Table of Contents
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 |
(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 | ||
Large accelerated filer |
☐ |
Accelerated filer |
☐ | |||
Non-accelerated filer |
☒ |
Smaller reporting company |
||||
| Emerging growth company | ||||||
Table of Contents
INTEVAC, INC.
INDEX
| No. |
Page | |||||
| PART I. FINANCIAL INFORMATION | ||||||
| Item 1. |
||||||
| 3 | ||||||
| 4 | ||||||
| 5 | ||||||
| 6 | ||||||
| 7 | ||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 | ||||
| Item 3. |
31 | |||||
| Item 4. |
31 | |||||
| PART II. OTHER INFORMATION | ||||||
| Item 1. |
32 | |||||
| Item 1A. |
32 | |||||
| Item 2. |
38 | |||||
| Item 3. |
38 | |||||
| Item 4. |
38 | |||||
| Item 5. |
39 | |||||
| Item 6. |
40 | |||||
| 41 | ||||||
2
Table of Contents
Item 1. |
Financial Statements |
September 28, 2024 |
December 30, 2023 |
|||||||
(Unaudited) |
||||||||
(In thousands, except par value) |
||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Short-term investments |
||||||||
Trade and other accounts receivable, net of allowances of $ |
||||||||
Inventories |
||||||||
Prepaid expenses and other current assets |
||||||||
Total current assets |
||||||||
Long-term investments |
||||||||
Restricted cash |
||||||||
Property, plant and equipment, net |
||||||||
Operating lease right-of-use-assets |
||||||||
Intangible assets, net of amortization of $ |
||||||||
Deferred income taxes and other long-term assets |
||||||||
Total assets |
$ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Current operating lease liabilities |
$ | $ | ||||||
Accounts payable |
||||||||
Accrued payroll and related liabilities |
||||||||
Other accrued liabilities |
||||||||
Customer advances |
||||||||
Total current liabilities |
||||||||
Noncurrent liabilities: |
||||||||
Noncurrent operating lease liabilities |
||||||||
Customer advances |
||||||||
Other long-term liabilities |
||||||||
Total noncurrent liabilities |
||||||||
Stockholders’ equity: |
||||||||
Common stock, $ |
||||||||
Additional paid-in capital |
||||||||
Treasury stock, |
( |
) | ( |
) | ||||
Accumulated other comprehensive income |
||||||||
Accumulated deficit |
( |
) | ( |
) | ||||
Total stockholders’ equity |
||||||||
Total liabilities and stockholders’ equity |
$ | $ | ||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
(Unaudited) |
||||||||||||||||
(In thousands, except per share amounts) |
||||||||||||||||
| Net revenues |
$ | $ | $ | $ | ||||||||||||
| Cost of net revenues |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Gross profit |
||||||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
||||||||||||||||
| Selling, general and administrative |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Interest income and other income (expense), net |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loss before provision for income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Provision for income taxes |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss from continuing operations, net of taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net income from discontinued operations, net of taxes |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| |
|
|
|
|
|
|
|
|||||||||
| Net income (loss) per share: |
||||||||||||||||
| Basic and diluted – continuing operations |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Basic and diluted – discontinued operations |
$ | $ | $ | $ | ||||||||||||
| Basic and diluted – net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted-average common shares outstanding: |
||||||||||||||||
| Basic and diluted |
||||||||||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
(Unaudited) |
||||||||||||||||
(In thousands) |
||||||||||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| |
|
|
|
|
|
|
|
|||||||||
| Other comprehensive income (loss), before tax |
||||||||||||||||
| Change in unrealized net gain (loss) on available-for-sale |
||||||||||||||||
| Foreign currency translation gains (losses) |
( |
) | ( |
) | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Other comprehensive income (loss), before tax |
||||||||||||||||
| Income tax (expense) benefit related to items in other comprehensive loss |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Other comprehensive income (loss), net of tax |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| |
|
|
|
|
|
|
|
|||||||||
Nine Months Ended |
||||||||
September 28, 2024 |
September 30, 2023 |
|||||||
(Unaudited) |
||||||||
(In thousands) |
||||||||
| Operating activities |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Net amortization (accretion) of investment premiums and discounts |
( |
) | ( |
) | ||||
| Amortization of intangible assets |
||||||||
| Equity-based compensation |
||||||||
| Straight-line rent adjustment and amortization of lease incentives |
( |
) | ||||||
| (Gain) loss on disposal of fixed assets |
( |
) | ||||||
| Deferred income taxes |
||||||||
| Changes in operating assets and liabilities |
( |
) | ||||||
| |
|
|
|
|||||
| Total adjustments |
( |
) | ||||||
| |
|
|
|
|||||
| Net cash and cash equivalents provided by (used in) operating activities |
( |
) | ||||||
| Investing activities |
||||||||
| Purchases of investments |
( |
) | ( |
) | ||||
| Proceeds from sales and maturities of investments |
||||||||
| Proceeds from sales of fixed assets |
||||||||
| Purchases of leasehold improvements and equipment |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash and cash equivalents provided by (used in) investing activities |
( |
) | ||||||
| Financing activities |
||||||||
| Net proceeds from issuance of common stock |
||||||||
| Payment of acquisition-related contingent consideration |
( |
) | ||||||
| Taxes paid related to net share settlement |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash and cash equivalents provided by (used in) financing activities |
( |
) | ||||||
| Effect of exchange rate changes on cash |
( |
) | ||||||
| |
|
|
|
|||||
| Net decrease in cash, cash equivalents and restricted cash |
( |
) | ( |
) | ||||
| Cash, cash equivalents and restricted cash at beginning of period |
||||||||
| |
|
|
|
|||||
| Cash, cash equivalents and restricted cash at end of period |
$ | $ | ||||||
| |
|
|
|
|||||
| Non-cash investing and financing activity |
||||||||
| Additions to right-of-use-assets |
$ | $ | ||||||
| |
|
|
|
|||||
1. |
Description of Business, Basis of Presentation and Significant Accounting Policy |
2. |
Divestiture and Discontinued Operations |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
(In thousands) |
||||||||||||||||
Selling, general and administrative |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
Total operating expenses |
( |
) | ( |
) | ( |
) | ||||||||||
Operating income (loss) – discontinued operations |
||||||||||||||||
Other income (expense) – discontinued operations |
||||||||||||||||
Loss from discontinued operations before provision for income taxes |
||||||||||||||||
Provision for income taxes |
||||||||||||||||
Net income from discontinued operations, net of taxes |
$ | $ | $ | $ | ||||||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
(In thousands) |
||||||||||||||||
| Equity-based compensation |
$ | $ | $ | $ | ( |
) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
3. |
Revenue |
Three Months Ended |
Three Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
|||||||||||||||
(In thousands) |
||||||||||||||||
HDD |
HDD |
ASP |
Total |
|||||||||||||
| Systems, upgrades and spare parts |
$ |
$ |
$ |
$ |
||||||||||||
| Field service |
||||||||||||||||
| Cancellation fee |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total net revenues |
$ |
$ |
$ |
$ |
||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Nine Months Ended |
Nine Months Ended |
|||||||||||||||||||
September 28, 2024 |
September 30, 2023 |
|||||||||||||||||||
(In thousands) |
||||||||||||||||||||
HDD |
HDD |
PV |
ASP |
Total |
||||||||||||||||
| Systems, upgrades and spare parts |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
| Field service |
||||||||||||||||||||
| Cancellation fee |
||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Total net revenues |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
(In thousands) |
||||||||||||||||
| United States |
$ | $ | $ | $ | ||||||||||||
| Asia |
||||||||||||||||
| Europe |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total net revenues |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
(In thousands) |
||||||||||||||||
| Products transferred at a point in time |
$ | $ | $ | $ | ||||||||||||
| Products and services transferred over time |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total net revenues |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
September 28 2024 |
December 30, 2023 |
Nine Months Change |
||||||||||
(In thousands) |
||||||||||||
| Contract assets: |
||||||||||||
| Accounts receivable, unbilled |
$ | $ | $ | |||||||||
| |
|
|
|
|
|
|||||||
| Contract liabilities: |
||||||||||||
| Deferred revenue |
$ | $ | $ | |||||||||
| Customer advances |
( |
) | ||||||||||
| |
|
|
|
|
|
|||||||
| $ | $ | $ | ( |
) | ||||||||
| |
|
|
|
|
|
|||||||
4. |
Inventories |
September 28, 2024 |
December 30, 2023 |
|||||||
(In thousands) |
||||||||
| Raw materials |
$ | $ | ||||||
| Work-in-progress |
||||||||
| Finished goods |
||||||||
| |
|
|
|
|||||
| $ | $ | |||||||
| |
|
|
|
|||||
5. |
Equity-Based Compensation |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
(In thousands) |
||||||||||||||||
Equity-based compensation by type of award: |
||||||||||||||||
Stock options |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
RSUs |
||||||||||||||||
PRSUs |
||||||||||||||||
ESPP purchase rights |
||||||||||||||||
Total equity-based compensation |
$ | $ | $ | $ | ||||||||||||
| (a) | Equity-based compensation reported in discontinued operations of ($ |
Three Months Ended |
Nine Months Ended |
|||||||
September 28, 2024 |
September 28, 2024 |
|||||||
Weighted-average fair value of grants per share |
$ | $ | ||||||
Expected volatility |
% | % | ||||||
Risk-free interest rate |
% | % | ||||||
Expected term (in years) |
||||||||
Dividend yield |
||||||||
Shares |
Weighted-Average Exercise Price |
|||||||
Options outstanding at December 30, 2023 |
$ | |||||||
Options granted |
$ | |||||||
Options cancelled and forfeited |
( |
) | $ | |||||
Options outstanding at September 28, 2024 |
$ | |||||||
Options exercisable at September 28, 2024 |
$ | |||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
ESPP Purchase Rights: |
||||||||||||||||
