2, 2021		901,634		$	5.30
Granted		538,022		$	6.29
Vested		(293,824	)	$	6.08
Cancelled and forfeited		(44,775	)	$	3.96

Non-vested RSUs at July 3, 2021		1,101,057		$	5.63

Time-based RSUs are converted into shares of Intevac common stock upon vesting on a

one-for-one

basis. Time-based RSUs typically are scheduled to vest over four years. Vesting of time-based RSUs is subject to the grantee’s continued service with Intevac. The compensation expense related to these awards is determined using the fair market value of Intevac common stock on the date of the grant, and the compensation expense is recognized over the vesting period.

In May 2021, we granted 126,320 performance-based restricted stock units (“PRSUs”) to members of our senior management. The number of PRSUs that will vest is determined by our common stock achieving a certain Total Shareholder Return (“TSR”) for the Company, relative to the TSR of a specified peer group over a measurement period of two years from the time of grant. The fair value of each PRSU award was estimated on the date of grant using a Monte Carlo simulation. PRSU activity is included in the above RSU tables. At the end of the performance measurement period, the Compensation Committee of the Board of Directors (the “Compensation Committee”) will determine the achievement against the performance objectives. Depending on the Company’s TSR relative to the peer group TSR, the actual number of shares that will be vested for each PRSU grant can range from zero to 200% of the initial grant.

Intevac estimated the weighted-average fair value of PRSUs using the following weighted-average assumptions:


		Three Months Ended
		July 3, 2021
Weighted-average fair value of grants per share		$7.65
Expected volatility		56.26%
Risk-free interest rate		0.15%
Dividend yield		None

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

In May 2020, we granted 109,465 PRSUs to members of our senior management. The PRSUs were issued collectively in four separate tranches with individual

one-year

performance periods beginning in May 2020, 2021, 2022 and 2023, respectively. Vesting of the PRSUs is based on the performance of our common stock relative to the performance of a specified peer group. The fair value of each PRSU award was estimated on the date of grant using a Monte Carlo simulation. PRSU activity is included in the above RSU tables. At the end of each performance measurement period, the Compensation Committee will determine the achievement against the performance objectives. Any earned PRSU awards will vest 100% after the end of the applicable performance measurement period. The first performance measurement period ended in May 2021 and the metric was not achieved and 27,366 PRSUs were cancelled.

Intevac estimated the weighted-average fair value of PRSUs using the following weighted-average assumptions:


	Three Months Ended
	June 27, 2020
Weighted-average fair value of grants per share	$	3.16
Expected volatility		46.7	%
Risk-free interest rate		0.25	%
Dividend yield		None

Warranty

Intevac provides for the estimated cost of warranty when revenue is recognized. Intevac’s warranty is subject to contract terms and, for its HDD manufacturing, DCP manufacturing, solar cell manufacturing and advanced semiconductor packaging manufacturing systems, the warranty typically ranges between 12 and 24 months from customer acceptance. During this warranty period any defective

non-consumable

parts are replaced and installed at no charge to the customer. Intevac uses estimated repair or replacement costs along with its historical warranty experience to determine its warranty obligation. The provision for the estimated future costs of warranty is based upon historical cost and product performance experience. Intevac exercises judgment in determining the underlying estimates.

On the condensed consolidated balance sheets, the short-term portion of the warranty provision is included in other accrued liabilities, while the long-term portion is included in other long-term liabilities. The expense associated with product warranties issued or adjusted is included in cost of net revenues on the condensed consolidated statements of operations.

The following table displays the activity in the warranty provision account for the three and six months ended July 3, 2021 and June 27, 2020:


	Three Months Ended						Six Months Ended
	July 3, 2021			June 27, 2020			July 3, 2021			June 27, 2020
	(In thousands)
Opening balance	$	590		$	725		$	480		$	1,022
Expenditures incurred under warranties		(217	)		(189	)		(415	)		(308	)
Accruals for product warranties issued during the reporting period		198			135			473			159
Adjustments to previously existing warranty accruals		1			(9	)		34			(211	)

Closing balance	$	572		$	662		$	572		$	662

The following table displays the balance sheet classification of the warranty provision account at July 3, 2021 and at January 2, 2021.


