☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
31, 2022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 94-3125814 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock ($0.001 par value) | IVAC | The Nasdaq Stock Market LLC (Nasdaq Global Select) |
Large accelerated filer | ☐ | Accelerated filer | ||||
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☒ | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
INTEVAC, Inc.
Index to the Form 10-K
For the Fiscal Year Ended December 31, 2022
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information in this Annual Report onForm 10-K (“report”Annual Report” or“Form 10-K”) of Intevac, Inc. and its subsidiaries (“Intevac”, “we” or the “Company”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, is forward-looking in nature. All statements in this report,Annual Report, including those made by the management of Intevac, other than statements of historical fact, are forward-looking statements. Examples of forward-looking statements include statements regarding Intevac’s future financial results, operating results, cash flows and cash deployment strategies, business strategies, costs, products, working capital, competitive positions, management’s plans and objectives for future operations, research and development, acquisitions and joint ventures, growth opportunities, customer contracts, investments, liquidity, declaration of dividends, and legal proceedings, as well as market conditions and industry trends. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” and “continue,” the negative of these terms, or other comparable terminology. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in Item 1A, “Risk Factors,” below and elsewhere in this report.Annual Report. Other risks and uncertainties may be disclosed in Intevac’s prior Securities and Exchange Commission (“SEC”) filings. These and many other factors could affect Intevac’s future financial condition and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this reportAnnual Report or elsewhere by Intevac or on its behalf. Intevac undertakes no obligation to revise or update any forward-looking statements.
The following information should be read in conjunction with the Consolidated Financial Statementsconsolidated financial statements and the accompanying Notes to Consolidated Financial Statements included in this report.Annual Report.
PART I
Item 1. | Business |
OverviewInformation about Discontinued Operations
On December 30, 2021, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with EOTECH, LLC, a Michigan limited liability company (“EOTECH”), governing the sale of the Company’s Photonics business to EOTECH in exchange for (i) $70.0 million in cash consideration (as may be increased or decreased by certain closing net working capital adjustments), (ii) up to $30.0 million in earnout payments and (iii) the assumption by EOTECH of certain liabilities of the Photonics business as specified in the Purchase Agreement. The transaction closed on December 30, 2021. Under the Purchase Agreement, EOTECH has also agreed to pay to the Company, if earned, earnout payments of up to an aggregate of $30.0 million based on achievement of fiscal year 2023, 2024 and 2025 Photonics segment revenue targets for the Integrated Visual Augmentation System (“IVAS”) program as specified in the Purchase Agreement. At any time prior to December 31, 2024, EOTECH may elect to pay to the Company $14.0 million, which would terminate EOTECH’s obligations with respect to any remaining earnout payments. The Company believes this disposition will allow it to benefit from a streamlined business model, simplified operating structure, and enhanced management focus.
As a result of this disposition, the results of operations from the Photonics reporting segment are reported as “net income (loss) from discontinued operations, net of taxes” in the consolidated financial statements in Item 8 of this Annual Report. The Company has recast prior period amounts presented within this Annual Report to provide visibility and comparability. All discussion herein, unless otherwise noted, refers to Intevac’s business consists of two reportable segments:
Thin-filmremaining operating segment after the disposition, the Thin Film Equipment (“TFE”): business. See Note 2 “Divestiture and Discontinued Operations” to the consolidated financial statements in Item 8 of this Annual Report.
Overview
Founded in 1991, Intevac is a leader in the designleading provider of thin-film process technology and development of high-productivity, thin-film processing systems. Our production-provenmanufacturing platforms are designed for high-volume manufacturing of substrates with precise thin-film properties, such asenvironments. As a long-time supplier to the hard disk drive (“HDD”) industry, over the last 20 years we have delivered over 180 of our industry-leading 200 Lean® systems, which currently represent the majority of the world’s capacity for HDD disk media production. Today, we believe that all of the technology upgrade initiatives for next-generation media for the HDD industry, along with planned media capacity additions over the next several years, are being deployed on our
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200 Lean platform. With over 30 years of leadership in designing, developing, and manufacturing high-productivity, thin-film processing systems, we also are leveraging our technology and know-how for additional applications, such as protective coatings for the display cover panel (“DCP”), glass market.
