Intevac Inc. Reports Operating Results (10-Q)
Intevac Inc. is a leading supplier of static sputtering systems and related manufacturing equipment used to manufacture thin-film disks for computer hard disk drives. Sputtering is a complex vacuum deposition process used to deposit multiple thin-film layers on a disk. Thecompany's primary objective is to be the industry leader in supplying disksputtering equipment by providing disk sputtering systems which have both the highest overall performance and the lowest cost of ownership in the industry. Intevac Inc. has a market cap of $147.2 million; its shares were traded at around $6.71 with and P/S ratio of 1.3. Highlight of Business Operations: Intevac Photonics revenue for the three months ended March 28, 2009 consisted of $3.6 million of research and development contract revenue and $2.6 million of product sales. Intevac Photonics revenue for the three months ended March 29, 2008 consisted of $4.2 million of research and development contract revenue and $2.0 million of product sales. The increase in product revenue resulted from higher sales of digital night vision camera modules and commercial products. The decrease in contract research and development revenue was the result of a lower volume of contracts and no revenue from contract close-outs. Intevac expects that in 2009, Intevac Photonics revenues will grow driven by government spending as well as growth in commercial products. Substantial growth in future Intevac Photonics revenues is dependent on proliferation of Intevacs technology into major military programs, continued defense spending, the ability to obtain export licenses for foreign customers, obtaining production subcontracts for these programs, and development and sale of commercial products.
Intevacs backlog of orders at March 28, 2009 was $17.0 million, as compared to $20.2 million at December 31, 2008 and $43.5 million at March 29, 2008. The $17.0 million of backlog at March 28, 2009 consisted of $8.3 million of Equipment backlog and $8.7 million of Intevac Photonics backlog. The $20.2 million of backlog at December 31, 2008 consisted of $11.4 million of Equipment backlog and $8.8 million of Intevac Photonics backlog. Backlog at March 28, 2009 and December 31, 2008 included one 200 Lean system, compared to seven at March 29, 2008.
Research and development spending decreased in Equipment and increased in Intevac Photonics during the three months ended March 28, 2009 as compared to the three months ended March 29, 2008. The decrease in Equipment spending was due primarily to a reduction in spending on the Lean Etch product line and savings from the global cost reduction plan implemented in the fourth quarter of 2008. The increase in Intevac Photonics research and development reflected increased spending for sensor yield improvements, sensor development and digital night vision goggle development. Intevac expects that research and development spending will decrease in the second quarter of 2009 over the same quarter in the previous year and the first quarter of 2009 primarily as a result of the lower level of spending on Intevacs Lean Etch product line. Research and development expense for the three months ended March 28, 2009 and March 29, 2008 included $444,000 and $466,000 of equity-based compensation expense, respectively. Research and development expenses do not include costs of $2.0 million and $2.5 million for the three-month periods ended March 28, 2009 and March 29, 2008, respectively, which are related to Intevac Photonics contract research and development and included in cost of net revenues.
At March 28, 2009, Intevac had $100.8 million in cash, cash equivalents, and investments compared to $105.5 million at December 31, 2008. During the first three months of 2009, cash and cash equivalents and investments decreased by $4.7 million due primarily to cash used by operating activities, a scheduled payment to the owners of DeltaNu, LLC, and purchases of fixed assets partially offset by cash received from the sale of Intevac common stock to Intevacs employees through Intevacs employee benefit plans.
Accounts receivable totaled $9.2 million at March 28, 2009, compared to $15.0 million at December 31, 2008. The decrease of $5.8 million in the receivable balance was due to lower revenues and improved collection activities. Total net inventories decreased to $17.2 million at March 28, 2009, compared to $17.7 million at December 31, 2008 primarily as a result of lower business levels. Accounts payable increased slightly to $4.3 million at March 28, 2009 compared to December 31, 2008. Accrued payroll and related liabilities decreased by $468,000 during the three months ended March 28, 2009. Customer advances decreased by $1.7 million during the first three months of 2009, as liquidations related to revenue recognition were higher than new advances received from Intevacs customers.
As of March 28, 2009, Intevacs available-for-sale securities represented $74.3 million par value of auction rate securities (ARS), less a temporary valuation adjustment of $7.3 million to reflect their current lack of liquidity. Since this valuation adjustment is deemed to be temporary it was recorded in other comprehensive loss. Due to current market conditions, these investments have experienced failed auctions beginning in mid-February 2008. These failed auctions result in a lack of liquidity in the securities, but do not affect the underlying collateral of the securities. Intevac believes that given their high credit quality, it will ultimately recover at par all amounts invested in these securities. Intevac does not anticipate that any potential lack of liquidity in these ARS will affect its ability to finance its operations and planned capital expenditures. Intevac continues to monitor efforts by the financial markets to find alternative means for restoring the liquidity of these investments. During April 2009, $3.3 million of ARS were redeemed at par. These investments are classified as non-current assets until Intevac has better visibility as to when their liquidity will be restored. The classification and valuation of these securities will continue to be reviewed quarterly.
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