	July 3, 2021		January 2, 2021
	(In thousands)
Other accrued liabilities	$	527	$	405
Other long-term liabilities		45		75

Total warranty provision	$	572	$	480

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

6.	Guarantees

Officer and Director Indemnifications

As permitted or required under Delaware law and to the maximum extent allowable under that law, Intevac has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was, serving at Intevac’s request in such capacity. These indemnification obligations are valid as long as the director or officer acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The maximum potential amount of future payments Intevac could be required to make under these indemnification obligations is unlimited; however, Intevac has a director and officer insurance policy that mitigates Intevac’s exposure and enables Intevac to recover a portion of any future amounts paid. As a result of Intevac’s insurance policy coverage, Intevac believes the estimated fair value of these indemnification obligations is not material.

Other Indemnifications

As is customary in Intevac’s industry, many of Intevac’s contracts provide remedies to certain third parties such as defense, settlement, or payment of judgments for intellectual property claims related to the use of its products. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been immaterial.

Letters of Credit

As of July 3, 2021, we had letters of credit and bank guarantees outstanding totaling $787,000, including the standby letter of credit outstanding under the Santa Clara, California facility lease and various other guarantees with our bank. These letters of credit and bank guarantees are collateralized by $787,000 of restricted cash.

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

7.	Cash, Cash Equivalents and Investments

Cash and cash equivalents, short-term investments and long-term investments consist of:


	July 3, 2021
	Amortized Cost		Unrealized Holding Gains		Unrealized Holding Losses		Fair Value
	(In thousands)

Cash and cash equivalents:
Cash	$	28,477	$	—	$	—	$	28,477
Money market funds		4,379		—		—		4,379

Total cash and cash equivalents	$	32,856	$	—	$	—	$	32,856
Short-term investments:
Certificates of deposit	$	7,550	$	3	$	—	$	7,553
Corporate bonds and medium-term notes		4,505		2		—		4,507
Municipal bonds		740		—		—		740
U.S. treasury and agency securities		2,999		6		—		3,005

Total short-term investments	$	15,794	$	11	$	—	$	15,805
Long-term investments:
Certificates of deposit	$	500	$	—	$	1	$	499
Corporate bonds and medium-term notes		2,020		—		1		2,019
U.S. treasury and agency securities		2,161		1		1		2,161

Total long-term investments	$	4,681	$	1	$	3	$	4,679

Total cash, cash equivalents, and investments	$	53,331	$	12	$	3	$	53,340


	January 2, 2021
	Amortized Cost		Unrealized Holding Gains		Unrealized Holding Losses		Fair Value
	(In thousands)

Cash and cash equivalents:
Cash	$	24,729	$	—	$	—	$	24,729
Money market funds		3,612		—		—		3,612
Certificates of deposit		1,000		—		—		1,000

Total cash and cash equivalents	$	29,341	$	—	$	—	$	29,341
Short-term investments:
Certificates of deposit	$	6,450	$	2	$	—	$	6,452
Commercial paper		500		—		—		500
Corporate bonds and medium-term notes		2,929		6		—		2,935
Municipal bonds		400		—		—		400
U.S. treasury and agency securities		4,527		25		—		4,552

Total short-term investments	$	14,806	$	33	$	—	$	14,839
Long-term investments:
Certificates of deposit	$	500	$	—	$	—	$	500
Corporate bonds and medium-term notes		3,474		4		—		3,478
U.S. treasury and agency securities		1,409		1		—		1,410

Total long-term investments	$	5,383	$	5	$	—	$	5,388

Total cash, cash equivalents, and investments	$	49,530	$	38	$	—	$	49,568

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The contractual maturities of

available-for-sale

securities at July 3, 2021 are presented in the following table.


	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	20,173	$	20,184
Due after one through five years		4,681		4,679

	$	24,854	$	24,863

The following table provides the fair market value of Intevac’s investments with unrealized losses that are not deemed to be other-than temporarily impaired as of July 3, 2021.


	July 3, 2021
	In Loss Position for Less than 12 Months				In Loss Position for Greater than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(In thousands)
Certificates of deposit	$	999	$	1	$	—	$	—
Corporate bonds and medium-term notes		3,085		1		—		—
U.S. treasury and agency securities		751		1		—		—

	$	4,835	$	3	$	—	$	—

All prices for the fixed maturity securities including U.S. treasury and agency securities, certificates of deposit, commercial paper, corporate bonds, asset backed securities and municipal bonds are received from independent pricing services utilized by Intevac’s outside investment manager. This investment manager performs a review of the pricing methodologies and inputs utilized by the independent pricing services for each asset type priced by the vendor. In addition, on at least an annual basis, the investment manager conducts due diligence visits and interviews with each pricing vendor to verify the inputs utilized for each asset class. The due diligence visits include a review of the procedures performed by each vendor to ensure that pricing evaluations are representative of the price that would be received if a security were to be sold in an orderly transaction. Any pricing where the input is based solely on a broker price is deemed to be a Level 3 price. Intevac uses the pricing data obtained from its outside investment manager as the primary input to make its assessments and determinations as to the ultimate valuation of the above-mentioned securities and has not made, during the periods presented, any material adjustments to such inputs.