Intevac also previously designed, developed and solarmarketed manufacturing equipment for the photovoltaic (“PV”) markets we serve currently.
Photonics:Intevac issolar cell and advanced semiconductor packaging (“ASP”) industries. In March 2022, the Company’s management approved a leading developerrestructuring plan to realign the Company’s operational focus, scale the business and improve costs. The restructuring program includes (i) reducing the Company’s headcount and (ii) eliminating several research and development (“R&D”) programs and product offerings. As part of advanced high-sensitivity digital sensors, camerasthis realignment effort, the Company ceased its efforts to develop and systems that primarily serve the defense industry. We are a leading providermarket several of integrated digital night-vision imaging systemsits manufacturing platforms for the U.S. military.DCP, PV and ASP industries.
Intevac was incorporated in California in October 1990 and was reincorporated in Delaware in 2007.
TFE Segment
Hard Disk Drive (“HDD”)HDD Equipment Market
Intevac designs, manufactures, markets and services complex capital equipment used to deposit thin films and lubricants onto substrates to produce magnetic disks that are used in HDDs. Disk and disk drive manufacturers produce magnetic disks in a sophisticated manufacturing process involving many steps, including plating, annealing, polishing, texturing, sputtering, etching, stripping and lubrication. Intevac believes its systems represent approximately 65% of the installed capacity for disk sputtering worldwide. Intevac’s systems are used by manufacturers of magnetic media such as Seagate Technology, Western Digital includingCorporation and its wholly-owned subsidiary HGST, Fuji Electric, and Showa Denko.HGST.
HDDs are a primary storage medium for digital data includingin enterprise nearline “cloud” applications, enterprise performance and are usedsurveillance applications, and, to a lesser extent, in products and applications such as personal computers (“PCs”), enterprise data storage, video players and video game consoles.. Intevac believes that HDD media unit shipments will grow over time, driven by continued high growth rates in digitally-stored data, by the slowing of areal density improvements, by the increase in demand for nearline drives for cloud storage, an increasingby the continuing increases in the HDD tie ratio
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(the (the average number of disks per hard drive), and by new and emerging applications. The projected growth rates for digitally-stored data on HDDs exceed the rate of areal density improvements, at the same time as the tie ratio is increasing, which results in demand for magnetic disks outpacing HDD units.
In recent years HDD media units have been negatively impacted by decliningan overall decline in desktop PC units, primarily resulting from the proliferationadoption of tabletssolid state drives (“SSDs”) in desktops, as well as laptops and other mobile devices, and the transition to centralized storage. Although the HDD industry continues to expect growth in the nearline data storage market segment, the transition to centralized storage combined with the negative growth in PC shipments has resulted in lower HDD shipments in recent years. However, Intevac continues to believe that long-term demand for hard disks required for high capacity HDDs will increase, driven by growth in demand for digital storage, a decliningslowing growth rate in areal density improvements, and increased information technology spending to support the transition to cloud storage. The number of disk manufacturing systems needed to support this growth as well as future technology transitions and improvements is expected to vary from year to year depending on the factors noted above.
Intevac expects that HDD manufacturers will extend their utilization of planar perpendicular media with the introduction of new technologies such as Heat Assisted Magnetic Recording (“HAMR”) and Energy Assisted Magnetic Recording (“EAMR”). Initial volume shipments of both HAMR and EAMR-based HDDs are expected to beginbegan in 2020. Intevac believes that leading manufacturers of magnetic media that are using Intevac systems for the development ofwill continue to advance these new technologies, which we expect will create a significant market opportunity for systemsIntevac to develop and install the HDD system upgrades in support of the media evolutionthat will be required by these new technologies as theytechnologies.
