Intevac: Fiscal 3Q17 Financial Results

Intevac, Inc. reported financial results for the quarter and nine months ended September 30, 2017.

Commenting on the third quarter, president and CEO Wendell Blonigan said: “With continued favorable conditions for our HDD business, we exceeded our expectations for the quarter, and again added to backlog for 2018 revenue. Year to date, we have recognized revenue on every one of our three new Thin-film Equipment platforms: the Intevac Vertex, the Matrix and the Energi ion implant tool. In the third quarter, we continued to make progress moving through customer evaluations and qualifications of oDLC for multiple applications. With our Photonics business on track to deliver a similar year in 2017, the strengthening of our HDD business – and the actions we have taken to build Vertex inventory ahead of anticipated orders – gives us the confidence that we will achieve our strong revenue growth and profitability objectives for the full year.“
 
Intevac’s non-GAAP adjusted results exclude the impact of changes in fair value of contingent consideration liabilities associated with business combinations.

Third Quarter 2017 Summary

• Net income for the quarter was $1.2 million, or $0.05 per diluted share, compared to a net loss of $481,000, or $0.02 per diluted share, in the third quarter of 2016.
• Non-GAAP net income was $947,000 or $0.04 per diluted share. This compares to the third quarter 2016 non-GAAP net loss of $429,000 or $0.02 per diluted share.
• Revenues were $26.7 million, including $17.2 million of thin-film equipment revenues and photonics revenues of $9.5 million. Thin-film equipment revenues included two 200 Lean HDD systems, upgrades, spares and service. Photonics revenues included $2.2 million of R&D contracts. In the third quarter of 2016, revenues were $22.6 million, including $14.3 million of thin-film Equipment revenues and Photonics revenues of $8.3 million, which included $1.6 million of R&D contracts.
• Thin-film equipment gross margin was 45.5% compared to 32.4% in the third quarter of 2016 and 38.4% in the second quarter of 2017. The improvement from the third quarter of 2016 reflected a higher level of revenue and improved factory absorption. The improvement from the second quarter of 2017 reflected higher margins on systems shipments, offset in part by higher inventory provisions. Thin-film Equipment gross margin in the second quarter of 2017 reflected the lower margin on a pilot Matrix ion implant system for solar panels.
• Photonics gross margin was 36.5% compared to 46.9% in the third quarter of 2016 and 33.4% in the second quarter of 2017. The decrease from the third quarter of 2016 was due to lower margins on R&D contracts and higher inventory provisions. The improvement from the second quarter of 2017 was due to improved sensor yields and higher margins on R&D contracts, offset in part by higher inventory provisions. Consolidated gross margin was 42.3%, compared to 37.7% in the third quarter of 2016 and 37.0% in the second quarter of 2017.
• R&D and SG&A expenses were $10.3 million, compared to $8.8 million in the third quarter of 2016 and to $10.1 million in the second quarter of 2017. Higher year-over-year expenses reflected increased variable compensation program accruals.
• Order backlog totaled $72.8 million on September 30, 2017, compared to $68.9 million on July 1, 2017 and $72.9 million on October 1, 2016. Backlog at both September 30, 2017 and July 1, 2017 included five 200 Lean HDD systems and twelve Energi solar ion implant systems. Backlog at October 1, 2016 included four 200 Lean HDD systems, three Intevac Vertex display cover panel coating systems, two Intevac Matrix solar systems, and two Energi solar ion implant systems.
  The company ended the quarter with $44.8 million of total cash, restricted cash and investments and $79.8 million in tangible book value.

First Nine Months 2017 Summary

• Net income was $4.2 million, or $0.18 per diluted share, compared to a net loss of $10.3 million, or $0.50 per diluted share, for the first nine months of 2016. Non-GAAP net income was $4.0 million or $0.17 per diluted share. This compares to the first nine months of 2016 non-GAAP net loss of $10.4 million or $0.50 per diluted share.
• Revenues were $88.1 million, including $61.1 million of thin-film equipment revenues and Photonics revenues of $27.0 million, compared to revenues of $51.1 million, including $25.9 million of Thin-film Equipment revenues and Photonics revenues of $25.2 million, for the first nine months of 2016.
• Thin-film Equipment gross margin was 42.0%, compared to 28.3% in the first nine months of 2016. The improvement reflected a higher level of revenue and improved factory absorption. Photonics gross margin was 37.5% compared to 44.3% in the first nine months of 2016, reflecting lower margins on R&D contracts and higher inventory provisions. Consolidated gross margin was 40.7%, compared to 36.2% in the first nine months of 2016.
• R&D and SG&A expenses were $31.3 million compared to $29.0 million in the first nine months of 2016. The higher level of expenses reflects increased accruals for variable compensation programs as a result of the company’s improved outlook for profitability for the year, and increased legal expenses for patent activity and contracts.