☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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 |
Large accelerated filer |
☐ |
Accelerated filer |
☐ | |||
Non-accelerated filer |
☒ |
Smaller reporting company |
☒ | |||
Emerging growth company |
☐ |
INTEVAC, INC.
INDEX
2
Item 1. |
Financial Statements |
September 30, 2023 |
December 31, 2022 |
|||||||
(Unaudited) |
||||||||
(In thousands, except par value) |
||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 43,822 | $ | 68,904 | ||||
Short-term investments |
17,805 | 25,541 | ||||||
Trade and other accounts receivable, net of allowances of $0 at both September 30, 2023 and December 31, 2022 |
27,980 | 15,823 | ||||||
Inventories |
42,837 | 30,003 | ||||||
Prepaid expenses and other current assets |
1,905 | 1,898 | ||||||
Total current assets |
134,349 | 142,169 | ||||||
Long-term investments |
3,855 | 17,585 | ||||||
Restricted cash |
700 | 786 | ||||||
Property, plant and equipment, net |
7,536 | 3,658 | ||||||
Operating lease right-of-use-assets |
1,772 | 3,390 | ||||||
Intangible assets, net of amortization of $144 at September 30, 2023 and $42 at December 31, 2022 |
988 | 1,090 | ||||||
Deferred income taxes and other long-term assets |
3,877 | 4,381 | ||||||
Total assets |
$ | 153,077 | $ | 173,059 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Current operating lease liabilities |
$ | 1,694 | $ | 3,404 | ||||
Accounts payable |
5,538 | 11,610 | ||||||
Accrued payroll and related liabilities |
3,196 | 3,087 | ||||||
Other accrued liabilities |
2,732 | 5,430 | ||||||
Customer advances |
21,523 | 2,444 | ||||||
Total current liabilities |
34,683 | 25,975 | ||||||
Noncurrent liabilities: |
||||||||
Noncurrent operating lease liabilities |
646 | 1,417 | ||||||
Customer advances |
1,482 | 22,215 | ||||||
Other noncurrent liabilities |
29 | — | ||||||
Total noncurrent liabilities |
2,157 | 23,632 | ||||||
Stockholders’ equity: |
||||||||
Common stock, $0.001 par value |
26 | 26 | ||||||
Additional paid-in capital |
209,396 | 206,355 | ||||||
Treasury stock, 5,087 shares at both September 30, 2023 and at December 31, 2022 |
(29,551 | ) | (29,551 | ) | ||||
Accumulated other comprehensive loss |
(104 | ) | (193 | ) | ||||
Accumulated deficit |
(63,530 | ) | (53,185 | ) | ||||
Total stockholders’ equity |
116,237 | 123,452 | ||||||
Total liabilities and stockholders’ equity |
$ | 153,077 | $ | 173,059 | ||||
Note: | Amounts as of December 31, 2022 are derived from the December 31, 2022 audited consolidated financial statements. |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2023 |
October 1, 2022 |
September 30, 2023 |
October 1, 2022 |
|||||||||||||
(Unaudited) |
||||||||||||||||
(In thousands, except per share amounts) |
||||||||||||||||
Net revenues |
$ | 17,915 | $ | 10,750 | $ | 39,758 | $ | 24,502 | ||||||||
Cost of net revenues |
10,916 | 5,860 | 25,471 | 14,402 | ||||||||||||
Gross profit |
6,999 | 4,890 | 14,287 | 10,100 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
3,720 | 3,311 | 11,340 | 10,339 | ||||||||||||
Selling, general and administrative |
4,707 | 4,741 | 14,281 | 13,007 | ||||||||||||
Total operating expenses |
8,427 | 8,052 | 25,621 | 23,346 | ||||||||||||
Loss from operations |
(1,428 | ) | (3,162 | ) | (11,334 | ) | (13,246 | ) | ||||||||
Interest income and other income (expense), net |
600 | 413 | 1,922 | 723 | ||||||||||||
Loss before provision for income taxes |
(828 | ) | (2,749 | ) | (9,412 | ) | (12,523 | ) | ||||||||
Provision for income taxes |
796 | 467 | 1,298 | 992 | ||||||||||||
Net loss from continuing operations, net of taxes |
(1,624 | ) | (3,216 | ) | (10,710 | ) | (13,515 | ) | ||||||||
Net income (loss) from discontinued operations, net of taxes |
48 | (20 | ) | 365 | (394 | ) | ||||||||||
Net loss |
$ | (1,576 | ) | $ | (3,236 | ) | $ | (10,345 | ) | $ | (13,909 | ) | ||||
Net income (loss) per share: |
||||||||||||||||
Basic and diluted – continuing operations |
$ | (0.06 | ) | $ | (0.13 | ) | $ | (0.41 | ) | $ | (0.54 | ) | ||||
Basic and diluted – discontinued operations |
$ | 0.00 | $ | (0.00 | ) | $ | 0.01 | $ | (0.02 | ) | ||||||
Basic and diluted – net loss |
$ | (0.06 | ) | $ | (0.13 | ) | $ | (0.40 | ) | $ | (0.55 | ) | ||||
Weighted-average common shares outstanding: |
||||||||||||||||
Basic and diluted |
26,287 | 25,370 | 26,033 | 25,104 |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2023 |
October 1, 2022 |
September 30, 2023 |
October 1, 2022 |
|||||||||||||
(Unaudited) |
||||||||||||||||
(In thousands) |
||||||||||||||||
Net loss |
$ | (1,576 | ) | $ | (3,236 | ) | $ | (10,345 | ) | $ | (13,909 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income (loss), before tax |
||||||||||||||||
Change in unrealized net gain (loss) on available-for-sale |
101 | (225 | ) | 323 | (560 | ) | ||||||||||
Foreign currency translation losses |
(15 | ) | (233 | ) | (234 | ) | (485 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income (loss), before tax |
86 | (458 | ) | 89 | (1,045 | ) | ||||||||||
Income tax (expense) benefit related to items in other comprehensive loss |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income (loss), net of tax |
86 | (458 | ) | 89 | (1,045 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive loss |
$ | (1,490 | ) | $ | (3,694 | ) | $ | (10,256 | ) | $ | (14,954 | ) | ||||
|
|
|
|
|
|
|
|
Nine Months Ended |
||||||||
September 30, 2023 |
October 1, 2022 |
|||||||
(Unaudited) |
||||||||
(In thousands) |
||||||||
Operating activities |
||||||||
Net loss |
$ | (10,345 | ) | $ | (13,909 | ) | ||
Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
1,038 | 1,097 | ||||||
Net amortization (accretion) of investment premiums and discounts |
(145 | ) | (111 | ) | ||||
Amortization of intangible assets |
102 | 8 | ||||||
Equity-based compensation |
3,393 | 2,698 | ||||||
Straight-line rent adjustment and amortization of lease incentives |
(863 | ) | (686 | ) | ||||
Foreign currency loss on liquidation of entity |
— | 14 | ||||||
(Gain) loss on disposal of fixed assets |