For example, from late 2021 through the first half of 2022, Intevac received orders for approximately $70 million in 200 Lean HDD systems, which were intended to expand our customers’ media manufacturing capacity. With the slowing of HDD unit demand that occurred beginning in mid-2022, our customers elected to accelerate deployment of HAMR system upgrades during this period of lower capacity utilization, and at the same time elected to spread their expected media capacity additions more ratably over the next two- to four-year period. Our HDD revenues through the 2023 timeframe are more widely adopted.expected to consist primarily of HDD upgrades, spares and field service.
Display Cover Panel (“DCP”)DCP Market
Intevac develops equipment to deposit optically transparent thin films onto DCPs typically found on consumer and automotive electronic products.
DCPs are found inelectronics products including smartphones, foldable devices, smartwatches, wearable devices, tablet PCs, wearable devices, gaming systems, digital cameras, automotive infotainment systems, point-of-sale devices, and digital signage. In 2019,2022, approximately 1.371.2 billion smartphones, 157516 million smart watches, and 457 million tablet PCs and 66.5 million smart watches were shipped to consumers worldwide. For smartphones alone, it is forecasted that nearly 1.481.4 billion units will ship by 2023, representing a CAGR of 1.1% for the 2019 – 2023 time period.in 2026.
The DCP is
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DCPs are typically made of tempered glass, such as soda-lime or aluminosilicate, or other materials such as sapphire, ceramicglass-ceramic and colorless polyimide. The primary function of the DCP is to provide a clear protective interface to the display it protects. In many cases, the DCP is treated with various coatings to enhance its protective performance as well as for clarity, readability and touch sensitivity.
The types of coatings typically found on DCPs of electronic devices include: Scratch Protection (“SP”) coatings, Anti-Reflection (“AR”) coatings, Anti-FingerAnti-Fingerprint (“AF”) andNon-Conductive Vacuum Metallization (“NCVM”) coatings.
SP coatings generally consist of hard thin films deposited onto the surface of the DCP. Their primary function is to provide enhanced protection against the incidence of scratch, but they can also provide greater breakage resistance. Intevac has developed and is currently marketing aits own SP coating known as Optical Diamond-like-Carbon (“oDLC®”)for DCP applications, utilizing its production-proven carbon film technology that is also used on HDD media. This coating provides a hard protective layer which significantly improves the DCP’s resistance to scratches and breakage. The oDLC coating has demonstrated scratch protection benefits reflecting a greater than 20 times improvement over current standard cover glass under stainless steel ball Taber scratch testing. Furthermore, using aRing-on-Ring (“RoR”) test, cover glass with our oDLC coating provides a greater than 20 percent increase in breakage resistance strength over cover glass without the oDLC coating. Intevac expects that the adoption of AR and NCVM coatings on mobile devices will create an increased need for SP coatings and provide a significant demand opportunity for oDLC.
In 2019, Intevac released DiamondClad™ultra-durable protective coating. DiamondClad is a proprietary multi-step process that improves upon our original single film solution, oDLC. Developedin-house utilizing the ion beam source technology released last year, DiamondClad now performs similar to sapphire in scratch testing at the Mohs scale of material hardness 8 standard, compared to the industry standard glass with anti-fingerprint or AF coatings, which scratch at a Mohs 5 level. DiamondClad coating outperforms standard cover-glass by a factor of 4 in Taber wear testing, and by a factor of 4 to 6 times inuse-case AF durability testing with sand, denim, and perspiration.coatings.
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AR coatings enable greater light transmission though the DCP by reducing the light reflected by the surface back to the user’s eye. This allows the user to more easily read the display and reduces the required power needed to display the image which results in extending the battery life. A significant drawback to using AR coatings is their susceptibility to scratch. AR coatings are typically soft and must be applied to the outer surface of the DCP. These coatings generally scratch easily, and as such, smartphone manufacturers have been reluctant to implement AR coatings on their products. Intevac believes its DCP systems and applications of various protective thin film technologies to create ultra-durable AR coatings could represent a significant market opportunity.