Weighted-average fair value of grants per share |
$ | $ | $ | $ | ||||||||||||
Expected volatility |
% | % | % | % | ||||||||||||
Risk-free interest rate |
% | % | % | % | ||||||||||||
Expected term of purchase rights (in years) |
||||||||||||||||
Dividend yield |
||||||||||||||||
Shares |
Weighted-Average Grant Date Fair Value |
|||||||
Non-vested RSUs at December 30, 2023 |
$ | |||||||
Granted |
$ | |||||||
Vested |
( |
) | $ | |||||
Cancelled and forfeited |
( |
) | $ | |||||
Non-vested RSUs at September 28, 2024 |
$ | |||||||
Shares |
Weighted-Average Grant Date Fair Value |
|||||||
Non-vested PRSUs at December 30, 2023 |
$ | |||||||
Granted |
$ | |||||||
Non-vested PRSUs at September 28, 2024 |
$ | |||||||
6. |
Warranty |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
(In thousands) |
||||||||||||||||
Opening balance |
$ | $ | $ | $ | ||||||||||||
Expenditures incurred under warranties |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Accruals for product warranties issued during the reporting period |
||||||||||||||||
Adjustments to previously existing warranty accruals |
( |
) | ( |
) | ( |
) | ||||||||||
Closing balance |
$ | $ | $ | $ | ||||||||||||
September 28 |
December 30 |
|||||||
2024 |
2023 |
|||||||
(In thousands) |
||||||||
Other accrued liabilities |
$ | $ | ||||||
Other long-term liabilities |
||||||||
Total warranty provision |
$ | $ | ||||||
7. |
Guarantees |
8. |
Cash, Cash Equivalents and Investments |
September 28, 2024 |
||||||||||||||||
Amortized Cost |
Unrealized Holding Gains |
Unrealized Holding Losses |
Fair Value |
|||||||||||||
(In thousands) |
||||||||||||||||
| Cash and cash equivalents: |
||||||||||||||||
| Cash |
$ | $ | $ | $ | ||||||||||||
| Money market funds |
||||||||||||||||
| Certificates of deposit |
||||||||||||||||
| Commercial paper |
||||||||||||||||
| U.S. treasury securities |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cash and cash equivalents |
$ | $ | $ | $ | ||||||||||||
| Short-term investments: |
||||||||||||||||
| Certificates of deposit |
$ | $ | $ | $ | ||||||||||||
| Commercial paper |
||||||||||||||||
| Corporate bonds and medium-term notes |
||||||||||||||||
| U.S. treasury and agency securities |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total short-term investments |
$ | $ | $ | $ | ||||||||||||
| Long-term investments: |
||||||||||||||||
| Asset backed securities |
$ | $ | $ | $ | ||||||||||||
| Corporate bonds and medium-term notes |
||||||||||||||||
| U.S. treasury and agency securities |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total long-term investments |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cash, cash equivalents, and investments |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
December 30, 2023 |
||||||||||||||||
Amortized Cost |
Unrealized Holding Gains |
Unrealized Holding Losses |
Fair Value |
|||||||||||||
(In thousands) |
||||||||||||||||
| Cash and cash equivalents: |
||||||||||||||||
| Cash |
$ | $ | $ | $ | ||||||||||||
| Money market funds |
||||||||||||||||
| Commercial paper |
||||||||||||||||
| U.S. treasury securities |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cash and cash equivalents |
$ | $ | $ | $ | ||||||||||||
| Short-term investments: |
||||||||||||||||
| Asset backed securities |
$ | $ | $ | $ | ||||||||||||
| Certificates of deposit |
||||||||||||||||
| Commercial paper |
||||||||||||||||
| Corporate bonds and medium-term notes |
||||||||||||||||
| Municipal bonds |
||||||||||||||||
| U.S. treasury and agency securities |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total short-term investments |
$ | $ | $ | $ | ||||||||||||
| Long-term investments: |
||||||||||||||||
| Asset backed securities |
$ | $ | $ | $ | ||||||||||||
| Corporate bonds and medium-term notes |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total long-term investments |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cash, cash equivalents, and investments |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Amortized Cost |
Fair Value |
|||||||
(In thousands) |
||||||||
| Due in one year or less |
$ | $ | ||||||
| Due after one through five years |
||||||||
| |
|
|
|
|||||
| $ | $ | |||||||
| |
|
|
|
|||||
September 28, 2024 |
||||||||||||||||
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) |
||||||||||||||||
Commercial paper |
$ | $ | $ | $ | ||||||||||||
Fair Value Measurements at September 28, 2024 |
||||||||||||
Total |
Level 1 |
Level 2 |
||||||||||
(In thousands) |
||||||||||||
Recurring fair value measurements: |
||||||||||||
Investment securities |
||||||||||||
Money market funds |
$ | $ | $ | |||||||||
U.S. treasury and agency securities |
||||||||||||
Asset-backed securities |
||||||||||||
Certificates of deposit |
||||||||||||
Commercial paper |
||||||||||||
Corporate bonds and medium-term notes |
||||||||||||
Total recurring fair value measurements |
$ | $ | $ | |||||||||
9. |
Derivative Instruments |
10. |
Equity |
Three Months Ended September 28, 2024 |
||||||||||||||||||||
Common Stock and Additional Paid-in Capital |
Treasury Stock |
Accumulated Other Comprehensive Income (Loss) |
Accumulated Deficit |
Total Stockholders’ Equity |
||||||||||||||||
Balance at June 29, 2024 |
$ | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||
Common stock issued under employee plans |
— | — | — | |||||||||||||||||
Shares withheld for net share settlement of RSUs |
( |
) | — | — | — | ( |
) | |||||||||||||
Equity-based compensation expense |
— | — | — | |||||||||||||||||
Net loss |
— | — | — | ( |
) | ( |
) | |||||||||||||
Other comprehensive income |
— | — | — | |||||||||||||||||
Balance at September 28, 2024 |
$ | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||
Nine Months Ended September 28, 2024 |
||||||||||||||||||||
Common Stock and Additional Paid-in Capital |
Treasury Stock |
Accumulated Other Comprehensive Income (Loss) |
Accumulated Deficit |
Total Stockholders’ Equity |
||||||||||||||||
Balance at December 30, 2023 |
$ | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||
Common stock issued under employee plans |
— | — | — | |||||||||||||||||
Shares withheld for net share settlement of RSUs |
( |
) | — | — | — | ( |
) | |||||||||||||
Equity-based compensation expense |
— | — | — | |||||||||||||||||
Net loss |
— | — | — | ( |
) | ( |
) | |||||||||||||
Other comprehensive income |
— | — | — | |||||||||||||||||
Balance at September 28, 2024 |
$ | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||
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 |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||
Common stock issued under employee plans |
— | — | — | |||||||||||||||||
Shares withheld for net share settlement of RSUs |
( |
) | — | — | — | ( |
) | |||||||||||||
Equity-based compensation expense |
— | — | — | |||||||||||||||||
Net loss |
— | — | — | ( |
) | ( |
) | |||||||||||||
Other comprehensive income |
— | — | — | |||||||||||||||||
Balance at September 30, 2023 |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||
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 |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||
Common stock issued under employee plans |
— | — | — | |||||||||||||||||
Shares withheld for net share settlement of RSUs |
( |
) | — | — | — | ( |
) | |||||||||||||
Equity-based compensation expense |
— | — | — | |||||||||||||||||
Net loss |
— | — | — | ( |
) | ( |
) | |||||||||||||
Other comprehensive income |
— | — | — | |||||||||||||||||
Balance at September 30, 2023 |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||
September 28, 2024 |
||||||||||||||||||||||||
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 |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
Other comprehensive income (loss) before reclassification |
||||||||||||||||||||||||
Amounts reclassified from other comprehensive income (loss) |
||||||||||||||||||||||||
Net current-period other comprehensive income (loss) |
||||||||||||||||||||||||
Ending balance |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||
September 30, 2023 |
||||||||||||||||||||||||
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 |
$ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||||||||||
Other comprehensive loss before reclassification |
( |
) | ( |
) | ||||||||||||||||||||
Amounts reclassified from other comprehensive loss |
||||||||||||||||||||||||
Net current-period other comprehensive loss |
( |
) | ( |
) | ||||||||||||||||||||
Ending balance |
$ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||||||||||
11. |
Net Loss Per Share |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
(In thousands, except per share amounts) |
||||||||||||||||
Net loss from continuing operations |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Net income from discontinued operations, net of taxes |
||||||||||||||||
Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Weighted-average shares – basic |
||||||||||||||||
Effect of dilutive potential common shares |
||||||||||||||||
Weighted-average shares – diluted |
||||||||||||||||
Basic and diluted net income (loss) per share: |
||||||||||||||||
Continuing operations |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Discontinued operations |
$ | $ | $ | $ | ||||||||||||
Net loss per share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
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 |
||||
| Cash payments made |
( |
) | ||
| Non-cash utilization (a) |
( |
) | ||
| |
|
|||
| Balance at September 30, 2023 |
$ | |||
| |
|
|||
Other Exit Costs |
||||
(In thousands) |
||||
| Balance at December 31, 2022 |
$ | |||
| Provision for restructuring charges associated with Photonics divestiture |
||||
| Cash payments made |
( |
) | ||
| |
|
|||
| Balance at April 1, 2023 |
$ | |||
| Provision for restructuring charges associated with Photonics divestiture |
||||
| Cash payments made |
( |
) | ||
| |
|
|||
| Balance at July 1, 2023 |
$ | |||
| Provision for restructuring charges associated with Photonics divestiture |
||||
| Cash payments made |
( |
) | ||
| |
|
|||
| Balance at September 30, 2023 |
$ | |||
| |
|
|||
14. |
Acquisition of Hia, Inc. |
September 28 2024 |
December 30, 2023 |
|||||||
(In thousands) |
||||||||
Gross carrying amount |
$ | $ | ||||||
Accumulated amortization |
( |
) | ( |
) | ||||
Net carrying amount |
$ | $ | ||||||
15. |
Commitments and Contingencies |
16. |
Subsequent Event |
Table of Contents
| 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 2024 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 15, 2024, 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™.”