(41 | ) | 1,453 | |||||
Deferred income taxes |
629 | 632 | ||||||
Changes in operating assets and liabilities |
(34,693 | ) | 12,621 | |||||
Total adjustments |
(30,580 | ) | 17,726 | |||||
Net cash and cash equivalents provided by (used in) operating activities |
(40,925 | ) | 3,817 | |||||
Investing activities |
||||||||
Purchases of investments |
(10,453 | ) | (48,684 | ) | ||||
Proceeds from sales and maturities of investments |
31,887 | 14,062 | ||||||
Proceeds from sales of fixed assets |
65 | — | ||||||
Purchase of Hia, Inc. |
— | (763 | ) | |||||
Purchases of leasehold improvements and equipment |
(4,940 | ) | (1,426 | ) | ||||
Net cash and cash equivalents provided by (used in) investing activities |
16,559 | (36,811 | ) | |||||
Financing activities |
||||||||
Net proceeds from issuance of common stock |
1,365 | 2,898 | ||||||
Payment of acquisition-related contingent consideration |
(250 | ) | — | |||||
Taxes paid related to net share settlement |
(1,683 | ) | (358 | ) | ||||
Net cash and cash equivalents provided by (used in) financing activities |
(568 | ) | 2,540 | |||||
Effect of exchange rate changes on cash |
(234 | ) | (498 | ) | ||||
Net decrease in cash, cash equivalents and restricted cash |
(25,168 | ) | (30,952 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of period |
69,690 | 103,514 | ||||||
Cash, cash equivalents and restricted cash at end of period |
$ | 44,522 | $ | 72,562 | ||||
Non-cash investing and financing activity |
||||||||
Additions to right-of-use-assets |
$ | 81 | $ | 1,122 | ||||
1. |
Description of Business, Basis of Presentation and Significant Accounting Policy |
2. |
Divestiture and Discontinued Operations |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2023 |
October 1, 2022 |
September 30, 2023 |
October 1, 2022 |
|||||||||||||
(In thousands) |
||||||||||||||||
Selling, general and administrative |
$ | (48 | ) | $ | 20 | $ | (365 | ) | $ | 394 | ||||||
Total operating expenses |
(48 | ) | 20 | (365 | ) | 394 | ||||||||||
Operating income (loss) – discontinued operations |
48 | (20 | ) | 365 | (394 | ) | ||||||||||
Other income (expense) – discontinued operations |
— | — | — | — | ||||||||||||
Loss from discontinued operations before provision for income taxes |
48 | (20 | ) | 365 | (394 | ) | ||||||||||
Provision for income taxes |
— | — | — | — | ||||||||||||
Net loss from discontinued operations, net of taxes |
$ | 48 | $ | (20 | ) | $ | 365 | $ | (394 | ) | ||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2023 |
October 1, 2022 |
September 30, 2023 |
October 1, 2022 |
|||||||||||||
(In thousands) |
||||||||||||||||
Equity-based compensation |
$ | — | $ | 31 | $ | (260 | ) | $ | (260 | ) |
3. |
Revenue |
Three Months Ended September 30, 2023 |
Three Months Ended October 1, 2022 |
|||||||||||||||||||||||||||
HDD |
ASP |
Total |
HDD |
PV |
ASP |
Total |
||||||||||||||||||||||
Systems, upgrades and spare parts |
$ | 16,477 | $ | 6 | $ | 16,483 | $ | 8,233 | $ | 77 | $ | 100 | $ | 8,410 | ||||||||||||||
Field service |
1,335 | 97 | 1,432 | 2,160 | 180 | — | 2,340 | |||||||||||||||||||||
Total net revenues |
$ | 17,812 | $ | 103 | $ | 17,915 | $ | 10,393 | $ | 257 | $ | 100 | $ | 10,750 | ||||||||||||||
Nine Months Ended September 30, 2023 |
Nine Months Ended October 1, 2022 |
|||||||||||||||||||||||||||||||||||
HDD |
PV |
ASP |
Total |
HDD |
DCP |
PV |
ASP |
Total |
||||||||||||||||||||||||||||
Systems, upgrades and spare parts |
$ | 36,345 | $ | 28 | $ | 17 | $ | 36,390 | $ | 19,112 | $ | 1 | $ | 212 | $ | 100 | $ | 19,425 | ||||||||||||||||||
Field service |
3,271 | — | 97 | 3,368 | 4,844 | 43 | 190 | — | 5,077 | |||||||||||||||||||||||||||
Total net revenues |
$ | 39,616 | $ | 28 | $ | 114 | $ | 39,758 | $ | 23,956 | $ | 44 | $ | 402 | $ | 100 | $ | 24,502 | ||||||||||||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2023 |
October 1, 2022 |
September 30, 2023 |
October 1, 2022 |
|||||||||||||
(In thousands) |
||||||||||||||||
United States |
$ | 784 | $ | 1,377 | $ | 3,060 | $ | 3,327 | ||||||||
Asia |
17,034 | 9,273 | 36,590 | 21,075 | ||||||||||||
Europe |
97 | 100 | 108 | 100 | ||||||||||||
Total net revenues |
$ | 17,915 | $ | 10,750 | $ | 39,758 | $ | 24,502 | ||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2023 |
October 1, 2022 |
September 30, 2023 |
October 1, 2022 |
|||||||||||||
(In thousands) |
||||||||||||||||
Products transferred at a point in time |
$ | 17,915 | $ | 10,750 | $ | 39,758 | $ | 24,502 | ||||||||
Products and services transferred over time |
— | — | — | — | ||||||||||||
Total net revenues |
$ | 17,915 | $ | 10,750 | $ | 39,758 | $ | 24,502 | ||||||||
September 30, 2023 |
December 31, 2022 |
Nine Months Change |
||||||||||
(In thousands) |
||||||||||||
Contract assets: |
||||||||||||
Accounts receivable, unbilled |
$ | 394 | $ | 424 | $ | (30 | ) | |||||
Contract liabilities: |
||||||||||||
Deferred revenue |
$ | 409 | $ | 2,446 | $ | (2,037 | ) | |||||
Customer advances |
23,005 | 24,659 | (1,654 | ) | ||||||||
$ | 23,414 | $ | 27,105 | $ | (3,691 | ) | ||||||
4. |
Inventories |
September 30, |
December 31, |
|||||||
2023 |
2022 |
|||||||
(In thousands) |
||||||||
Raw materials |
$ | 33,325 | $ | 19,116 | ||||
Work-in-progress |
9,512 | 9,499 | ||||||
Finished goods |
— | 1,388 | ||||||
$ | 42,837 | $ | 30,003 | |||||
5. |
Equity-Based Compensation |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2023 |
October 1, 2022 |
September 30, 2023 |
October 1, 2022 |
|||||||||||||
(In thousands) |
||||||||||||||||
Equity-based compensation by type of award: |
||||||||||||||||
Stock options |
$ | (3 | ) | $ | 5 | $ | (14 | ) | $ | (159 | ) | |||||
RSUs |
221 | 896 | 1,576 | 1,232 | ||||||||||||
PRSUs |
35 | 1,101 | 1,367 | 1,332 | ||||||||||||
ESPP purchase rights |
63 | 207 | 464 | 293 | ||||||||||||
Total equity-based compensation |
$ | 316 | $ | 2,209 | $ | 3,393 | $ | 2,698 | ||||||||