AF coatings provide water and oil protection for the surface of the DCP. This coating, which prevents fingerprints, provides greater aesthetics as well as improving readability. AF coatings allow for greater visual acuity when fingerprints are not visible. The drawback to AF coatings is their relatively low resistance to wear. The coating is soft and usually wears off within a few months of product purchase.
WithIn March 2022, as part of Intevac’s restructuring program and realignment effort, the adoptionCompany ceased pursuing several DCP projects and instead started a focused effort to develop a new, modular platform that can be configured to handle a variety of wireless chargingform factors, including two-dimensional (“2D”) and three-dimensional (“3D”) shapes and both small and large surface area substrates. This platform was introduced as TRIO™ in March 2022.
TRIO is a flexible, horizontal deposition tool platform that evolved from Intevac’s decades of experience in delivering high-performance, cost-effective equipment for both the upcoming 5G standardHDD and solar markets. TRIO leverages Intevac’s materials science and coating equipment technology to deposit SP and AR coatings with enhanced durability for all types of wireless communication, smartphone manufacturers are makingmobile consumer devices, as well as auto display glass. The TRIO platform contains proprietary, patent-protected components and automation that allow fast, precise deposition of coatings with superior adhesion, hardness, strength, and optical properties.
In December 2022, the Company announced it had entered a joint development agreement with a major transitionprovider of glass and glass ceramic materials, which provides the glass manufacturer with exclusive access to DCP onTRIO for consumer device applications for a period of five years, provided it meets the backsideminimum system purchase requirements of the device. This transitionagreement, which is essential to ensure that the backside cover, which previously used to be metallic, does not interfere with the wireless signals. NCVM coatings areestimated at a new typevalue of color film coating, applied for decorative purposes, to the backside DCP. When applied to the exterior, the NCVM coating provides a pleasing aesthetic and gives manufacturers flexibility with color customization. Decorative NCVM coatings have evolved from single color to multiple colors with complex transitions. Intevac has developed a proprietary technology that enables the creation of uniquely patterned NCVM coatings for the phone back cover. Several leading handset manufacturers are currently evaluating this technology for potential incorporation into their upcoming phone models.
When applied to the exterior of the backside DCP, NCVM has a tendency to scratch easily and rub off over time, leading to a poor appearance. To preserve the color film on the backside DCP, manufacturers are reliant on SP coatings for scratch-resistance and a consistent appearance.approximately $100 million. Intevac expects the adoption of AR and NCVM coatings on mobile devices will create an increased need for SP coatings and provide a significant demand opportunity for oDLC and DiamondClad coatings.
Solar Market
Intevac designs, manufactures and markets capital equipment for the PV solar manufacturing industry.
A solar cell (also called a PV cell) is a solid state device that converts the energy of sunlight directly into electricity. Assemblies of cells are used to make solar modules, also known as solar panels. Solar panels have broad-based end market applications for utility-scale solar farms; integrated building PV arrays for commercial, retail, and offices; residential rooftop; and for portable devices.
The cost of electricity generated from solar energy, in many cases, remains higher than that of electricity generated from traditional energy sources. However, deployment of photovoltaics is gaining momentum on a worldwide scale, particularly in Asia, North America and other regions, where solar PV is now increasingly competitive with conventional energy sources. Grid parity, whereby solar PV generates power at a levelized cost of electricity (“LCOE”) less than or equal to the price of power purchased from the electrical grid, has already been reached in about thirty countries. In countries or areas where the cost of solar energy generation remains higher than traditional electricity generation sources, some governments have implemented various tax credits and other financial incentives to promote the growth in solar and other alternative energy sources. As a result of solar energy costs having favorably declined due to the increased scale and improved manufacturing efficiencies spurred by these incentive policies, many governments have reduced or are planning to reduce their incentives for solar, a trend which is likely to continue. More than 138 gigawatts of solar capacity were added globally in 2019, rising 35%year-on-year, but the rate is expected to taper off to a modest growth of 3% in 2020. Intevac expects that 2020 will continue to be challengingdevelop additional customer relationships for the solar industry due to further declines in solar panel pricing.