Overview
Intevac is a leading provider of thin-film process technology and manufacturing platforms for high-volume manufacturing environments. With over 30 years of leadership in designing, developing, and manufacturing high-productivity, thin-film processing systems, the Company leverages its technology and know-how to provide process manufacturing equipment solutions to the hard disk drive (“HDD”) and advanced coatings (“ADVC”) markets (formerly known as the display cover panel (“DCP”) market). Intevac’s customers include HDD and DCP manufacturers. Intevac operates in a single segment: Thin-film Equipment (“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 ADVC 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 personal computers (“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 ADVC market and by working to develop the next generation of high volume ADVC manufacturing equipment. Intevac believes that its renewed focus on the ADVC 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 December 2021, the Company sold its Photonics business. As a result of the disposition, the results of operations from the Photonics reporting segment are reported as “Net income from discontinued operations, net of taxes” in the condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.
In March 2022, the Company realigned its operational focus and eliminated several research and development (“R&D”) programs and product offerings for the ADVC, photovoltaic solar cell and advanced semiconductor packaging industries and instead started a focused effort to develop TRIO™, a modular platform that can be configured to handle a variety of form factors, including two-dimensional and three-dimensional shapes and both small and large surface area substrates.
In December 2022, the Company entered a joint development agreement (the “JDA”) with Corning Incorporated (“Corning”), a major provider of glass and glass ceramic materials, for the development of TRIO for consumer device applications. In December 2023, the Company successfully completed the qualification of its first TRIO system with Corning. On December 31, 2023, the JDA expired by its terms.
In October 2024, we completed the qualification process for our first-ever TRIO shipment, which was delivered in April 2024 to a cover glass finisher in Asia under an evaluation arrangement. The evaluation concluded and did not result in a sale. TRIO was unable to decisively demonstrate material advantages to displace existing coating solutions, and as such we missed the market opportunity for this next consumer device product cycle. We have stopped further development spending on the TRIO platform. We are continuing to perform demonstrations with multiple prospective customers for R &D as well as polymer applications.
On November 7, 2024, we approved a cost reduction plan (the “2024 Cost Reduction Plan”), which is intended to reduce expenses by reducing our workforce by approximately 19 percent. We expect to incur restructuring costs of approximately $900,000 in estimated severance and other employee-related expenses associated with the 2024 Cost Reduction Plan. Substantially all cash outlays in connection with the 2024 Cost Reduction Plan are expected to occur in the fourth quarter of fiscal 2024. Implementation of the 2024 Cost Reduction Plan is expected to reduce salary, wages and other employee-related expenses and contractor payments by approximately $5.1 million on an annual basis.
However, we may not be able to fully realize the cost savings and benefits initially anticipated from the 2024 Cost Reduction Plan, and the expected costs may be greater than expected. “See Risk Factors—Risks Related to Our Business—We may not successfully execute or achieve the expected benefits of our cost reduction initiatives and other cost-saving measures we may take in the future, and our efforts may result in further actions and/or asset impairment charges and adversely affect our business.”
24
Table of Contents
The following table presents certain significant measurements for the three and nine months ended September 28, 2024 and September 30, 2023:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 28, 2024 |
September 30, 2023 |
Change over prior period |
September 28, 2024 |
September 30, 2023 |
Change over prior period |
|||||||||||||||||||
| (In thousands, except percentages and per share amounts) | ||||||||||||||||||||||||
| Net revenues |
$ | 28,505 | $ | 17,915 | $ | 10,590 | $ | 52,662 | $ | 39,758 | $ | 12,904 | ||||||||||||
| Gross profit |
$ | 7,058 | $ | 6,999 | $ | 59 | $ | 16,810 | $ | 14,287 | $ | 2,523 | ||||||||||||
| Gross margin percent |
24.8 | % | 39.1 | % | (14.3 | ) points | 31.9 | % | 35.9 | % | (4.0 | ) points | ||||||||||||
| Loss from operations |
$ | (1,752 | ) | $ | (1,428 | ) | $ | (324 | ) | $ | (9,469 | ) | $ | (11,334 | ) | $ | 1,865 | |||||||
| Loss from continuing operations |
$ | (2,173 | ) | $ | (1,624 | ) | $ | (549 | ) | $ | (8,137 | ) | $ | (10,710 | ) | $ | 2,573 | |||||||
| Income from discontinued operations |
$ | — | $ | 48 | $ | (48 | ) | $ | 1,095 | $ | 365 | $ | 730 | |||||||||||
| Net loss |
$ | (2,173 | ) | $ | (1,576 | ) | $ | (597 | ) | $ | (7,042 | ) | $ | (10,345 | ) | $ | 3,303 | |||||||
| Net loss per diluted share |
$ | (0.08 | ) | $ | (0.06 | ) | $ | (0.02 | ) | $ | (0.26 | ) | $ | (0.40 | ) | $ | 0.14 | |||||||
Net revenues increased during the third quarter of fiscal 2024 compared to the same period in the prior year primarily due to the recognition of $15.4 million of cancellation fees related to the cancellation of an order for eight 200 Lean HDD systems in May 2023, offset in part by lower equipment sales to HDD manufacturers. We did not recognize revenue on any system sales in either the third quarter of fiscal 2024 or the third quarter of fiscal 2023. Lower gross margin in the third quarter of fiscal 2024 reflected the lower margin from the cancellation fee and increased inventory charges. Excess and obsolete inventory charges for the three months ended September 28, 2024 included $1.8 million in charges to reduce a TRIO tool currently undergoing evaluation at a customer facility to its estimated net realizable value. Gross margin in the third quarter of fiscal 2023 reflected 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. The 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. The Company reported a larger net loss for the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023 due to higher operating costs, higher foreign currency charges, and higher income taxes, offset in part by higher revenues, higher gross profit and higher investment income.