(a) | A reversal of $462,000 in equity-based compensation expense related to forfeitures of awards due to our 2023 cost reduction plan for the three and nine months ended September 30, 2023. A reversal of $1.3 million in equity-based compensation expense related to forfeitures of awards due to our 2022 cost reduction plan and a $37,000 benefit related to the modification of certain stock-based awards for the nine months ended October 1, 2022. (See Note |
(b) | Equity-based compensation reported in discontinued operations of $0 and ($260,000) for the three and nine months ended September |
Shares |
Weighted-Average Exercise Price |
|||||||
Options outstanding at December 31, 2022 |
383,099 | $ | 7.07 | |||||
Options cancelled and forfeited |
(48,093 | ) | $ | 9.97 | ||||
Options exercised |
(52,813 | ) | $ | 5.15 | ||||
Options outstanding at September 30, 2023 |
282,193 | $ | 6.93 | |||||
Options exercisable at September 30, 2023 |
281,443 | $ | 6.93 |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2023 |
October 1, 2022 |
September 30, 2023 |
October 1, 2022 |
|||||||||||||
ESPP Purchase Rights: |
||||||||||||||||
Weighted-average fair value of grants per share |
$ | 0.63 | $ | 0.65 | $ | 0.91 | $ | 1.26 | ||||||||
Expected volatility |
41.61 | % | 44.54 | % | 40.33 | % | 52.57 | % | ||||||||
Risk-free interest rate |
5.29 | % | 2.94 | % | 5.15 | % | 1.94 | % | ||||||||
Expected term of purchase rights (in years) |
1.09 | 1.24 | 1.08 | 1.24 | ||||||||||||
Dividend yield |
None | None | None | None |
Shares |
Weighted-Average Grant Date Fair Value |
|||||||
Non-vested RSUs at December 31, 2022 |
1,309,792 | $ | 5.14 | |||||
Granted |
433,745 | $ | 4.70 | |||||
Vested |
(546,633 | ) | $ | 5.16 | ||||
Cancelled and forfeited |
(252,678 | ) | $ | 5.11 | ||||
Non-vested RSUs at September 30, 2023 |
944,226 | $ | 4.93 | |||||
Shares |
Weighted-Average Grant Date Fair Value |
|||||||
Non-vested PRSUs at December 31, 2022 |
1,089,339 | $ | 3.54 | |||||
Granted |
525,656 | $ | 4.92 | |||||
Vested |
(190,903 | ) | $ | 4.26 | ||||
Cancelled and forfeited |
(263,799 | ) | $ | 3.57 | ||||
Non-vested PRSUs at September 30, 2023 |
1,160,293 | $ | 4.04 | |||||
Three Months Ended |
Nine Months Ended |
|||||||
October 1, 2022 |
October 1, 2022 |
|||||||
Weighted-average fair value of grants per share |
$ | 3.17 | $ | 3.63 | ||||
Expected volatility |
65.81 | % | 55.34 | % | ||||
Risk-free interest rate |
3.82 | % | 2.90 | % | ||||
Dividend yield |
None | None |
6. |
Warranty |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2023 |
October 1, 2022 |
September 30, 2023 |
October 1, 2022 |
|||||||||||||
(In thousands) |
||||||||||||||||
Opening balance |
$ | 181 | $ | 214 | $ | 163 | $ | 346 | ||||||||
Expenditures incurred under warranties |
(36 | ) | (60 | ) | (201 | ) | (286 | ) | ||||||||
Accruals for product warranties issued during the reporting period |
67 | 63 | 239 | 135 | ||||||||||||
Adjustments to previously existing warranty accruals |
(10 | ) | 9 | 1 | 31 | |||||||||||
Closing balance |
$ | 202 | $ | 226 | $ | 202 | $ | 226 | ||||||||
September 30, 2023 |
De ce mber 31,2022 |
|||||||
(In thousands) |
||||||||
Other accrued liabilities |
$ | 173 | $ | 163 | ||||
Other noncurrent liabilities |
29 | — | ||||||
Total warranty provision |
$ | 202 | $ | 163 | ||||
7. |
Guarantees |
8. |
Cash, Cash Equivalents and Investments |
September 30, 2023 |
||||||||||||||||
Amortized Cost |
Unrealized Holding Gains |
Unrealized Holding Losses |
Fair Value |
|||||||||||||
(In thousands) |
||||||||||||||||
Cash and cash equivalents: |
||||||||||||||||
Cash |
$ | 14,236 | $ | — | $ | — | $ | 14,236 | ||||||||
Money market funds |
15,154 | — | — | 15,154 | ||||||||||||
Commercial paper |
14,436 | — | 4 | 14,432 | ||||||||||||
Total cash and cash equivalents |
$ | 43,826 | $ | — | $ | 4 | $ | 43,822 | ||||||||
Short-term investments: |
||||||||||||||||
Certificates of deposit |
$ | 1,400 | — | $ | — | $ | 1,400 | |||||||||
Commercial paper |
1,445 | — | 1 | 1,444 | ||||||||||||
Corporate bonds and medium-term notes |
5,873 | — | 78 | 5,795 | ||||||||||||
Municipal bonds |
1,222 | — | 4 | 1,218 | ||||||||||||
U.S. treasury securities |
7,997 | — | 49 | 7,948 | ||||||||||||
Total short-term investments |
$ | 17,937 | $ | — | $ | 132 | $ | 17,805 | ||||||||
Long-term investments: |
||||||||||||||||
Asset-backed securities |
$ | 1,650 | $ | — | $ | 13 | $ | 1,637 | ||||||||
Corporate bonds and medium-term notes |
2,230 | — | 12 | 2,218 | ||||||||||||
Total long-term investments |
$ | 3,880 | $ | — | $ | 25 | $ | 3,855 | ||||||||
Total cash, cash equivalents, and investments |
$ | 65,643 | $ | — | $ | 161 | $ | 65,482 | ||||||||
December 31, 2022 |
||||||||||||||||
Amortized Cost |
Unrealized Holding Gains |
Unrealized Holding Losses |
Fair Value |
|||||||||||||
(In thousands) |
||||||||||||||||
Cash and cash equivalents: |
||||||||||||||||
Cash |
$ | 26,465 | $ | — | $ | — | $ | 26,465 | ||||||||
Money market funds |
9,589 | — | — | 9,589 | ||||||||||||
Commercial paper |
32,856 | — | 6 | 32,850 | ||||||||||||
Total cash and cash equivalents |
$ | 68,910 | $ | — | $ | 6 | $ | 68,904 | ||||||||
Short-term investments: |
||||||||||||||||
Asset-backed securities |
$ | 2,012 | $ | — | $ | 13 | $ | 1,999 | ||||||||
Certificates of deposit |
3,850 | — | 10 | 3,840 | ||||||||||||
Commercial paper |
9,443 | — | 28 | 9,415 | ||||||||||||
Corporate bonds and medium-term notes |
4,210 | — | 32 | 4,178 | ||||||||||||
Municipal bonds |
1,486 | — | 25 | 1,461 | ||||||||||||
U.S. treasury securities |
4,771 | — | 123 | 4,648 | ||||||||||||
Total short-term investments |
$ | 25,772 | $ | — | $ | 231 | $ | 25,541 | ||||||||
Long-term investments: |
||||||||||||||||
Asset-backed securities |
$ | 6,749 | $ | — | $ | 85 | $ | 6,664 | ||||||||
Corporate bonds and medium-term notes |
5,366 | — | 102 | 5,264 | ||||||||||||
Municipal bonds |
224 | — | 6 | 218 | ||||||||||||
U.S. treasury and agency securities |
5,493 | — | 54 | 5,439 | ||||||||||||
Total long-term investments |
$ | 17,832 | $ | — | $ | 247 | $ | 17,585 | ||||||||
Total cash, cash equivalents, and investments |
$ | 112,514 | $ | — | $ | 484 | $ | 112,030 | ||||||||
Amortized Cost |
Fair Value |
|||||||