The PV industry continues to focus on the development of high-efficiency cell technologies aimed at simultaneously boosting PV efficiency and reducing solar energy production costs. New vacuum process technologies and integrated processing steps are expected to become increasingly importantTRIO for other glass coating applications, such as companies search for lower-cost manufacturing solutions for PV cells.
Intevac offers products for wafer-based crystalline silicon(“c-Si”) solar cell manufacturing processes, the prevailing manufacturing process in the PV industry. Intevac’s products for the solar industry are specifically focused on cell designs with the highest energy conversion efficiency, which are within then-type mono crystalline portion of the market.
Intevac offers thin-film vacuum process manufacturing solutions forc-Si cell fabrication applications. Intevac offers high-productivity process equipment solutions that enablelow-cost solar cell manufacturing with high cell efficiency, consistent with
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the PV industry’s focusautomotive and requirements. Intevac has developed two vacuum process application technologies for solar cell manufacturing: one utilizes Physical Vapor Deposition (“PVD”) technology for the deposition of thin films ontoc-Si wafers, and the other utilizes ion implantation, which selectively changes the electrical characteristics of thec-Si solar cell.point-of-sale display markets.
PVD is a process used in multiple ways in the manufacturing of solar cells such as for fabricating electrical contacts and conductor layers, depositing reflective layers of various types, and for growing transparent conductive oxide layers, all of which are critical to the efficiency of solar cells.
Ion implantation is a solar cell processing technology whereby an impurity is added to a PV structure to improve its conductivity. In ion implantation, a beam of ions of a desired dopant element such as phosphorus or boron is electrostatically accelerated and directed toward the target material, introducing the impurity. In a subsequent thermal annealing step, the dopant is electrically activated. The ion implant processes enable precision engineering of the dose and of the depth of dopant elements to form emitter structures in working solar cells. Ion implantation is a technique being introduced to solar cell lines as a means to lower the cost per watt to manufacture the cell. Ion implantation can replace existing diffusion processes in existing solar processing lines for present-day PV cell structures, and is also extendable to new advanced cell structures. In both cases, ion implant-formed emitters are created with fewer processing steps, and therefore at lower cost, than the diffusion processes implant displaces. Intevac’s ion implantation products are based upon technology developed by Solar Implant Technologies, Inc. (“SIT”) which was acquired by Intevac in November 2010.
Fan-Out Packaging Market
Intevac is bringing to market capital equipment forfan-out packaging applications,fan-out packaging being a specialized part of the overall semiconductor device packaging market.
Semiconductor device packaging technology in general, andfan-out wafer level packaging(“FOWLP”)/fan-out panel level packaging (“FOPLP”) technology in particular, is being driven by the strong cost advantages these technologies offer over the cost of further implementing continued Moore’s Law progress for 10nm and 7nm semiconductor device process nodes. Generally speaking,fan-out packaging provides for increased Input/Output (“I/O”) density for a given semiconductor device while simultaneously supporting continued progress in shrinking the individual semiconductor devices, resulting in decreased footprint per device and, by extension, decreases in the amount of space integrated circuit content occupies in handheld consumer electronic products, for example in smartphones, wearables, and in Internet of Things (“IoT”) devices.
Fan-out packaging technology consists of a series of operations where known good semiconductor devices from silicon wafers fabricated by an Integrated Device Manufacturer (“IDM”), or by a semiconductor foundry, are singulated and then assembled onto a substrate or temporary carrier, which is then overmolded with epoxy mold compound and cured to create what is known as a reconstituted wafer. The reconstituted wafer then goes through another series of process steps (dielectric deposition, metallization, photolithography), to create a redistributed“fan-out” of the electrical interconnections from the original silicon device area to an expanded area that includes the device (die) surface itself, along with a generous amount of extra surface created from the mold compound area.