Net revenues increased during the nine months ended September 28, 2024, compared to the same period in the prior year primarily due to the $15.4 million of cancellation fees, as well as higher upgrades sales, offset in part by lower systems sales. We did not recognize revenue on any system sales in the first nine months of fiscal 2024. We recognized revenue on one 200 Lean HDD system and one refurbished 200 Lean HDD system in the first nine months of 2023. Lower gross margin in the nine months ended September 28, 2024, versus the same period in the prior year, reflected the lower-margin contribution from the cancellation fee and higher inventory obsolescence charges. Excess and obsolete inventory charges for the nine months ended September 28, 2024, included $2.9 million in charges to reduce a TRIO tool currently undergoing evaluation at a customer facility to its estimated net realizable value. Gross margin for the nine months ended September 30, 2023, reflected severance costs as part of our 2023 Cost Reduction Plan and the lower-margin contributions from the sale of the 200 Lean HDD system and the refurbished 200 Lean HDD system. 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. During the nine months ended September 28, 2024, we amended certain payroll tax filings and applied for a refund of $2.4 million in ERC benefits. The refund is recorded as $1.5 million in other income (expense), net and $933,000 in discontinued operations in our condensed consolidated statements of operations for the nine months ended September 28, 2024. The Company reported a smaller net loss for the nine months ended September 28, 2024, compared to same period in the prior year due to higher revenues, higher gross profit, higher investment income, and the ERC benefits, offset in part by higher operating costs and higher income taxes.
We believe fiscal 2024 will continue to be a challenging year, and we do not expect to be profitable in fiscal 2024. In fiscal 2024. We expect that HDD equipment sales and upgrades for magnetic disk production in fiscal 2024 will be lower than fiscal 2023 levels. In addition, 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. In addition, continued inflation and high interest rates may impact demand for our products and services and our cost to provide products and services.
25
Table of Contents
Results of Operations
Net revenues
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 28, 2024 |
September 30, 2023 |
Change over prior period |
September 28, 2024 |
September 30, 2023 |
Change over prior period |
|||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Net revenues |
$ | 28,505 | $ | 17,915 | $ | 10,590 | $ | 52,662 | $ | 39,758 | $ | 12,904 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Revenue for the three months ended September 28, 2024 increased compared to the same period in the prior year as a result of the recognition of $15.4 million of cancellation fees described below, offset in part by lower sales of technology upgrades, lower sales of spare parts and lower sales of field service. Revenue for the nine months ended September 28, 2024 increased compared to the same period in the prior year as a result of the recognition of $15.4 million of cancellation fees and higher technology upgrades, higher spare parts sales and higher field service sales, offset in part by lower sales of systems. Revenue for the three and nine months ended September 28, 2024 includes $15.4 million of cancellation fees, when the Company applied $15.4 million of billings against customer advances in connection with the customer accepting ownership of certain inventory on-hand and reimbursing us for supplier cancellation and inventory management costs incurred associated with a cancelled order for eight 200 Lean HDD systems in May 2023. 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 the cancelled order noted above. Revenue for the three months and nine months ended September 28, 2024, did not include revenue recognized for the sale of any systems. We recognized revenue on the sale of one 200 Lean HDD system and one refurbished 200 Lean HDD system for the nine months ended September 30, 2023.
Backlog
| September 28, 2024 |
December 30, 2023 |
September 30, 2023 |
||||||||||
| (In thousands) | ||||||||||||
| Backlog |
$ | 44,360 | $ | 42,415 | $ | 46,497 | ||||||
|
|
|
|
|
|
|
|||||||
Backlog at both September 28, 2024 and December 30, 2023 did not include any 200 Lean HDD systems. Backlog at September 30, 2023 included two 200 Lean HDD systems. In May 2023, we recorded a backlog reduction of $54.6 million due to customer cancellation of an order for eight 200 Lean HDD systems. In December 2023, we recorded a backlog reduction of $11.4 million due to customer cancellation of an order for two 200 Lean HDD systems. On September 28, 2024, we had $44.4 million of backlog, of which we expect to recognize as revenue: 21.4% in 2024 and 78.6% 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 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
| (In thousands) | ||||||||||||||||
| United States |
$ | 1,716 | $ | 784 | $ | 2,376 | $ | 3,060 | ||||||||
| Asia |
26,789 | 17,034 | 50,286 | 36,590 | ||||||||||||
| Europe |
— | 97 | — | 108 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total net revenues |
$ | 28,505 | $ | 17,915 | $ | 52,662 | $ | 39,758 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
International sales include products shipped to overseas operations of U.S. companies. The increase in sales to the U.S. region in the three months ended September 28, 2024 versus the same period in the prior year reflected higher HDD upgrade sales, offset in part by lower spare parts sales and lower field service sales. The decrease in sales to the U.S. region in the nine months ended September 28, 2024 versus the same period in the prior year reflected lower HDD upgrade sales, lower spare parts sales and lower field service sales. The increase in sales to the Asia region in the three months ended September 28, 2024, versus the same period in the prior year reflected the recognition of the $15.4 million of cancellation fees and higher field service sales, offset in part by lower HDD upgrade sales and lower spare parts sales. The increase in sales to the Asia region in the nine months ended September 28, 2024, versus the same period in the prior year reflected the recognition of the $15.4 million of cancellation fees and higher HDD upgrade sales, higher spare parts sales and higher field service sales, offset in part by lower HDD systems sales. Sales to the Asia region in the three and nine months ended September 28, 2024 did not include any systems sales. Sales to the Asia region in the nine months ended September 30, 2023 included the sale of one 200 Lean HDD system and one refurbished 200 Lean HDD system.
26
Table of Contents
Gross profit
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 28, 2024 |
September 30, 2023 |
Change over prior period |
September 28, 2024 |
September 30, 2023 |
Change over prior period |
|||||||||||||||||||
| (In thousands, except percentages) | ||||||||||||||||||||||||
| Gross profit |
$ | 7,058 | $ | 6,999 | $ | 59 | $ | 16,810 | $ | 14,287 | $ | 2,523 | ||||||||||||
| % of net revenues |
24.8 | % | 39.1 | % | 31.9 | % | 35.9 | % | ||||||||||||||||
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.
Gross margin was 24.8% in the three months ended September 28, 2024, compared to 39.1% in the three months ended September 30, 2023, and was 31.9% in the nine months ended September 28, 2024, compared to 35.9% in the nine months ended September 30, 2023. The decrease in gross margin for the three and nine months ended September 28, 2024 compared to the same periods in the prior year was due primarily to the lower-margin contribution from the $15.4 million of cancellation fees and increased excess and obsolete inventory charges. Excess and obsolete inventory charges for the three and nine months ended September 28, 2024 included $1.8 million and $2.9 million, respectively, in charges to reduce a TRIO tool currently undergoing evaluation at a customer facility to its estimated net realizable value. 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 became obsolete resulting from engineering change orders. Gross margin in the nine months ended September 30, 2023 reflected the lower-margin contributions from the sale of the 200 Lean HDD system and the refurbished 200 Lean HDD system.
Research and development expense
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 28, 2024 |
September 30, 2023 |
Change over prior period |
September 28, 2024 |
September 30, 2023 |
Change over prior period |
|||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Research and development expense |
$ | 3,967 | $ | 3,720 | $ | 247 | $ | 11,846 | $ | 11,340 | $ | 506 | ||||||||||||
Research and development spending during the three months ended September 28, 2024, 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 September 28, 2024, 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.
Selling, general and administrative expense
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 28, 2024 |
September 30, 2023 |
Change over prior period |
September 28, 2024 |
September 30, 2023 |
Change over prior period |
|||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Selling, general and administrative expense |
$ | 4,843 | $ | 4,707 | $ | 136 | $ | 14,433 | $ | 14,281 | $ | 152 | ||||||||||||
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 28, 2024 increased compared to the same period in the prior year as higher variable compensation expenses, higher stock-based compensation expenses, higher legal fees, higher rent, higher marketing expenses, and higher travel expenses were offset in part by lower salaries and lower consulting fees. Selling, general and administrative expense for the nine months ended September 28, 2024 increased compared to the same period in the prior year as higher variable compensation expenses, higher legal fees, higher rent, higher marketing expenses, and higher travel expenses were offset in part by lower salaries and wages, lower stock-based compensation expenses and lower consulting fees. Selling, general and administrative expense for the three and nine months ended September 28, 2024 also included $192,000 and $558,000, respectively, in charges to support a customer evaluation for a TRIO system at a leading display cover glass manufacturer. Selling, general and administrative expense for the three and nine months ended September 30, 2023 included severance charges of $1.3 million associated with the 2023 Cost Reduction Plan.
27
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Cost reduction plans
During the third quarter of fiscal 2023, Intevac substantially completed implementation of the 2023 Cost Reduction Plan, which was 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.
Interest income and other income (expense), net
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 28, 2024 |
September 30, 2023 |
Change over prior period |
September 28, 2024 |
September 30, 2023 |
Change over prior period |
|||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Interest income and other income (expense), net |
$ | 541 | $ | 600 | $ | (59 | ) | $ | 3,521 | $ | 1,922 | $ | 1,599 | |||||||||||
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 28, 2024, included $766,000 of interest income on investments, various other income of $2,000, offset in part by $227,000 of foreign currency losses. Interest income and other income (expense), net in the nine months ended September 28, 2024, included $2.1 million of interest income on investments, various other income of $1.5 million offset in part by $123,000 of foreign currency losses. 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. The increase in interest income in the three and nine months ended September 28, 2024, compared to the same periods in the prior year resulted from higher interest rates and higher invested balances. During the nine months ended September 28, 2024, we amended certain fiscal year 2021 payroll tax filings and applied for a refund of $2.4 million in ERC benefits. The refund is recorded as $1.5 million in other income (expense), net and $933,000 in discontinued operations in our condensed consolidated statements of operations for the nine months ended September 28, 2024.