(In thousands) |
||||||||
Due in one year or less |
$ | 47,527 | $ | 47,391 | ||||
Due after one through five years |
3,880 | 3,855 | ||||||
$ | 51,407 | $ | 51,246 | |||||
September 30, 2023 |
||||||||||||||||
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) |
||||||||||||||||
Asset-backed securities |
$ | — | $ | — | $ | 1,637 | $ | 13 | ||||||||
Commercial paper |
15,876 | 5 | — | — | ||||||||||||
Corporate bonds and medium-term notes |
1,989 | 14 | 5,309 | 76 | ||||||||||||
Municipal bonds |
— | — | 218 | 4 | ||||||||||||
U.S. treasury securities |
3,500 | 1 | 4,448 | 48 | ||||||||||||
$ | 21,365 | $ | 20 | $ | 11,612 | $ | 141 | |||||||||
Fair Value Measurements at September 30, 2023 |
||||||||||||
Total |
Level 1 |
Level 2 |
||||||||||
(In thousands) |
||||||||||||
Recurring fair value measurements: |
||||||||||||
Investment securities |
||||||||||||
Money market funds |
$ | 15,154 | $ | 15,154 | $ | — | ||||||
U.S. treasury and agency securities |
7,948 | 4,448 | 3,500 | |||||||||
Asset-backed securities |
1,637 | — | 1,637 | |||||||||
Certificates of deposit |
1,400 | — | 1,400 | |||||||||
Commercial paper |
15,876 | — | 15,876 | |||||||||
Corporate bonds and medium-term notes |
8,013 | — | 8,013 | |||||||||
Municipal bonds |
1,218 | — | 1,218 | |||||||||
Total recurring fair value measurements |
$ | 51,246 | $ | 19,602 | $ | 31,644 | ||||||
9. |
Derivative Instruments |
a | Other current assets |
10. |
Equity |
Three Months Ended September 30, 2023 |
||||||||||||||||||||
Common Stock and Additional Paid-in Capital |
Treasury Stock |
Accumulated Other Comprehensive Income (Loss) |
Accumulated Deficit |
Total Stockholders’ Equity |
||||||||||||||||
Balance at July 1, 2023 |
$ | 208,698 | $ | (29,551 | ) | $ | (190 | ) | $ | (61,954 | ) | $ | 117,003 | |||||||
Common stock issued under employee plans |
527 | — | — | — | 527 | |||||||||||||||
Shares withheld for net share settlement of RSUs |
(120 | ) | — | — | — | (120 | ) | |||||||||||||
Equity-based compensation expense |
317 | — | — | — | 317 | |||||||||||||||
Net loss |
— | — | — | (1,576 | ) | (1,576 | ) | |||||||||||||
Other comprehensive income |
— | — | 86 | — | 86 | |||||||||||||||
Balance at September 30, 2023 |
$ | 209,422 | $ | (29,551 | ) | $ | (104 | ) | $ | (63,530 | ) | $ | 116,237 | |||||||
Nine Months Ended September 30, 2023 |
||||||||||||||||||||
Common Stock and Additional Paid-in Capital |
Treasury Stock |
Accumulated Other Comprehensive Income (Loss) |
Accumulated Deficit |
Total Stockholders’ Equity |
||||||||||||||||
Balance at December 31, 2022 |
$ | 206,381 | $ | (29,551 | ) | $ | (193 | ) | $ | (53,185 | ) | $ | 123,452 | |||||||
Common stock issued under employee plans |
1,331 | — | — | — | 1,331 | |||||||||||||||
Shares withheld for net share settlement of RSUs |
(1,683 | ) | — | — | — | (1,683 | ) | |||||||||||||
Equity-based compensation expense |
3,393 | — | — | — | 3,393 | |||||||||||||||
Net loss |
— | — | — | (10,345 | ) | (10,345 | ) | |||||||||||||
Other comprehensive income |
— | — | 89 | — | 89 | |||||||||||||||
Balance at September 30, 2023 |
$ | 209,422 | $ | (29,551 | ) | $ | (104 | ) | $ | (63,530 | ) | $ | 116,237 | |||||||
Three Months Ended October 1, 2022 |
||||||||||||||||||||
Common Stock and Additional Paid-in Capital |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Accumulated Deficit |
Total Stockholders’ Equity |
||||||||||||||||
Balance at July 2, 2022 |
$ | 201,503 | $ | (29,551 | ) | $ | (9 | ) | $ | (46,783 | ) | $ | 125,160 | |||||||
Common stock issued under employee plans |
687 | — | — | — | 687 | |||||||||||||||
Shares withheld for net share settlement of RSUs |
(63 | ) | — | — | — | (63 | ) | |||||||||||||
Equity-based compensation expense |
2,209 | — | — | — | 2,209 | |||||||||||||||
Net loss |
— | — | — | (3,236 | ) | (3,236 | ) | |||||||||||||
Other comprehensive loss |
— | — | (458 | ) | — | (458 | ) | |||||||||||||
Balance at October 1, 2022 |
$ | 204,336 | $ | (29,551 | ) | $ | (467 | ) | $ | (50,019 | ) | $ | 124,299 | |||||||
Nine Months Ended October 1, 2022 |
||||||||||||||||||||
Common Stock and Additional Paid-in Capital |
Treasury Stock |
Accumulated Other Comprehensive Income (Loss) |
Accumulated Deficit |
Total Stockholders’ Equity |
||||||||||||||||
Balance at January 1, 2022 |
$ | 199,098 | $ | (29,551 | ) | $ | 578 | $ | (36,110 | ) | $ | 134,015 | ||||||||
Common stock issued under employee plans |
2,898 | — | — | — | 2,898 | |||||||||||||||
Shares withheld for net share settlement of RSUs |
(358 | ) | — | — | — | (358 | ) | |||||||||||||
Equity-based compensation expense |
2,698 | — | — | — | 2,698 | |||||||||||||||
Net loss |
— | — | — | (13,909 | ) | (13,909 | ) | |||||||||||||
Other comprehensive loss |
— | — | (1,045 | ) | — | (1,045 | ) | |||||||||||||
Balance at October 1, 2022 |
$ | 204,336 | $ | (29,551 | ) | $ | (467 | ) | $ | (50,019 | ) | $ | 124,299 | |||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||
September 30, 2023 |
||||||||||||||||||||||||
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 |
$ | 72 | $ | (262 | ) | $ | (190 | ) | $ | 291 | $ | (484 | ) | $ | (193 | ) | ||||||||
Other comprehensive income (loss) before reclassification |
(15 | ) | 101 | 86 | (234 | ) | 323 | 89 | ||||||||||||||||
Amounts reclassified from other comprehensive income (loss) |
— | — | — | — | — | — | ||||||||||||||||||
Net current-period other comprehensive income (loss) |
(15 | ) | 101 | 86 | (234 | ) | 323 | 89 | ||||||||||||||||
Ending balance |
$ | 57 | $ | (161 | ) | $ | (104 | ) | $ | 57 | $ | (161 | ) | $ | (104 | ) | ||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||
October 1, 2022 |
||||||||||||||||||||||||
Foreign currency |
Unrealized holding losses on available-for-sale investments |
Total |
Foreign currency |
Unrealized holding losses on available-for-sale investments |
Total |
|||||||||||||||||||
(In thousands) |
||||||||||||||||||||||||
Beginning balance |
$ | 356 | $ | (365 | ) | $ | (9 | ) | $ | 608 | $ | (30 | ) | $ | 578 | |||||||||
Other comprehensive loss before reclassification |