The following table represents the fair value hierarchy of Intevac’s

available-for-sale

securities measured at fair value on a recurring basis as of July 3, 2021.


	Fair Value Measurements at July 3, 2021
	Total		Level 1		Level 2
	(In thousands)
Recurring fair value measurements:
Available-for-sale securities
Money market funds	$	4,379	$	4,379	$	—
U.S. treasury and agency securities		5,166		5,166		—
Certificates of deposit		8,052		—		8,052
Corporate bonds and medium-term notes		6,526		—		6,526
Municipal bonds		740		—		740

Total recurring fair value measurements	$	24,863	$	9,545	$	15,318

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

8.	Derivative Instruments

The Company uses foreign currency forward contracts to mitigate variability in gains and losses generated from the

re-measurement

of certain monetary assets and liabilities denominated in foreign currencies and to offset certain operational exposures from the impact of changes in foreign currency exchange rates. These derivatives are carried at fair value with changes recorded in interest income and other income (expense), net in the condensed consolidated statements of operations. Changes in the fair value of these derivatives are largely offset by

re-measurement

of the underlying assets and liabilities. Cash flows from such derivatives are classified as operating activities. The derivatives have maturities of approximately

days.

The following table summarizes the Company’s outstanding derivative instruments on a gross basis as recorded in its condensed consolidated balance sheets as of July 3, 2021 and January 2, 2021.


	Notional Amounts				Derivative Liabilities
Derivative Instrument	July 3, 2021		January 2, 2021		July 3, 2021				January 2, 2021
					Balance Sheet Line		Fair Value		Balance Sheet Line		Fair Value
	(In thousands)
Undesignated Hedges:
Forward Foreign Currency Contracts	$	520	$	983		*	$	3		*	$	3

Total Hedges	$	520	$	983			$	3			$	3

*	Other accrued liabilities

Equity

Stock Repurchase Program

On November 21, 2013, Intevac’s Board of Directors approved a stock repurchase program authorizing up to $30.0 million in repurchases. On August 15, 2018, Intevac’s Board of Directors approved a $10.0 million increase to the original stock repurchase program for an aggregate authorized amount of up to $40.0 million. At July 3, 2021, $10.4 million remains available for future stock repurchases under the repurchase program.

Intevac records treasury stock purchases under the cost method using the

first-in,

first-out

method. Upon reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional

paid-in

capital. If Intevac reissues treasury stock at an amount below its acquisition cost and additional

paid-in

capital associated with prior treasury stock transactions is insufficient to cover the difference between the acquisition cost and the reissue price, this difference is recorded against accumulated deficit.

The following table summarizes Intevac’s stock repurchases:


	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
	(In thousands, except per share amounts)
Shares of common stock repurchased		—		—		—		98
Cost of stock repurchased	$	—	$	—	$	—	$	393
Average price paid per share	$	—	$	—	$	—	$	3.97

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Condensed Consolidated Statement of Changes in Equity

The changes in stockholders’ equity by component for the three and six months ended July 3, 2021 and June 27, 2020, are as follows (in thousands):


	Three months ended July 3, 2021
	Common Stock and Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stockholders’ Equity
Balance at April 3, 2021	$	195,388		$	(29,551	)	$	552		$	(69,234	)	$	97,155
Common stock issued under employee plans		193			—			—			—			193
Shares withheld for net share settlement of RSUs		(512	)		—			—			—			(512	)
Equity-based compensation expense		1,019			—			—			—			1,019
Net loss		—			—			—			(6,126	)		(6,126	)
Other comprehensive income		—			—			19			—			19

Balance at July 3, 2021	$	196,088		$	(29,551	)	$	571		$	(75,360	)	$	91,748


	Six months ended July 3, 2021
	Common Stock and Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stockholders’ Equity
Balance at January 2, 2021	$	193,197		$	(29, 551	)	$	640		$	(62,730	)	$	101,556
Common stock issued under employee plans		1,436			—			—			—			1,436
Shares withheld for net share settlement of RSUs		(532	)		—			—			—			(532	)
Equity-based compensation expense		1,987			—			—			—			1,987
Net loss		—			—			—			(12,630	)		(12,630	)
Other comprehensive loss		—			—			(69	)		—			(69	)