Provision for income taxes
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 28, 2024 |
September 30, 2023 |
Change over prior period |
September 28, 2024 |
September 30, 2023 |
Change over prior period |
|||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Provision for income taxes |
$ | 962 | $ | 796 | $ | 166 | $ | 2,189 | $ | 1,298 | $ | 891 | ||||||||||||
Intevac recorded income tax provisions of $962,000 and $2.2 million for the three and nine months ended September 28, 2024, respectively, and income tax provisions of $796,000 and $1.3 million for the three and nine months ended September 30, 2023, 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 28, 2024, Intevac recorded an income tax provision on earnings of $779,000 and $1.6 million, respectively, of its international subsidiaries. For the three and nine months ended September 28, 2024, Intevac recorded $181,000 and $552,000, 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 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.
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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.
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 2024 and fiscal 2023 primarily due to the Company not recognizing an income tax benefit on the domestic loss.
Income from discontinued operations, net of taxes
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 28 2024 |
September 30, 2023 |
Change over prior period |
September 28 2024 |
September 30, 2023 |
Change over prior period |
|||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Income from discontinued operations, net of taxes |
$ | — | $ | 48 | $ | (48 | ) | $ | 1,095 | $ | 365 | $ | 730 | |||||||||||
The income 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 nine months ended September 28, 2024 is comprised of $933,000 in ERC benefits and the $162,000 reversal of certain charges associated with the completion of the lease subsidy in March 2024. Income from discontinued operations for the three months ended September 28, 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 28, 2023 is comprised primarily of a stock-based compensation forfeiture benefit recognized upon the termination of employment of certain mutual employees of both the Company and EOTECH upon the completion of the assignment and novation of all government contracts to EOTECH in the first quarter of fiscal 2023.
Liquidity and Capital Resources
At September 28, 2024, Intevac had $72.1 million in cash, cash equivalents, restricted cash and investments, compared to $72.2 million at December 30, 2023. During the first nine months of fiscal 2024, cash, cash equivalents, restricted cash and investments decreased by $109,000 due primarily to purchases of leasehold improvements and equipment, and tax payments on net share settlements, offset in part by cash generated by operating activities and cash received from the sale of Intevac common stock to Intevac’s employees through Intevac’s employee benefit plans.
Cash, cash equivalents, restricted cash and investments consist of the following:
| September 28, 2024 |
December 30, 2023 |
|||||||
| (In thousands) | ||||||||
| Cash and cash equivalents |
$ | 36,057 | $ | 51,441 | ||||
| Restricted cash |
700 | 700 | ||||||
| Short-term investments |
27,091 | 17,405 | ||||||
| Long-term investments |
8,276 | 2,687 | ||||||
|
|
|
|
|
|||||
| Total cash, cash equivalents, restricted cash and investments |
$ | 72,124 | $ | 72,233 | ||||
|
|
|
|
|
|||||
Operating activities generated cash of $357,000 during the first nine months of fiscal 2024 and used cash of $40.9 million during the first nine months of fiscal 2023.
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Accounts receivable decreased to $14.5 million at September 28, 2024 compared to $18.6 million at December 30, 2023 as a result of collections, offset in part by third quarter sales. Accounts receivable at September 28, 2024 includes the $2.4 million claim for ERC benefits. Inventories decreased to $31.7 million at September 28, 2024 compared to $43.8 million at December 30, 2023 primarily due to settlement of the eight system order cancellation with a customer, offset in part by increased purchases of TRIO inventory. Accounts payable decreased to $3.0 million at September 28, 2024 from $5.8 million at December 30, 2023. Accrued payroll and related liabilities increased to $4.9 million at September 28, 2024 compared to $3.5 million at December 30, 2023 primarily due to the accrual of 2024 bonuses, offset in part by the settlement of 2023 bonuses. Customer advances decreased from $21.9 million at December 30, 2023 to $7.8 million at September 28, 2024 primarily as a result of settlement of the eight system order cancellation with a customer, offset in part by new orders.
Investing activities used cash of $16.5 million during the first nine months of fiscal 2024. Purchases of investments, net of proceeds from sales and maturities of investments totaled $14.5 million. Capital expenditures for the nine months ended September 28, 2024 were $1.9 million.
Financing activities generated cash of $489,000 in the first nine months of fiscal 2024. Cash generated from the sale of Intevac common stock to Intevac’s employees through Intevac’s employee benefit plans was $964,000. Tax payments related to the net share settlement of restricted stock units was $475,000.
Intevac’s investment portfolio consists principally of investment grade money market mutual funds, U.S. Treasury and agency securities, certificates of deposit, asset-backed securities, commercial paper, municipal bonds and corporate bonds. Intevac regularly monitors the credit risk in its investment portfolio and takes measures, which may include the sale of certain securities, to manage such risks in accordance with its investment policies.
As of September 28, 2024, approximately $20.3 million of cash and cash equivalents and $24.6 million of investments were domiciled in foreign tax jurisdictions. Intevac expects a significant portion of these funds to remain offshore in the short term. If the Company chose to repatriate these funds to the United States, it would be required to accrue and pay additional taxes on any portion of the repatriation subject to foreign withholding taxes.
We believe that our existing cash, cash equivalents and investments and cash flows from operating activities will be adequate to meet our liquidity needs for the next twelve months and for the foreseeable future beyond the next twelve months. Our significant funding requirements include procurement of manufacturing inventories, operating expenses, non-cancelable operating lease obligations, capital expenditures, contingent consideration payments, and variable compensation. We have flexibility over some of these uses of cash, including capital expenditures and discretionary operating expenses, to preserve our liquidity position. Capital expenditures for the remainder of fiscal 2024 are projected to be approximately $1.9 million related to network infrastructure and security, and laboratory and test equipment to support our R&D programs.
Off-Balance Sheet Arrangements
Off-balance sheet firm commitments relating to outstanding letters of credit amounted to approximately $700,000 as of September 28, 2024. These letters of credit and bank guarantees are collateralized by $700,000 of restricted cash. We do not maintain any other off-balance sheet arrangements, transactions, obligations, or other relationships that would be expected to have a material current or future effect on the consolidated financial statements.
Climate Change
We believe that neither climate change, nor governmental regulations related to climate change, have had any material effect on our business, financial condition or results of operations.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make judgments, assumptions and estimates that affect the amounts reported. Intevac’s significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 of Intevac’s Annual Report on Form 10-K for the year ended December 30, 2023, filed with the SEC on February 15, 2024. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below. There have been no material changes to our critical accounting policies during the nine months ended September 28, 2024.
A critical accounting policy is defined as one that is both material to the presentation of Intevac’s financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on Intevac’s financial conditions and results of operations. Specifically, critical accounting estimates have the following attributes: 1) Intevac is required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates Intevac could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on Intevac’s financial condition or results of operations.
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Estimates and assumptions about future events and their effects cannot be determined with certainty. Intevac bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as Intevac’s operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they become known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. Many of these uncertainties are discussed in the section below entitled “Risk Factors.” Based on a critical assessment of Intevac’s accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that Intevac’s consolidated financial statements are fairly stated in accordance with US GAAP, and provide a meaningful presentation of Intevac’s financial condition and results of operations.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable to smaller reporting companies.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Intevac maintains a set of disclosure controls and procedures that are designed to ensure that information relating to Intevac required to be disclosed in periodic filings under the Securities Exchange Act of 1934, or Exchange Act, is recorded, processed, summarized and reported in a timely manner under the Exchange Act. In connection with the filing of this Quarterly Report on Form 10-Q for the quarter ended September 28, 2024, as required under Rule 13a-15(e) of the Exchange Act, an evaluation was carried out under the supervision and with the participation of management, including the Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), of the effectiveness of Intevac’s disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, Intevac’s CEO and CFO concluded that our disclosure controls and procedures were effective as of September 28, 2024.
Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of the CEO and the CFO, which are required in accordance with Rule 13a-14 of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
Definition of Disclosure Controls
Disclosure controls are controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls include components of our internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the U.S. To the extent that components of our internal control over financial reporting are included within our disclosure controls, they are included in the scope of our quarterly controls evaluation.
Limitations on the Effectiveness of Controls
Intevac’s management, including the CEO and CFO, does not expect that Intevac’s disclosure controls or Intevac’s internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Intevac have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, Intevac’s internal control over financial reporting.
PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings |
From time to time, Intevac is involved in claims and legal proceedings that arise in the ordinary course of business. Intevac expects that the number and significance of these matters will increase as Intevac’s business expands. Any claims or proceedings against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time, result in the diversion of significant operational resources, or require us to enter into royalty or licensing agreements which, if required, may not be available on terms favorable to us or at all. Intevac is not presently a party to any lawsuit or proceeding that, in Intevac’s opinion, is likely to seriously harm Intevac’s business. See “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.
| Item 1A. | Risk Factors |
The following factors could materially affect Intevac’s business, financial condition or results of operations and should be carefully considered in evaluating the Company and its business, in addition to other information presented elsewhere in this report.
Risks Related to Our Business
The industries we serve are cyclical, volatile and unpredictable.
A significant portion of our revenue is derived from the sale of equipment used to manufacture commodity technology products such as disk drives and cell phones. This subjects us to business cycles, the timing, length and volatility of which can be difficult to predict. When demand for commodity technology products exceeds production capacity, then demand for new capital equipment such as ours tends to be amplified. Conversely, when supply of commodity technology products exceeds demand, then demand for new capital equipment such as ours tends to be depressed. We cannot predict with any certainty when these cycles will begin or end. For example, our sales of systems for magnetic disk production increased in 2016 as a customer began upgrading the technology level of its manufacturing capacity. Sales of systems and upgrades for magnetic disk production in 2017 and 2018 were higher than in 2016 as this customer’s technology upgrade continued. However, sales of systems and upgrades for magnetic disk production in each of 2019, 2020, 2021, 2022 and 2023 were down from the levels in 2018 as this customer took delivery of fewer or no (in the case of 2021 and 2022) systems. In 2023, this customer cancelled orders for ten 200 Lean HDD systems due to the customer postponing previously planned media capacity additions, and we recorded a backlog reduction of $66.0 million. We expect sales of systems and upgrades for magnetic disk production in 2024 will be lower than the levels in 2023.
Our equipment represents only a portion of the capital expenditure that our customers incur when they upgrade or add production capacity. Accordingly, our customers generally commit to making large capital expenditures far in excess of the cost of our systems alone when they decide to purchase our systems. The magnitude of these capital expenditures requires our customers to have access to large amounts of capital. Our customers generally reduce their level of capital investment during downturns in the overall economy or during a downturn in their industries. Reductions in capital investment could be particularly pronounced during periods of higher interest rates due to the increased cost of obtaining capital.
We must effectively manage our resources and production capacity to meet rapidly changing demand. Our business experiences rapid growth and contraction, which stresses our infrastructure, internal systems and managerial resources. During periods of increasing demand for our products, we must have sufficient manufacturing capacity and inventory to meet customer demand; attract, retain and motivate a sufficient number of qualified individuals; and effectively manage our supply chain. During periods of decreasing demand for our products, we must be able to align our cost structure with prevailing market conditions; motivate and retain key employees; and effectively manage our supply chain.
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We are exposed to risks associated with a highly concentrated customer base.
Historically, a significant portion of our revenue in any particular period has been attributable to sales of our disk sputtering systems to a limited number of customers. Our reliance on sales to relatively few customers has increased with the disposition of our Photonics business in December 2021, and we expect that sales of our products to relatively few customers will continue to account for a high percentage of our revenues in the foreseeable future. This concentration of customers, when combined with changes in the customers’ specific capacity plans and market share shifts, can lead to extreme variability in our revenue and financial results from period to period. The concentration of our customer base may also enable our customers to demand pricing and other terms unfavorable to Intevac and makes us more vulnerable to changes in demand by or issues with a given customer. The loss of one or more of these large customers, or delays in purchasing by any of them, would have a material and adverse effect on our revenues.
Sales of our equipment are primarily dependent on our customers’ upgrade and capacity expansion plans and whether our customers select our equipment.
We have no control over our customers’ upgrade and capacity expansion plans, and we cannot be sure they will select, or continue to select, our equipment when they upgrade or expand their capacity. The sales cycle for our equipment systems can be a year or longer, involving individuals from many different areas of Intevac and numerous product presentations and demonstrations for our prospective customers. Our sales process also commonly includes production of samples and customization of our products. We do not typically enter into long-term contracts with our customers, and until an order is actually submitted by a customer there is no binding commitment to purchase our systems. In some cases, orders are also subject to customer acceptance or other criteria even in the case of a binding agreement.
As of September 28, 2024, our total backlog was $44.4 million, which was primarily attributable to two customers. Our backlog includes orders under contracts that can extend for several years. Our backlog can be significantly affected by the timing of large orders. We may not realize all of the revenue included in our total backlog in the future. For example, in fiscal 2023, we removed $66.0 million from backlog upon receiving notices from a customer of the cancellation of orders for ten 200 Lean HDD systems due to the customer postponing previously planned media capacity additions. There can also be no assurance that our backlog will result in revenue in any particular period because the actual receipt, timing and amount of revenue under contracts included in backlog are subject to various contingencies, many of which are beyond our control. If our customers terminate, reduce or defer orders, we may be protected from certain costs and losses, but our sales will nevertheless be adversely affected, and we may not generate the revenue we expect.
Sales of new manufacturing systems are also dependent on obsolescence and replacement of the installed base of our customers’ existing equipment with newer, more capable equipment. If upgrades are developed that extend the useful life of the installed base of systems, then we tend to sell more upgrade products and fewer new systems, which can significantly reduce total revenue.
Our 200 Lean HDD customers also experience competition from companies that produce alternative storage technologies like flash memory, which offer smaller size, lower power consumption and more rugged designs. These storage technologies are being used increasingly in enterprise applications and smaller form factors such as tablets, smart-phones, ultra-books, and notebook PCs instead of hard disk drives. Tablet computing devices and smart-phones have never contained, nor are they likely in the future to contain, a disk drive. Products using alternative technologies, such as flash memory, optical storage and other storage technologies are becoming increasingly common and could become a significant source of competition to particular applications of the products of our 200 Lean HDD customers, which could adversely affect our results of operations. If alternative technologies, such as flash memory, replace hard disk drives as a significant method of digital storage, then demand for our hard disk manufacturing products would decrease.
Our results of operations could be materially harmed if we are unable to accurately forecast demand for our products and manage product inventory in an effective and efficient manner.
To ensure adequate inventory supply, we must forecast inventory needs and place orders with our suppliers before orders are placed by our customers. Factors that could affect our ability to accurately forecast demand for our products include: (1) an increase or decrease in customer demand for our products; (2) a failure to accurately forecast consumer acceptance for our new products such as the TRIO platform; (3) product introductions by competitors; (4) unanticipated changes in general market conditions or other factors (for example, because of effects on inventory supply and consumer demand caused by high inflation rates or other adverse macroeconomic conditions); (5) the uncertainties and logistical challenges that accompany operations on a global scale; and (6) terrorism or acts of war, or the threat thereof, political or labor instability or unrest, or public health crises.
If we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of product to deliver to our customers. Inventory levels in excess of customer demand may result in inventory write-downs or write-offs, and the sale of excess inventory at discounted prices, which could harm our gross margin. Conversely, if we underestimate the demand for our products, we may not be able to produce products to meet our customer requirements, which could result in delays in the shipment of our products, negatively impact our ability to recognize revenue, generate lost sales, and cause damage to our reputation and relationships with our customers. Challenges in forecasting demand can also make it difficult to estimate future results of operations and financial condition from period to period and meet investor expectations. A failure to accurately predict the level of demand for our products or manage product inventory in an effective and efficient manner could adversely impact our results of operations and cause us not to achieve our expected financial results.
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We are dependent on certain suppliers for parts used in our products.
We are a manufacturing business. Purchased parts constitute the largest component of our product cost. Our ability to manufacture depends on the timely delivery of parts, components and subassemblies from suppliers. We obtain some of the key components and subassemblies used in our products from a single supplier or a limited group of suppliers. If any of our suppliers fail to deliver quality parts on a timely basis, we may experience delays in manufacturing, which could result in delayed product deliveries, increased costs to expedite deliveries or develop alternative suppliers, or require redesign of our products to accommodate alternative suppliers. Some of our suppliers are thinly capitalized and may be vulnerable to failure, particularly during economic downturns and periods of higher interest rates and inflation.
Supply chain and shipping disruptions could result in shipping delays, and increased product costs which may have a material adverse effect on our business, financial condition and results of operations.
Supply chain disruptions have impacted, and may continue to impact, us and our suppliers. These disruptions have resulted in longer lead times and increased product costs and shipping expenses. While we have taken steps to minimize the impact of these increased costs by working closely with our suppliers and customers, prolonged supply chain disruptions could interrupt product manufacturing, increase lead times, increase product costs and continue to increase shipping costs, all of which could have a material adverse effect on our business, financial condition and results of operations.