(247 | ) | (225 | ) | (472 | ) | (499 | ) | (560 | ) | (1,059 | ) | ||||||||||||
Amounts reclassified from other comprehensive loss |
14 | — | 14 | 14 | — | 14 | ||||||||||||||||||
Net current-period other comprehensive loss |
(233 | ) | (225 | ) | (458 | ) | (485 | ) | (560 | ) | (1,045 | ) | ||||||||||||
Ending balance |
$ | 123 | $ | (590 | ) | $ | (467 | ) | $ | 123 | $ | (590 | ) | $ | (467 | ) | ||||||||
11. |
Net Loss Per Share |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2023 |
October 1, 2022 |
September 30, 2023 |
October 1, 2022 |
|||||||||||||
(In thousands, except per share amounts) |
||||||||||||||||
Net loss from continuing operations |
$ | (1,624 | ) | $ | (3,216 | ) | $ | (10,710 | ) | $ | (13,515 | ) | ||||
Net income (loss) from discontinued operations, net of taxes |
48 | (20 | ) | 365 | (394 | ) | ||||||||||
Net loss |
$ | (1,576 | ) | $ | (3,236 | ) | $ | (10,345 | ) | $ | (13,909 | ) | ||||
Weighted-average shares – basic |
26,287 | 25,370 | 26,033 | 25,104 | ||||||||||||
Effect of dilutive potential common shares |
— | — | — | — | ||||||||||||
Weighted-average shares – diluted |
26,287 | 25,370 | 26,033 | 25,104 | ||||||||||||
Basic and diluted net income (loss) per share: |
||||||||||||||||
Continuing operations |
$ | (0.06 | ) | $ | (0.13 | ) | $ | (0.41 | ) | $ | (0.54 | ) | ||||
Discontinued operations |
$ | 0.00 | $ | (0.00 | ) | $ | 0.01 | $ | (0.02 | ) | ||||||
Net loss per share |
$ | (0.06 | ) | $ | (0.13 | ) | $ | (0.40 | ) | $ | (0.55 | ) | ||||
12. |
Income Taxes |
13. |
Restructuring Charges |
Employee Termination Costs |
||||
(In thousands) |
||||
Balance at July 1, 2023 |
$ | — | ||
Provision for restructuring charges under the 2023 Cost Reduction Plan |
1,950 | |||
Cash payments made |
(1,948 | ) | ||
Non-cash utilization (a) |
(2 | ) | ||
Balance at September 30, 2023 |
$ | — | ||
(a) | Acceleration of equity awards. |
Employee Termination Costs |
||||
(In thousands) |
||||
Balance at January 1, 2022 |
$ | — | ||
Provision for restructuring charges under the 2022 Cost Reduction Plan |
1,232 | |||
Cash payments made |
(757 | ) | ||
Non-cash utilization (a) |
37 | |||
Balance at April 2, 2022 |
$ | 512 | ||
Cash payments made |
(179 | ) | ||
Balance at July 2, 2022 |
$ | 333 | ||
Cash payments made |
(154 | ) | ||
Balance at October 1, 2022 |
$ | 179 | ||
(a) | Acceleration of eq uity awards. |
Other Exit Costs |
||||
(In thousands) |
||||
Balance at December 31, 2022 |
$ | 318 | ||
Provision for restructuring charges associated with Photonics divestiture (a) |
3 | |||
Cash payments made |
(81 | ) | ||
Balance at April 1, 2023 |
$ | 240 | ||
Provision for restructuring charges associated with Photonics divestiture (a) |
2 | |||
Cash payments made |
(80 | ) | ||
Balance at July 1, 2023 |
$ | 162 | ||
Provision for restructuring charges associated with Photonics divestiture (a) |
2 | |||
Cash payments made |
(80 | ) | ||
Balance at September 30, 2023 |
$ | 84 | ||
Employee Termination Costs |
Other Exit Costs |
Total |
||||||||||
(In thousands) |
||||||||||||
Balance at January 1, 2022 |
$ | 358 | $ | 665 | $ | 1,023 | ||||||
Provision for restructuring charges associated with Photonics divestiture (a) |
112 | 2 | 114 | |||||||||
Cash payments made |
(137 | ) | (128 | ) | (265 | ) | ||||||
Non-cash utilization (b) |
(75 | ) | — | (75 | ) | |||||||
Balance at April 2, 2022 |
$ | 258 | $ | 539 | $ | 797 | ||||||
Provision for restructuring charges associated with Photonics divestiture (a) |
— | 4 | 4 | |||||||||
Cash payments made |
(90 | ) | (77 | ) | (167 | ) | ||||||
Balance at July 2, 2022 |
$ | 168 | $ | 466 | $ | 634 | ||||||
Provision for restructuring charges associated with Photonics divestiture (a) |
— | 5 | 5 | |||||||||
Cash payments made |
(77 | ) | (77 | ) | (154 | ) | ||||||
Balance at October 1, 2022 |
$ | 91 | $ | 394 | $ | 485 | ||||||
(a) | Included in loss from discontinued operations (See Note 2). |
(b) | Acceleration of equity awards. |
14. |
Contingencies |
15. |
Acquisition of Hia, Inc. |
Gross carrying amount at September 30, 2023 |
$ | 1,132 | ||
Accumulated amortization |
(144 | ) | ||
Net carrying amount at September 30, 2023 |
$ | 988 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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 2023 and beyond; projected customer requirements for Intevac’s new and existing products, and when, and if, Intevac’s customers will place orders for these products; the timing of delivery and/or acceptance of the systems and products that comprise Intevac’s backlog for revenue and the Company’s ability to achieve cost savings. 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 on February 16, 2023, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.
Intevac’s trademarks include the following: “200 Lean®,” and “INTEVAC TRIO™.”
Discontinued Operations
On December 30, 2021, the Company completed the sale of its Photonics business to EOTECH, LLC, a Michigan limited liability company (“EOTECH”). As a result of the disposition, the results of operations from the Photonics reporting segment are reported as “Net loss from discontinued operations, net of taxes” in the condensed consolidated financial statements. All discussion herein, unless otherwise noted, refers to Intevac’s remaining operating segment after the disposition, the Thin Film Equipment (“TFE”) business. See Note 2 “Divestiture and Discontinued Operations” to the condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.
Overview
Intevac is a provider of vacuum deposition equipment for a wide variety of thin-film applications. 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”) and display cover panel (“DCP”) industries. Intevac’s customers include manufacturers of hard disk media and DCPs. Intevac operates in a single segment: TFE. Product development and manufacturing activities occur in North America and Asia. Intevac also has field offices in Asia to support its customers. Intevac’s products are highly technical and are sold primarily through Intevac’s direct sales force.
