Intevac, Inc. (Nasdaq: IVAC) recently reported financial results for the first quarter ended April 1, 2017.
First Quarter Highlights
Revenues recognized on INTEVAC VERTEX™ volume production systems for display cover panel;
Follow-on order received for 12 ENERGi™ solar ion implant systems for 1-Gigawatt capacity expansion;
Stronger non-system order activity in our core HDD (hard disk drive) business, leading to revenues exceeding guidance;
Approval of the DELTA-I program, which provides multi-national government funding of our ISIE 19 night-vision sensor in Photonics;
Favorable gross margin performance and operating profitability in both our Thin-film Equipment and Photonics business segments; and
Order and evaluation activity leading to a strengthened outlook for full-year revenues and profitability.
“Recent traction in orders and revenue in new markets reflect important milestones in the future growth trajectory of our company,” commented Wendell Blonigan, president and chief executive officer of Intevac. “In the first quarter, we recognized revenue on VERTEX volume production systems and received follow-on orders for 12 ENERGi implant tools, both of which represent the crossover from pilot tools to capacity production systems in each of our new Thin-film Equipment growth markets. We have been working for several years to diversify and grow our Thin-film Equipment business beyond the HDD market, and significant orders and revenues recognized in the first quarter is a material demonstration of our success in expanding our Thin-film Equipment revenue opportunity.
“In the first quarter, our Photonics business continued to deliver results favorable to our long-term model for this business, with 16% operating profitability. We are also pleased to report an important development, which is the approval of the DELTA-I program under the Department of Defense’s Coalition Warfare Program. This program is funded by the DoD, SOCOM and several foreign nation coalition partners. The DELTA-I program includes a $12 million funding commitment to complete the design of our ISIE 19 sensor as well as the development of a digitally-fused infrared/night vision goggle. This program is a key component of our ability to realize the future revenue opportunity pipeline for Photonics of well over $1 billion.”
($ Millions, except per share amounts) Q1 2017 Q1 2016
GAAP Results Non-GAAP Results GAAP Results Non-GAAP Results
Net Revenues $ 30.4 $ 30.4 $ 13.7 $ 13.7
Operating Income (Loss) $ 2.1 $ 2.2 $ (6.3 ) $ (6.3 )
Net Income (Loss) $ 1.8 $ 1.9 $ (6.3 ) $ (6.3 )
Net Income (Loss) per Diluted Share $ 0.08 $ 0.08 $ (0.31 ) $ (0.31 )
Intevac’s non-GAAP adjusted results exclude the impact of the following, where applicable: changes in fair value of contingent consideration liabilities associated with business combinations. A reconciliation of the GAAP and non-GAAP adjusted results is provided in the financial table included in this release. See also “Use of Non-GAAP Financial Measures” section.
First Quarter 2017 Summary
Net income was $1.8 million, or $0.08 per diluted share, compared to a net loss of $6.3 million, or $0.31 per diluted share in the first quarter of 2016. The non-GAAP net income was $1.9 million or $0.08 per diluted share. This compares to the first quarter 2016 non-GAAP net loss of $6.3 million or $0.31 per diluted share.
Revenues were $30.4 million, including $21.5 million of Thin-film Equipment revenues and Photonics revenues of $8.9 million. Thin-film Equipment revenues consisted of four VERTEX coating systems for display cover panels, one 200 Lean® HDD system, upgrades, spares and service. Photonics revenues consisted of $6.9 million of product sales and $2.0 million of research and development contracts. In the first quarter of 2016, revenues were $13.7 million, including $5.6 million of Thin-film Equipment revenues and Photonics revenues of $8.1 million, which included $7.7 million of product sales and $0.4 million of research and development contracts.
Thin-film Equipment gross margin was 43.1%, compared to 9.0% in the first quarter of 2016, and compared to 38.9% in the fourth quarter of 2016. The improvement from the first quarter of 2016 and from the fourth quarter of 2016 was primarily due to higher revenue levels, improved factory absorption and lower inventory provisions. Photonics gross margin was 42.6%, compared to 41.5% in the first quarter of 2016 and 45.5% in the fourth quarter of 2016. The improvement from the first quarter of 2016 was due to higher margins on technology development contracts and lower inventory provisions. The decline from the fourth quarter of 2016 was due to lower margins on technology development contracts. Consolidated gross margin was 42.9%, compared to 28.2% in the first quarter of 2016 and 41.1% in the fourth quarter of 2016.
R&D and SG&A expenses were $10.9 million and were up compared to $10.2 million in the first quarter of 2016 and $9.0 million in the fourth quarter of 2016 primarily due to 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.
Order backlog totaled $73.0 million on April 1, 2017, compared to $68.5 million on December 31, 2016 and $44.7 million on April 2, 2016. Backlog at April 1, 2017 included three 200 Lean HDD systems, one INTEVAC MATRIX™ solar system and fourteen ENERGi solar ion implant systems. Backlog at December 31, 2016 included four 200 Lean HDD systems, four INTEVAC VERTEX display cover panel coating systems, one INTEVAC MATRIX solar system, and two ENERGi solar ion implant systems. Backlog as of April 2, 2016 included three solar systems.
The Company ended the quarter with $46.3 million of total cash, restricted cash and investments and $74.5 million in tangible book value.
Use of Non-GAAP Financial Measures
Intevac’s non-GAAP results exclude the impact of the following, where applicable: changes in fair value of contingent consideration liabilities associated with business combinations. A reconciliation of the GAAP and non-GAAP results is provided in the financial tables included in this release.
Management uses non-GAAP results to evaluate the Company’s operating and financial performance in light of business objectives and for planning purposes. These measures are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Intevac believes these measures enhance investors’ ability to review the Company’s business from the same perspective as the Company’s management and facilitate comparisons of this period’s results with prior periods. The presentation of this additional information should not be considered a substitute for results prepared in accordance with GAAP.
Conference Call Information
The Company will discuss its financial results and outlook in a conference call today at 1:30 p.m. PDT (4:30 p.m. EDT). To participate in the teleconference, please call toll-free (877) 334-0811 prior to the start time. For international callers, the dial-in number is (408) 427-3734. You may also listen live via the Internet at the Company’s website, www.intevac.com, under the Investors link, or at www.earnings.com. For those unable to attend, these web sites will host an archive of the call. Additionally, a telephone replay of the call will be available for 48 hours beginning today at 7:30 p.m. EDT. You may access the replay by calling (855) 859-2056 or, for international callers, (404) 537-3406, and providing Replay Passcode 4148584.