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Intevac Inc. Reports Operating Results (10-Q)

October 27, 2009 | About:
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10qk

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Intevac Inc. (IVAC) filed Quarterly Report for the period ended 2009-09-26.

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 $248.5 million; its shares were traded at around $11.33 with and P/S ratio of 2.3.

Highlight of Business Operations:

Intevac Photonics revenue for the three and nine months ended September 26, 2009 increased over the same periods in the prior year. Intevac Photonics revenues for the three months ended September 26, 2009 consisted of $4.5 million of research and development contract revenue and $2.3 million of product sales as compared to $3.3 million of research and development contract revenue and $2.4 million of product sales for the three months ended September 27, 2008. Intevac Photonics revenues for the nine months ended September 26, 2009 consisted of $11.5 million of research and development contract revenue and $7.8 million of product sales as compared to $11.5 million of research and development contract revenue and $6.8 million of product sales for the nine months ended September 27, 2008. The increase in contract research and development revenue for the three months ended September 26, 2009 compared to the same period in the prior year was the result of a higher volume of contracts. The increase in product revenue for the nine months ended September 26, 2009 over the same period in the prior year resulted from higher sales of digital night vision camera modules, systems and commercial products. Substantial growth in future Intevac Photonics revenues is dependent on proliferation of Intevac’s technology into major military programs, obtaining production subcontracts for these programs, continued defense spending, the ability to obtain export licenses for foreign customers, and development and sale of commercial products.

Intevac’s backlog of orders at September 26, 2009 was $52.2 million, as compared to $20.2 million at December 31, 2008 and $18.5 million at September 27, 2008. The $52.2 million of backlog at September 26, 2009 consisted of $38.7 million of Equipment backlog and $13.5 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 September 26, 2009 included five 200 Lean systems as compared to one at both December 31, 2008 and September 27, 2008.

Cost of net revenues consists primarily of purchased materials and costs attributable to contract research and development, and also includes fabrication, assembly, test and installation labor and overhead, customer-specific engineering costs, warranty costs, royalties, provisions for inventory reserves and scrap. Cost of net revenues for the three and nine months ended September 26, 2009 included $72,000 and $283,000 of equity-based compensation expense, respectively. Cost of net revenues for the three and nine months ended September 27, 2008 included $155,000 and $607,000 of equity-based compensation expense, respectively.

Research and development spending decreased in Equipment and increased in Intevac Photonics during the three and nine months ended September 26, 2009 as compared to the three and nine months ended September 27, 2008. The decrease in Equipment spending was due primarily to a reduction in spending on the Lean Etch product line (as the product design phase is substantially complete and on-going efforts are primarily related to continuous improvement) and savings from the global cost reduction plan implemented in the fourth quarter of 2008, offset by initial investment in development of photovoltaic manufacturing systems. The increase in Intevac Photonics research and development reflected increased spending for sensor yield improvements, sensor development and digital night vision system development. Research and development expense for the three and nine months ended September 26, 2009 included $312,000 and $1.2 million of equity-based compensation expense, respectively. Research and development expense for the three and nine months ended September 27, 2008 included $507,000 and $1.4 million of equity-based compensation expense, respectively. Research and development expenses do not include costs of $2.3 million and $6.4 million for the three and nine months ended September 26, 2009 respectively, or $1.8 million and $6.7 million for the three and nine months ended September 27, 2008, respectively, which are related to Intevac Photonics contract research and development and included in cost of net revenues.

Selling, general and administrative expense consists primarily of selling, marketing, customer support, financial and management costs. The decrease in selling, general and administrative spending in the three and nine months ended September 26, 2009 compared to the three and nine months ended September 27, 2008 was primarily the result of savings from the global cost reduction plan implemented in the fourth quarter of 2008. Selling, general and administrative expense for the three and nine months ended September 26, 2009 included $615,000 and $2.3 million of equity-based compensation expense, respectively. Selling, general and administrative expense for the three and nine months ended September 27, 2008 included $1.1 million and $3.0 million of equity-based compensation expense, respectively.

At September 26, 2009, Intevac had $97.7 million in cash, cash equivalents, and investments compared to $105.5 million at December 31, 2008. During the first nine months of 2009, cash and cash equivalents and investments decreased by $7.8 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 Intevac’s employees through Intevac’s employee benefit plans.

Read the The complete ReportIVAC is in the portfolios of Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.

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