A redistribution layer (“RDL”) is the“fanned-out” metal layer on a packaged integrated circuit that makes the I/O pads of the integrated circuit available in other locations. PVD processes are essential to RDL fabrication; infan-out packaging, our INTEVAC MATRIX®PVD system is used to deposit thin layers of Titanium (“Ti”), Titanium Tungsten (“TiW”) and Copper (“Cu”) to form the barrier/seed layer upon which the full RDL is constructed.
Applications driving the adoption offan-out packaging include, among others: (1) baseband processors and application processors; (2) radio frequency (“RF”) transceivers and switches; (3) power management integrated circuits (“PMIC”); (4) radar modules for automotive; (5) audio codec; and (6) microcontrollers.
Smartphones from Apple, Xiaomi, LG and others incorporatefan-out packaged components, as do mosthigher-end automobiles. IoT applications in the future are expected to contribute additional significant volume infan-out packaged devices.
The compelling advantages our INTEVAC MATRIX PVD system brings tofan-out packaging are a much-reduced cost of ownership over the current PVD process tools of record used for RDL barrier/seed layer applications, and also the flexibility to run round wafers, and square or rectangular panels, with no changes to the INTEVAC MATRIX PVD system beyond a simple substrate carrier substitution.
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TFE Products
Intevac’s TFE product portfolio addressing each of these markets is based around common core technologies and competencies. Intevac believes its TFE product portfolio can be extended to support adjacent markets. Based on its history and market and technology leadership in the HDD industry, Intevac offers superior high-productivity vacuum handling of small substrates at the lowest cost of ownership. Lowest cost of ownership includes various advantages such as high target utilization, high throughput, small footprint, double-sided coating, and reduced materials costs.
Product Table
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The following table presents a representative list of theour TFE products that we offered during fiscal 2019 and fiscal 2018.products.
TFE Products | Applications and Features | |
HDD Equipment Market | ||
200 Lean® Disk Sputtering System | • Uses • Deposits magnetic films,non-magnetic films and protective carbon-based overcoats. • Provides high-throughput for small-substrate processing. • Over | |
Upgrades, spares, consumables and services(non-systems business) | • Upgrades to the installed base to support the continued growth in areal density or reduce the manufacturing cost per disk. | |
DCP Market | ||
TRIO | • Uses proprietary sputtering technology for multiple film types. • Allows for precise deposition of thin film layering to manage film stress. • Uses patented deposition systems and designs. • Modular design enables expandability. • Can operate at low vacuum pressure and temperature, allowing coating of a variety of substrate types. • Can coat both 2D and 3D substrates of different sizes with high precision control of resultant performance. |
Recent Changes to Business Strategy
Prior to March 2022, Intevac designed, developed and marketed manufacturing equipment for the photovoltaic (“PV”) solar cell and advanced semiconductor packaging (“ASP”) industries, including PV solar cell ion implantation products and a specific type of deposition equipment for semiconductor fan-out packaging applications (INTEVAC MATRIX PVD).