Intevac’s results of operations are driven by a number of factors including success in its equipment growth initiatives in the DCP market and by worldwide demand for HDDs. Demand for HDDs depends on the growth in digital data creation and storage, the rate of areal density improvements, and the end-user demand for PCs, enterprise data storage, nearline “cloud” applications, video players and video game consoles that include such drives. Intevac continues to execute its strategy of diversification beyond the HDD industry by focusing on the Company’s ability to provide proprietary tools to enhance scratch protection and durability for the DCP market and by working to develop the next generation of high volume DCP manufacturing equipment. Intevac believes that its renewed focus on the DCP market will result in incremental equipment revenues for Intevac and decrease Intevac’s dependence on the HDD industry. Intevac’s equipment business is subject to cyclical industry conditions, as demand for manufacturing equipment and services can change depending on supply and demand for HDDs and cell phones as well as other factors such as global economic conditions and technological advances in fabrication processes.
In March 2022, the Company approved and implemented a restructuring program to realign the Company’s operational focus, scale the business and improve costs. The restructuring program included (i) reducing the Company’s headcount and (ii) eliminating several research and development (“R&D”) programs and product offerings. As part of this realignment effort, the Company ceased its efforts to develop and market several of its manufacturing platforms for the DCP, PV and ASP industries and ceased offering certain legacy products within these industries.
The following table presents certain significant measurements for the three and nine months ended September 30, 2023 and October 1, 2022:
Three months ended | Nine months ended | |||||||||||||||||||||||
September 30, 2023 |
October 1, 2022 |
Change over prior period |
September 30, 2023 |
October 1, 2022 |
Change over prior period |
|||||||||||||||||||
(In thousands, except percentages and per share amounts) | ||||||||||||||||||||||||
Net revenues |
$ | 17,915 | $ | 10,750 | $ | 7,165 | $ | 39,758 | $ | 24,502 | $ | 15,256 | ||||||||||||
Gross profit |
$ | 6,999 | $ | 4,890 | $ | 2,109 | $ | 14,287 | $ | 10,100 | $ | 4,187 | ||||||||||||
Gross margin percent |
39.1 | % | 45.5 | % | (6.4) points | 35.9 | % | 41.2 | % | (5.3) points | ||||||||||||||
Loss from operations |
$ | (1,428 | ) | $ | (3,162 | ) | $ | 1,734 | $ | (11,334 | ) | $ | (13,246 | ) | $ | 1,912 | ||||||||
Loss from continuing operations |
$ | (1,624 | ) | $ | (3,216 | ) | $ | 1,592 | $ | (10,710 | ) | $ | (13,515 | ) | $ | 2,805 | ||||||||
Income (loss) from discontinued operations |
$ | 48 | $ | (20 | ) | $ | 68 | $ | 365 | $ | (394 | ) | $ | 759 | ||||||||||
Net loss |
$ | (1,576 | ) | $ | (3,236 | ) | $ | 1,660 | $ | (10,345 | ) | $ | (13,909 | ) | $ | 3,564 | ||||||||
Net loss per diluted share |
$ | (0.06 | ) | $ | (0.13 | ) | $ | 0.07 | $ | (0.40 | ) | $ | (0.55 | ) | $ | 0.15 |
24
Net revenues increased during the third quarter of fiscal 2023 compared to the same period in the prior year primarily due to higher equipment sales to HDD manufacturers. We did not recognize revenue on any system sales in both the third quarter of fiscal 2023 and the third quarter of fiscal 2022. Lower gross margin percent in the third quarter of fiscal 2023 reflected higher excess and obsolete inventory charges due to the obsolescence of inventory resulting from engineering change orders to the TRIO bill of material and severance costs associated with our 2023 Cost Reduction Plan, offset in part by the higher-margin contribution from HDD upgrades. The cost of employee severance associated with our 2023 Cost Reduction Plan of $2.0 million was offset in part by $462,000 of stock-based compensation forfeitures related to the employees affected by the reduction in workforce. In September 2022, Intevac entered into a settlement agreement and agreed to refund to EOTECH $200,000 in TSA fees as well as cancel $46,000 in outstanding invoices related to disputed TSA fees. These fees were reported in general and administrative expenses for the three months ended October 1, 2022. The Company reported a smaller net loss for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 due to higher revenues and higher gross profit, offset in part by higher operating costs primarily as a result of restructuring charges.
Net revenues increased during the nine months ended September 30, 2023 compared to the same period in the prior year primarily due to higher upgrade and systems sales. We recognized revenue on one 200 Lean HDD system and one refurbished 200 Lean HDD system in the first nine months of 2023. We did not recognize revenue on any system sales in the first nine months of fiscal 2022. Lower gross margin percent in the nine months ended September 30, 2023, versus the same period in the prior year, reflected higher inventory obsolescence charges, severance costs, the lower-margin contributions from the 200 Lean HDD system and the refurbished 200 Lean HDD system and lower factory utilization. Gross margins in the first nine months of fiscal 2022 reflected the impact of $755,000 in charges for excess and obsolete inventory as part of our 2022 Cost Reduction Plan. The cost of employee severance associated with our 2023 Cost Reduction Plan of $2.0 million was offset in part by $462,000 of stock-based compensation forfeitures related to the employees affected by the reduction in workforce. R&D expenses for the first nine months of fiscal 2022 include $1.5 million in expenditures related to the disposal of certain lab equipment as part of our 2022 Cost Reduction Plan. The cost of employee severance associated with our 2022 Cost Reduction Plan of $1.2 million was offset in full by stock-based compensation forfeitures related to the employees affected by the reduction in workforce. Fees earned pursuant to the TSA were $950,000 for the nine months ended October 1, 2022, of which $23,000 was reported as a reduction of cost of net revenues and $927,000 was reported as a reduction of selling, general and administrative expenses. The agreed-upon charges for such services were generally intended to allow the service provider to recover all costs and expenses of providing such services. The TSA concluded in June 2022, and the Company did not receive any TSA fees in the first nine months of fiscal 2023. The Company reported a smaller net loss for the nine months ended September 30, 2023 compared to same period in the prior year due to higher revenues and higher gross profit, offset in part by higher operating costs.
We believe fiscal 2023 will continue to be a challenging year, and Intevac does not expect to be profitable in fiscal 2023. While we expect that HDD equipment sales will be higher in 2023 than 2022 levels, we expect that HDD equipment sales in 2024 will be lower than 2023 levels. We expect to begin recognizing revenue from our TRIO platform in fiscal 2024. In May 2023, a customer cancelled an order for eight 200 Lean HDD systems and we recorded a backlog reduction of $54.6 million. Additionally, in the remainder of 2023 and throughout 2024, we expect to recognize cancellation charges associated with the cancelled order as the associated customer contract requires the customer to pay us a prorated price based upon the percentage of work completed on the order.
Our results of operations and growth prospects could be impacted by macroeconomic conditions such as a global economic slowdown, global economic instability and political conflicts, wars, and public health crises. Rising inflation and interest rates may impact demand for our products and services and our cost to provide products and services. Further, the impacts of inflation and interest rate fluctuations on our business and the broader economy may impact our financial condition and results of operations. Our customers may delay or cancel orders due to reduced demand and supply chain disruptions.