We operate in an intensely competitive marketplace, and our competitors have greater resources than we do.
In the market for our disk sputtering systems, we experience competition primarily from Canon Anelva, which has sold a substantial number of systems worldwide. Some of our competitors have substantially greater financial, technical, marketing, manufacturing and other resources than we do, especially in the ADVC market. Our competitors may develop enhancements to, or future generations of, competitive products that offer superior price or performance features, and new competitors may enter our markets and develop such enhanced products. Moreover, competition for our customers is intense, and our competitors have historically offered substantial pricing concessions and incentives to attract our customers or retain their existing customers.
Our operating results fluctuate significantly from quarter to quarter, which can lead to volatility in the price of our common stock.
Our quarterly revenues and common stock price have fluctuated significantly. We anticipate that our revenues, operating margins and common stock price will continue to fluctuate for a variety of reasons, including: (1) changes in the demand, due to seasonality, cyclicality and other factors, in the markets for computer systems, storage subsystems and consumer electronics containing disks, as well as cell phones; (2) delays or problems in the introduction and acceptance of our new products, or delivery of existing products; (3) timing of orders, acceptance of new systems by our customers or cancellation or delay of those orders; (4) new products, services or technological innovations by our competitors or us; (5) changes in our manufacturing costs and operating expense; (6) changes in general economic, political, stock market and industry conditions; and (7) any failure of our operating results to meet the expectations of investment research analysts or investors.
Any of these, or other factors, could lead to volatility and/or a rapid change in the trading price of our common stock. In the past, securities class action litigation has been instituted against companies following periods of volatility in the market price of their securities. Any such litigation, if instituted against Intevac, could result in substantial costs and diversion of management time and attention.
We may not successfully execute or achieve the expected benefits of our cost reduction initiatives and other cost-saving measures we may take in the future, and our efforts may result in further actions and/or asset impairment charges and adversely affect our business.
In November 2024, we announced a cost reduction plan, which primarily includes reducing our headcount. These measures are intended to address the short-term health of our business as well as our long-term objectives and are based on our current estimates, assumptions and forecasts, which are subject to known and unknown risks and uncertainties, including whether we have targeted the appropriate areas for our cost-saving efforts and at the appropriate scale, and whether, if required in the future, we will be able to appropriately target any additional areas for our cost-saving efforts. As such, the actions we intend to take under our cost reduction plan and that we may decide to take in the future may not be successful in yielding our intended results and may not appropriately address either or both of the short-term and long-term strategy for our business. Additionally, implementation of these and any other cost-saving initiatives may be costly and disruptive to our business, the expected costs and charges may be greater than we have forecasted, and the estimated cost savings may be lower than we have forecasted. In addition, our cost reduction initiatives could result in personnel attrition beyond our planned reduction in headcount or reduce employee morale, which could in turn adversely impact productivity, including through a loss of continuity, loss of accumulated knowledge and/or inefficiency during transitional periods, or our ability to attract highly skilled employees. The cost reduction plan has required, and may continue to require, a significant amount of management’s and other employees’ time and focus, which may divert attention from effectively operating and growing our business.
Our success depends on international sales and the management of global operations.
A significant portion of our revenue comes from regions outside the United States, and we expect that international sales will continue to account for a significant portion of our total revenue in future years. Most of our international sales are to customers in Asia, which includes products shipped to overseas operations of U.S. companies. We currently have manufacturing facilities in California and Singapore and international customer support offices in Singapore, China, and Malaysia. Certain of our suppliers are also located outside the United States.
Managing our global operations presents challenges including, but not limited to, those arising from: (1) global trade issues; (2) variations in protection of intellectual property and other legal rights in different countries; (3) concerns of U.S. governmental agencies regarding possible national commercial and/or security issues posed by manufacturing businesses in Asia; (4) fluctuation of interest rates, raw material costs, labor and operating costs, and exchange rates; (5) variations in the ability to develop relationships with suppliers and other local businesses; (6) changes in the laws and regulations of the United States, including export restrictions, and other countries, as well as their interpretation and application; (7) the need to provide technical and spare parts support in different locations; (8) political and economic instability; (9) cultural differences; (10) varying government incentives to promote development; (11) shipping costs and delays; (12) adverse conditions in capital and credit markets; (13) variations in tariffs, quotas, tax codes and other market barriers; and (14) barriers to movement of cash.
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We must regularly assess the size, capability and location of our global infrastructure and make appropriate changes to address these issues. Our failure to manage the risks and challenges associated with global operations could have a material adverse effect on our business.
Our success is dependent on recruiting and retaining a highly talented work force.
Our employees are vital to our success, and our key management, engineering and other employees are difficult to replace. We do not maintain key person life insurance on any of our employees. The expansion of high technology companies worldwide has increased demand and competition for qualified personnel and has made companies increasingly protective of prior employees. It may be difficult for us to locate employees who are not subject to non-competition agreements and other restrictions.
The majority of our U.S. operations are located in California where the cost of living and of recruiting employees is high. Our operating results depend, in large part, upon our ability to retain and attract qualified management, engineering, marketing, manufacturing, customer support, sales and administrative personnel. Furthermore, we compete with industries such as the hard disk drive, semiconductor, and solar industries for skilled employees. Failure to retain existing key personnel, or to attract, assimilate or retain additional highly qualified employees to meet our needs in the future, could have a material and adverse effect on our business, financial condition and results of operations.
Risks Related to Our Intellectual Property
Our growth depends on development of technically advanced new products and processes.
We have invested heavily, and continue to invest, in the development of new products, such as our 200 Lean HDD and, until recently, our TRIO platform. Our development efforts have included, and may in the future include, entry into joint development and evaluation arrangements with our customers. These arrangements may include lengthy product qualification or evaluation processes and may not be successful or result in future product sales. For example, in November 2024 we announced that we stopped development on our TRIO platform after the platform failed to achieve required specifications. Our success in developing and selling new products depends upon a variety of factors, including our ability to: (1) predict future customer requirements; (2) make technological advances; (3) achieve a low total cost of ownership for our products; (4) introduce new products on schedule; (5) manufacture products cost-effectively including transitioning production to volume manufacturing; (6) commercialize and attain customer acceptance of our products; and (7) achieve acceptable and reliable performance of our new products in the field. Our new product decisions and development commitments must anticipate continuously evolving industry requirements significantly in advance of sales. In addition, we are attempting to expand into new or related markets, including the ADVC market. Our expansion into the ADVC market is dependent upon the success of our customers’ development plans. To date we have not recognized material revenue from such products. Failure to correctly assess the size of the market, successfully develop products on a timely basis, successfully develop cost effective products to address the market, or establish effective sales and support of new products would have a material adverse effect on future revenues and profits. In addition, if we invest in products for which the market does not develop as anticipated, we may incur significant charges related to such investments.
Rapid technological change in our served markets requires us to rapidly develop new technically advanced products. Our future success depends in part on our ability to develop and offer new products with improved capabilities and to continue to enhance our existing products. If new products have reliability or quality problems, our performance may be impacted by reduced orders, higher manufacturing costs, delays in acceptance and payment for new products and additional service and warranty expenses.
Our business depends on the integrity of our intellectual property rights.
The success of our business depends upon the integrity of our intellectual property rights, and we cannot ensure that: (1) any of our pending or future patent applications will be allowed or that any of the allowed applications will be issued as patents or will issue with claims of the scope we sought; (2) any of our patents will not be invalidated, deemed unenforceable, circumvented or challenged; (3) the rights granted under our patents will provide competitive advantages to us; (4) other parties will not develop similar products, duplicate our products or design around our patents; or (5) our patent rights, intellectual property laws or our agreements will adequately protect our intellectual property or competitive position.
From time to time, we have received claims that we are infringing third parties’ intellectual property rights or seeking to invalidate our rights. We cannot ensure that third parties will not in the future claim that we have infringed current or future patents, trademarks or other proprietary rights relating to our products. Any claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us.
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Risks Related to Government Regulation
We are subject to risks of non-compliance with environmental and other governmental regulations.
We are subject to a variety of governmental regulations relating to the use, storage, discharge, handling, emission, generation, manufacture, treatment and disposal of toxic or otherwise hazardous substances, chemicals, materials or waste. If we fail to comply with current or future regulations, such failure could result in suspension of our operations, alteration of our manufacturing process, remediation costs or substantial civil penalties or criminal fines against us or our officers, directors or employees. Additionally, these regulations could require us to acquire expensive remediation or abatement equipment and incur substantial expenses to comply with them.
In addition, climate change legislation is a significant topic of recent discussion and has generated and may continue to generate federal, international or other regulatory responses in the near future. If we or our suppliers, customers or partners fail to timely comply with applicable legislation, certain customers may refuse to purchase our products or we may face increased operating costs as a result of taxes, fines or penalties, or incur legal liability and reputational damage, which could harm our business, financial condition and results of operations.