Balance at July 3, 2021	$	196,088		$	(29,551	)	$	571		$	(75,360	)	$	91,748


	Three months ended June 27, 2020
	Common Stock and Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stockholders’ Equity
Balance at March 28, 2020	$	189,899		$	(29,551	)	$	331		$	(65,010	)	$	95,669
Common stock issued under employee plans		44			—			—			—			44
Shares withheld for net share settlement of RSUs		(309	)		—			—			—			(309	)
Equity-based compensation expense		656			—			—			—			656
Net income		—			—			—			1,524			1,524
Other comprehensive income		—			—			71			—			71

Balance at June 27, 2020	$	190,290		$	(29,551	)	$	402		$	(63,486	)	$	97,655


	Six months ended June 27, 2020
	Common Stock and Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stockholders’ Equity
Balance at December 28, 2019	$	188,313		$	(29,158	)	$	424		$	(63,786	)	$	95,793
Common stock issued under employee plans		994			—			—			—			994
Shares withheld for net share settlement of RSUs		(345	)		—			—			—			(345	)
Equity-based compensation expense		1,328			—			—			—			1,328
Net income		—			—			—			300			300
Other comprehensive loss		—			—			(22	)		—			(22	)
Common stock repurchases		—			(393	)		—			—			(393	)

Balance at June 27, 2020	$	190,290		$	(29,551	)	$	402		$	(63,486	)	$	97,655

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Accumulated Other Comprehensive Income

The changes in accumulated other comprehensive income by component for the three and six months ended July 3, 2021 and June 27, 2020, are as follows.


	Three Months Ended							Six Months Ended
	July 3, 2021
	Foreign currency		Unrealized holding gains (losses) on available-for-sale investments			Total		Foreign currency			Unrealized holding gains (losses) on available-for-sale investments			Total
	(In thousands)
Beginning balance	$	534	$	18		$	552	$	602		$	38		$	640
Other comprehensive income (loss) before reclassification		28		(9	)		19		(40	)		(29	)		(69	)
Amounts reclassified from other comprehensive income		—		—			—		—			—			—

Net current-period other comprehensive income (loss)		28		(9	)		19		(40	)		(29	)		(69	)

Ending balance	$	562	$	9		$	571	$	562		$	9		$	571


	Three Months Ended							Six Months Ended
	June 27, 2020
	Foreign currency		Unrealized holding gains on available-for-sale investments			Total		Foreign currency			Unrealized holding gains on available-for-sale investments			Total
	(In thousands)
Beginning balance	$	286	$	45		$	331	$	381		$	43		$	424
Other comprehensive income (loss) before reclassification		20		51			71		(75	)		53			(22	)
Amounts reclassified from other comprehensive income		—		—			—		—			—			—

Net current-period other comprehensive income (loss)		20		51			71		(75	)		53			(22	)

Ending balance	$	306	$	96		$	402	$	306		$	96		$	402

10.	Net Income (Loss) Per Share

The following table sets forth the computation of basic and diluted net income (loss) per share:


	Three Months Ended					Six Months Ended
	July 3, 2021			June 27, 2020		July 3, 2021			June 27, 2020
	(In thousands, except per share amounts)
Net income (loss)	$	(6,126	)	$	1,524	$	(12,630	)	$	300
Weighted-average shares – basic		24,241			23,561		24,137			23,522
Effect of dilutive potential common shares		—			345		—			431

Weighted-average shares – diluted		24,241			23,906		24,137			23,953

Net income (loss) per share – basic	$	(0.25	)	$	0.06	$	(0.52	)	$	0.01

Net income (loss) per share – diluted	$	(0.25	)	$	0.06	$	(0.52	)	$	0.01


Delaware		94-3125814
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.001 par value)	IVAC	The Nasdaq Stock Market LLC (Nasdaq) Global Select


No.		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets		3
	Condensed Consolidated Statements of Operations		4
	Condensed Consolidated Statements of Comprehensive Income (Loss)		5
	Condensed Consolidated Statements of Cash Flows		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		31
Item 4.	Controls and Procedures		31

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		32
Item 1A.	Risk Factors		32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 3.	Defaults upon Senior Securities		38
Item 4.	Mine Safety Disclosures		38
Item 5.	Other Information		38
Item 6.	Exhibits		39

SIGNATURES			40