Results of Operations
Net revenues
Three months ended | Nine months ended | |||||||||||||||||||||||
September 30, 2023 |
October 1, 2022 |
Change over prior period |
September 30, 2023 |
October 1, 2022 |
Change over prior period |
|||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Net revenues |
$ | 17,915 | $ | 10,750 | $ | 7,165 | $ | 39,758 | $ | 24,502 | $ | 15,256 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
25
Revenue for the three months ended September 30, 2023 increased compared to the same period in the prior year as a result of higher sales of technology upgrades, offset in part by lower sales of spare parts and field service. Revenue for the nine months ended September 30, 2023 increased compared to the same period in the prior year as a result of higher sales of systems and technology upgrades, offset in part by lower sales of spare parts and field service. Revenue for the three and nine months ended September 30, 2023 includes $444,000 of cancellation fees, when the Company applied $444,000 of billings against customer advances in connection with inventory scrapped at the customer’s direction associated with a cancelled order. We recognized revenue on one 200 Lean HDD system and one refurbished 200 Lean HDD system for the nine months ended September 30, 2023. Revenue for the three months ended September 30, 2023 and three and nine months ended October 1, 2022 did not include revenue recognized for any systems.
Backlog
September 30, 2023 |
December 31, 2022 |
October 1, 2022 |
||||||||||
(In thousands) | ||||||||||||
Backlog |
$ | 46,497 | $ | 121,743 | $ | 110,397 | ||||||
|
|
|
|
|
|
Backlog at September 30, 2023 included 2 200 Lean HDD systems. Backlog at both December 31, 2022 and October 1, 2022 included eleven 200 Lean HDD systems. In May 2023, a customer cancelled an order for eight 200 Lean HDD systems and we recorded a backlog reduction of $54.6 million. Our HDD revenues through the remainder of 2023 are expected to consist primarily of HDD upgrade sales, spare parts sales and field service sales. On September 30, 2023, we had $46.5 million of backlog and expect to recognize as revenue: 25.3% in 2023, 50.2% in 2024 and 24.5% in 2025. However, our customers may cancel their contracts with us prior to contract completion. In the case of a termination for convenience, we would not receive anticipated future revenues, but would generally be permitted to recover all or a portion of our incurred costs and fees for work performed.
Revenue by geographic region
Three months ended | Nine months ended | |||||||||||||||
September 30, 2023 |
October 1, 2022 |
September 30, 2023 |
October 1, 2022 |
|||||||||||||
(In thousands) | ||||||||||||||||
United States |
$ | 784 | $ | 1,377 | $ | 3,060 | $ | 3,327 | ||||||||
Asia |
17,034 | 9,273 | 36,590 | 21,075 | ||||||||||||
Europe |
97 | 100 | 108 | 100 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net revenues |
$ | 17,915 | $ | 10,750 | $ | 39,758 | $ | 24,502 | ||||||||
|
|
|
|
|
|
|
|
International sales include products shipped to overseas operations of U.S. companies. The decrease in sales to the U.S. region in the three months ended September 30, 2023 versus the three months ended October 1, 2022, reflected lower HDD upgrade sales, lower spare parts and lower field service sales. The decrease in sales to the U.S. region in the nine months ended September 30, 2023 versus the nine months ended October 1, 2022, reflected lower spare parts and lower field service sales, offset in part by higher HDD upgrade sales. The increase in sales to the Asia region in the three months ended September 30, 2023 versus the three months ended October 1, 2022, reflected higher HDD upgrade sales, offset in part by lower spare parts and lower field service sales. The increase in sales to the Asia region in the nine months ended September 30, 2023 versus the nine months ended October 1, 2022, reflected higher HDD system and higher HDD upgrade sales, offset in part by lower spare parts and field service sales. Sales to the Asia region for the nine months ended September 30, 2023 included one 200 Lean HDD system and one refurbished 200 Lean HDD system. Sales to the Asia region for the three months ended September 30, 2023 and three and nine months ended October 1, 2022, did not include any systems.
Gross profit
Three months ended | Nine months ended | |||||||||||||||||||||||
September 30, 2023 |
October 1, 2022 |
Change over prior period |
September 30, 2023 |
October 1, 2022 |
Change over prior period |
|||||||||||||||||||
(In thousands, except percentages) | ||||||||||||||||||||||||
Gross profit |
$ | 6,999 | $ | 4,890 | $ | 2,109 | $ | 14,287 | $ | 10,100 | $ | 4,187 | ||||||||||||
% of net revenues |
39.1 | % | 45.5 | % | 35.9 | % | 41.2 | % |
Cost of net revenues consists primarily of purchased materials and also includes fabrication, assembly, test and installation labor and overhead, customer-specific engineering costs, warranty costs, royalties, provisions for inventory reserves and scrap.
26
Gross margin was 39.1% in the three months ended September 30, 2023 compared to 45.5% in the three months ended October 1, 2022 and was 35.9% in the nine months ended September 30, 2023 compared to 41.2% in the nine months ended October 1, 2022. The decrease in the gross margin percentage for the three months ended September 30, 2023 compared to the same period in the prior year was due primarily to inventory obsolescence charges, severance charges associated with the 2023 Cost Reduction Plan and lower factory utilization. The decrease in the gross margin percentage for the nine months ended September 30, 2023 compared to the same period in the prior year was due primarily to the inventory obsolescence charges, severance charges associated with the 2023 Cost Reduction Plan, lower-margin contributions from the 200 Lean HDD system and the refurbished 200 Lean HDD system, and lower factory utilization. Excess and obsolete inventory charges during the three and nine months ended September 30, 2023 included $1.4 million in expenditures primarily related to certain TRIO inventory that become obsolete resulting from engineering change orders. Gross margins will vary depending on a number of factors, including revenue levels, product mix, product cost, system configuration and pricing, factory utilization, and provisions for excess and obsolete inventory.
Research and development expense
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Research and development expense |
$ | 3,720 | $ | 3,311 | $ | 409 | $ | 11,340 | $ | 10,339 | $ | 1,001 |
Research and development spending during the three months ended September 30, 2023 increased compared to the same period in the prior year primarily due to higher spending on TRIO, offset in part by lower spending on HDD R&D programs. R&D spending during the nine months ended September 30, 2023 increased compared to the same period in the prior year primarily due to higher spending on TRIO and HDD R&D programs. R&D spending during the nine months ended October 1, 2022 included $1.5 million in expenditures related to the disposal of certain lab equipment as part of the 2022 Cost Reduction Plan.
Selling, general and administrative expense
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$ | 4,707 | $ | 4,741 | $ | (34 | ) | $ | 14,281 | $ | 13,007 | $ | 1,274 |
Selling, general and administrative expense consists primarily of selling, marketing, customer support, financial and management costs. Selling, general and administrative expense for the three months ended September 30, 2023 decreased compared to the same period in the prior year as lower stock compensation and lower variable compensation expenses were offset in part by severance charges associated with the 2023 Cost Reduction Plan, higher legal fees, higher consulting fees and higher travel expenses. Selling, general and administrative expense for the three months ended October 1, 2022 included a $200,000 refund to EOTECH in TSA fees as well the cancelation in $46,000 in outstanding invoices related to disputed TSA fees. Selling, general and administrative expense for the nine months ended September, 2023 increased compared to the same period in the prior year as higher severance charges, higher stock compensation expenses, higher variable compensation expenses, higher consulting fees, higher training expenses and higher travel expenses were offset in part by lower legal fees. Selling, general and administrative expense for the nine months ended October 1, 2022 included severance charges associated with the 2022 Cost Reduction Plan. Selling, general and administrative expense for the nine months ended October 1, 2022, is net of $950,000 in TSA fees earned since the Photonics divestiture. The agreed-upon charges for such services were generally intended to allow the service provider to recover all costs and expenses of providing such services.