General Risk Factors
Global economic conditions may harm our industry, business and results of operations.
We operate globally and as a result our business, revenue and profitability are impacted by global macroeconomic conditions. The success of our activities is affected by general economic and market conditions, including, among others, inflation, interest rates, tax rates, economic uncertainty, political instability, changes in laws, and trade barriers and sanctions. Inflation and government efforts to combat inflation, such as raising the benchmark interest rate, have increased and could continue to increase market volatility and have an adverse effect on the financial market and global economy. Volatility and adverse conditions in the capital and credit markets have negatively affected levels of business and consumer spending, heightening concerns about the likelihood of a global recession and potential default of various national bonds and debt backed by individual countries. Such developments, as well as the politics impacting these, could adversely affect our financial results. Uncertainty about worldwide economic conditions poses a risk as businesses may further reduce or postpone spending in response to reduced budgets, tight credit, negative financial news and declines in income or asset values, which could adversely affect our business, financial condition and results of operations. Geopolitical destabilization could continue to impact global currency exchange rates, commodity prices, trade and movement of resources, which may adversely affect the ability of our customers and potential customers to incur the capital expenditures necessary to purchase our products and services.
Our business could be negatively impacted by cyber and other security threats or disruptions.
We face various cyber and other security threats, including attempts to gain unauthorized access to sensitive information and networks. Although we utilize various procedures and controls to monitor and mitigate the risk of these threats, there can be no assurance that these procedures and controls will be sufficient. These threats could lead to losses of sensitive information or capabilities; financial liabilities and damage to our reputation. If we are unable to maintain compliance with security standards applicable to defense contractors, we could lose business or suffer reputational harm. Cyber threats to businesses are evolving and include, but are not limited to, malicious software, destructive malware, attempts to gain unauthorized access to data, disruption or denial of service attacks, and other electronic security breaches that could lead to disruptions in our systems, unauthorized release of confidential, personal or otherwise protected information (ours or that of our employees, customers or partners), and corruption of data, networks or systems. We have experienced cybersecurity threats and incidents involving our systems and expect these incidents to continue. While none of the cybersecurity events have been material to date, a successful breach or attack could have a material adverse effect on our results of operations, financial condition or business, harm our reputation and relationships with our customers, business partners, employees or other third parties, and subject us to consequences such as litigation and direct costs associated with incident response. In addition, we could be impacted by cyber threats or other disruptions or vulnerabilities found in products we use or in our partners’ or customers’ systems that are used in connection with our business. These events, if not prevented or effectively mitigated, could damage our reputation, require remedial actions and lead to loss of business, regulatory actions, potential liability and other financial losses.
Changes to our effective tax rate affect our results of operations.
As a global company, we are subject to taxation in the United States, Singapore and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future effective tax rate could be affected by: (1) changes in tax laws; (2) the allocation of earnings to countries with differing tax rates; (3) changes in worldwide projected annual earnings in current and future years: (4) accounting pronouncements; or (5) changes in the valuation of our deferred tax assets and liabilities. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be different from the treatment reflected in our historical income tax provisions and accruals, which could result in additional payments by Intevac.
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Difficulties in integrating past or future acquisitions or implementing strategic divestitures could adversely affect our business.
We have completed a number of acquisitions and dispositions during our operating history. We have spent and may continue to spend significant resources identifying and pursuing future acquisition opportunities. Acquisitions involve numerous risks including: (1) difficulties in integrating the operations, technologies and products of the acquired companies; (2) the diversion of our management’s attention from other business concerns; and (3) the potential loss of key employees of the acquired companies. Failure to achieve the anticipated benefits of the prior and any future acquisitions or to successfully integrate the operations of the companies we acquire could have a material and adverse effect on our business, financial condition and results of operations. Any future acquisitions could also result in potentially dilutive issuance of equity securities, acquisition or divestiture-related write-offs or the assumption of debt and contingent liabilities. In addition, we have made and will continue to consider making strategic divestitures, such as the disposition of our Photonics business. With any divestiture, there are risks that future operating results could be unfavorably impacted if targeted objectives, such as cost savings or earnout payments associated with the financial performance of the divested business, are not achieved or if other business disruptions occur as a result of the divestiture or activities related to the divestiture.
We could be involved in litigation.
From time to time, we may be involved in litigation of various types, including litigation alleging infringement of intellectual property rights and other claims and customer disputes. For example, in 2022 we settled an action against us under the Private Attorneys General Act for $1.0 million. Litigation is expensive, subjects us to the risk of significant damages, requires significant management time and attention, and could have a material and adverse effect on our business, financial condition and results of operations.
Business interruptions could adversely affect our operations.
Our operations are vulnerable to interruption by fire, earthquake, floods or other natural disaster, quarantines or other disruptions associated with infectious diseases, national catastrophe, terrorist activities, war, disruptions in our computing and communications infrastructure due to power loss, telecommunications failure, human error, physical or electronic security breaches and computer viruses, and other events beyond our control. We do not have a detailed disaster recovery plan. Despite our implementation of network security measures, our tools and servers may be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems and tools located at customer sites. Political instability could cause us to incur increased costs in transportation, make such transportation unreliable, increase our insurance costs or cause international currency markets to fluctuate. All these unforeseen disruptions and instabilities could have the same effects on our suppliers and their ability to timely deliver their products. In addition, we do not carry sufficient business interruption insurance to compensate us for all losses that may occur, and any losses or damages incurred by us could have a material adverse effect on our business and results of operations. For example, we self-insure earthquake risks because we believe this is the prudent financial decision based on the high cost of the limited coverage available in the earthquake insurance market. An earthquake could significantly disrupt our operations, most of which are conducted in California. It could also significantly delay our research and engineering effort on new products, most of which is also conducted in California. We take steps to minimize the damage that would be caused by business interruptions, but there is no certainty that our efforts will prove successful.
We could be negatively affected as a result of a proxy contest and the actions of activist stockholders.
A proxy contest with respect to election of our directors, or other activist stockholder activities, could adversely affect our business because: (1) responding to a proxy contest and other actions by activist stockholders can be costly and time-consuming, disruptive to our operations and divert the attention of management and our employees; (2) perceived uncertainties as to our future direction caused by activist activities may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and (3) if individuals are elected to our Board of Directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plans.
We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our management must perform evaluations of our internal control over financial reporting. Although our assessment, testing, and evaluation resulted in our conclusion that as of December 30, 2023, our internal control over financial reporting was effective, we cannot predict the outcome of our testing in future periods. Ongoing compliance with this requirement is complex, costly and time-consuming. If we fail to maintain effective internal control over financial reporting, then we could be subject to restatement of previously reported financial results, regulatory sanctions and a decline in the public’s perception of Intevac, which could have a material and adverse effect on our business, financial condition and results of operations.
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Repurchases of Intevac Common Stock
On November 21, 2013, Intevac announced that its Board of Directors approved a stock repurchase program authorizing up to $30.0 million in repurchases. On August 20, 2018, Intevac announced that its Board of Directors approved a $10.0 million increase to the original stock repurchase program for an aggregate authorized amount of $40.0 million. At September 28, 2024, $10.4 million remains available for future stock repurchases under the repurchase program. Intevac did not make any common stock repurchases during the three months ended September 28, 2024.
| Item 3. | Defaults upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
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Item 5. |
Other Information |
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| Item 6. | Exhibits |
The following exhibits are filed herewith:
| Exhibit Number |
Description | |
| 10.1 | Form of the 2024 PRSU Award Agreement under the 2022 Inducement Equity Incentive Plan (Grant 1) | |
| 10.2 | Form of the 2024 PRSU Award Agreement under the 2022 Inducement Equity Incentive Plan (Grant 2) | |
| 31.1 | Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Chief Financial Officer, Secretary and Treasurer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certifications Pursuant to U.S.C. 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** | |
| 101.INS | XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Schema Document | |
| 101.CAL | Inline XBRL Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Definition Linkbase Document | |
| 101.LAB | Inline XBRL Label Linkbase Document | |
| 101.PRE | Inline XBRL Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |
| ** | The certification attached as Exhibit 32.1 is deemed “furnished” and not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of Intevac, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, irrespective of any general incorporation by reference language contained in any such filing, except to the extent that the registrant specifically incorporates it by reference. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| INTEVAC, INC. | ||||||||
| Date: November 12, 2024 |
||||||||
| By: |
/s/ NIGEL HUNTON | |||||||
| Nigel Hunton | ||||||||
| President, Chief Executive Officer and Director | ||||||||
| (Principal Executive Officer) | ||||||||
| Date: November 12, 2024 |
||||||||
| By: |
/s/ CAMERON MCAULAY | |||||||
| Cameron McAulay | ||||||||
| Chief Financial Officer, Secretary and Treasurer | ||||||||
| (Principal Financial and Accounting Officer) | ||||||||
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