Cost reduction plans
During the third quarter of fiscal 2023, Intevac substantially completed implementation of the 2023 Cost Reduction Plan, which is intended to reduce expenses by reducing our workforce by 23 percent including employees and contractors. Intevac incurred restructuring costs of $1.9 million in severance, $2,000 in stock-based compensation associated with the modification of certain stock-based awards and other employee-related expenses associated with the 2023 Cost Reduction Plan. Additionally as part of the 2023 Cost Reduction Plan the Company incurred a benefit of $462,000 related to the stock-based compensation forfeitures related to the employees affected by the reduction in workforce. Substantially all cash outlays in connection with the 2023 Cost Reduction Plan occurred in the third quarter of fiscal 2023. The cost of implementing the 2023 Cost Reduction Plan was reported under cost of net revenues ($490,000) and operating expenses ($1.3 million in selling, general and administrative expense and $117,000 in R&D expense) in the condensed consolidated statements of operations. Implementation of the 2023 Cost Reduction Plan is expected to reduce salary, wages and other employee-related expenses and contractor payments by approximately $4.6 million on an annual basis.
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In March 2022, the Company’s management approved 2022 Cost Reduction Plan, which reduced the Company’s headcount and eliminated several R&D programs and product offerings. As part of this re-alignment effort, the Company will no longer be pursuing several DCP projects including the coating of the backside covers of smartphones, solar ion implantation (also known as ENERGi®), and advanced packaging for semiconductor manufacturing. We incurred restructuring costs of $1.2 million for estimated severance and the related modification of certain stock-based awards. Other costs incurred as part of the 2022 Cost Reduction Plan include: (i) a benefit of $1.3 million related to the stock-based compensation forfeitures related to the employees affected by the reduction in workforce, (ii) $1.5 million for fixed asset disposals and (iii) $755,000 for write-offs of excess inventory. The 2022 Cost Reduction Plan reduced the workforce by 6 percent. The cost of implementing the 2022 Cost Reduction Plan was reported under cost of net revenues and operating expenses in the condensed consolidated statements of operations. Implementation of the 2022 Cost Reduction Plan is expected to reduce salary, wages and other employee-related expenses by approximately $2.1 million on an annual basis and reduce depreciation expense by $720,000 on an annual basis.
Interest income and other income (expense), net
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Interest income and other income (expense), net |
$ | 600 | $ | 413 | $ | 187 | $ | 1,922 | $ | 723 | $ | 1,199 |
Interest income and other income (expense), net is comprised of interest income, foreign currency gains and losses, and other income and expense.
Interest income and other income (expense), net in the three months ended September 30, 2023 included $600,000 of interest income on investments, various other income of $51,000, offset in part by $51,000 of foreign currency losses. Interest income and other income (expense), net in the nine months ended September 30, 2023 included $1.9 million of interest income on investments, various other income of $115,000 offset in part by $70,000 of foreign currency losses. Interest income and other income (expense), net in the three months ended October 1, 2022 included $398,000 of interest income on investments, various other income of $2,000, and $13,000 of foreign currency gains. Interest income and other income (expense), net in the nine months ended October 1, 2022 included $573,000 of interest income on investments, various other income of $30,000 and $120,000 of foreign currency gains. The increase in interest income in the three and nine months ended September 30, 2023 compared to the same periods in the prior year resulted from higher interest rates, offset in part by lower invested balances.
Provision for income taxes
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Provision for income taxes |
$ | 796 | $ | 467 | $ | 329 | $ | 1,298 | $ | 992 | $ | 306 |
Intevac recorded income tax provisions of $796,000 and $1.3 million for the three and nine months ended September 30, 2023, respectively, and income tax provisions of $467,000 and $992,000 for the three and nine months ended October 1, 2022, respectively. The income tax provisions for these three and nine month periods are based upon estimates of annual income (loss), annual permanent differences and statutory tax rates in the various jurisdictions in which Intevac operates. For the three and nine months ended September 30, 2023, Intevac recorded an income tax provision on earnings of $505,000 and $685,000, respectively, of its international subsidiaries. For the three and nine months ended September 30, 2023, Intevac recorded $288,000 and $608,000, respectively, for withholding taxes on royalties paid into the United States from Intevac’s Singapore subsidiary as discrete items.
For the three and nine months ended October 1, 2022 Intevac recorded an income tax provision on earnings of $392,000 and $756,000, respectively, of its international subsidiaries. The tax provisions for the three and nine months ended October 1, 2022 are net of a tax benefit recorded for the partial release of the U.S. valuation allowance in the amount of $52,000 due to the acquired intangibles of Hia. The decrease in the valuation allowance, which was recorded as a discrete income tax benefit, was due to such acquired intangible assets having no tax basis. This required the Company to record a deferred tax liability, which served as a source of taxable income to realize the existing deferred tax assets of the Company. For the three and nine months ended October 1, 2022, Intevac recorded $127,000 and $285,000, respectively, for withholding taxes on royalties paid into the United States from Intevac’s Singapore subsidiary as discrete items. For all periods presented, Intevac utilized net operating loss carry-forwards to offset the impact of the global intangible low-taxed income. Intevac’s tax rate differs from the applicable statutory rates due primarily to establishment of a valuation allowance, utilization of deferred and current credits and the effect of permanent differences and adjustments of prior permanent differences. Intevac’s future effective income tax rate depends on various factors, including the level of Intevac’s projected earnings, the geographic composition of worldwide earnings, tax regulations governing each region, net operating loss carry-forwards, availability of tax credits and the effectiveness of Intevac’s tax planning strategies. Management carefully monitors these factors and timely adjusts the effective income tax rate.
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The income tax expense consists primarily of income taxes in foreign jurisdictions in which we conduct business and foreign withholding taxes. We maintain a full valuation allowance for domestic deferred tax assets, including net operating loss carry-forwards and certain domestic tax credits. Intevac’s effective tax rate differs from the U.S. statutory rate in both fiscal 2023 and fiscal 2022 primarily due to the Company not recognizing an income tax benefit on the domestic loss.
Income (loss) from discontinued operations, net of taxes
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Income (loss) from discontinued operations, net of taxes |
$ | 48 | $ | (20 | ) | $ | 68 | $ | 365 | $ | (394 | ) | $ | 759 |
The income (loss) from discontinued operations consists primarily of the results of operations of the Photonics business which was sold to EOTECH on December 30, 2021. Income from discontinued operations for the three months ended September 30, 2023 is comprised primarily of accretion on the lease liability that was assigned to EOTECH. Income from discontinued operations for the nine months ended September 30, 2023 is comprised primarily of a stock based compensation forfeiture benefit recognized upon the termination of certain mutual employees of both the Company and EOTECH that were terminated by the Company upon the completion of the assignment and novation of all government contracts to EOTECH in the first quarter of fiscal 2023. Loss from discontinued operations for the three and nine months ended October 1, 2022 includes salaries and wages and employee benefits up to and including January, 4, 2022, the date when employees were conveyed to EOTECH, severance for several employees that were not hired by EOTECH, stock based compensation expense associated with the acceleration of stock awards and incremental legal expenses associated with the divestiture, offset in part by a stock based compensation divestiture-related forfeiture benefit.
Liquidity and Capital Resources
At September 30, 2023, Intevac had $66.2 million in c