In March 2022, the Company approved and implemented a restructuring program to realign the Company’s operational focus, scale the business and improve costs. The restructuring program includes (i) reducing the Company’s headcount and (ii) eliminating several research and development (“R&D”) programs and product offerings. As part of this realignment effort, the Company ceased its efforts to develop and market several of its manufacturing platforms for the DCP, PV and ASP industries and ceased offering certain legacy products within these industries. The products Intevac ceased offering in March 2022 include the following:
TFE Products | Applications and Features | |
DCP Market | ||
INTEVAC VERTEX® System | • Utilizes vertical sputtering for multiple film types. • Provides high-throughput for small-substrate processing. • Uses patented carbon deposition source. • Modular design enables expandability. • Enableslow-temperature processing. | |
INTEVAC VERTEX | • Extension of the VERTEX system. • Incorporates multiple source technologies in a single system. • Uses proprietary ion beam processing for deposition and etching. • Enables unique patterned NCVM and hard AR | |
INTEVAC VERTEX | • Versatile platform for high volume manufacturing of multi-step, multi-layer optical coatings. • Enables diverse coatings | |
Solar PV Market | ||
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| • Supports both phosphorus and boron dopant technologies. • Extendable to new advanced solar cell structures. |
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| Applications and Features | |
ASP Market | ||
INTEVAC MATRIX PVD System | • Deposits barrier/seed layers forfan-out RDL. • Includes LSMA magnetron source, with industry-leading target utilization rate of over 65 percent. • Provides high-throughput and low cost of ownership for small-substrate or large panel processing. • Provides flexibility for handling round, square, or rectangular substrates forfan-out packaging. |
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Adjacent Markets | ||||
INTEVAC MATRIX System | • Incorporates multiple thin-film deposition techniques such as PVD, CVD, Etch, Implant, heating and cooling. • Consists of high-speed linear transport. • Flexible design enables handling of various different small substrate sizes and shapes. • Performs double-sided coating within vacuum. |
Photonics Segment
Photonics Market
Intevac Photonics develops, manufactures and sells compact, high-sensitivity digital-optical products for the capture and display of extremelow-light images. These products incorporate high resolution digital night-image sensors operating in the visible and near infrared (“NIR”) light spectrums and are based on Intevac’s proprietary EBAPS® (Electron Bombarded Active Pixel Sensor) technology.
Photonics products primarily address the high performance military night-vision market. Our products provide digital imagery in extremelylow-light level conditions. Intevac provides these products for military aircraft including the U.S. ArmyAH-64 Apache Attack Helicopter and theF-35 Joint Strike Fighter. The Company is developing additional technologies to address soldier head-mounted and weapon-mounted applications.
Military Products
Intevac’s EBAPS is incorporated into custom-designed cameras, modules and system products for high performance military applications. Intevac’s EBAPS can be integrated at various levels with optics, electronics, software, and displays based upon customer specifications and requirements. Intevac has developed a next-generation, 3.7 mega-pixel resolution Intevac Silicon Imagine Engine (“ISIE”) 19 EBAPS which operates at higher resolutions, lower light levels, higher speeds, and lower power consumption for use in next-generation systems. Customization typically occurs in the areas of electronics,near-eye micro-displays and mechanical packaging. Intevac’s products by application are:
Helicopter Pilotage
Intevac provides a night-vision camera with a 2.0 mega-pixel resolution EBAPS module which is gimbal turret-mounted on the nose of the Apache helicopter. Thelow-light level digital video is then viewable by the helicopter pilot on a Head-Mounted Display (“HMD”) enabling the pilot to have enhanced night vision and allowing the aircrew to view multiple aircraft-mounted sensor information.
Fixed Wing Aircraft Pilotage
Intevac provides night-vision modules with a 2.0 mega-pixel resolution EBAPS module which are integrated with theF-35 fighter pilot’s helmet and enables the pilot to have enhanced night vision incorporating navigational and tactical information. Additionally, a similar integrated night vision camera utilizing a 2.0 mega-pixel resolution EBAPS is being designed into the Striker II helmet for the NATO Eurofighter Typhoon aircraft.
Long-Range Target Identification
Intevac provides the Laser Illuminated Viewing and Ranging (“LIVAR®”) shortwave-infrared camera for long range military night time surveillance systems that can identify targets at distances of up to twenty kilometers. Photonics’ LIVAR camera is incorporated into long range target identification systems manufactured by a major defense contractor.
Augmented Reality (“AR”) and Wireless HMDs
Intevac provides HMDs for applications in AR and weapon sights. The HMD is anear-eye, high-definition, widefield-of-view (“FOV”) micro-display system for portable viewing of video in military and commercial applications. Depending
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on the application, Intevac provides configuration choices that include monocular or binocular, mono or stereo video, wired or wireless interfaces, and with integral inertial measurement units (“IMU”). An AR HMD overlays symbology and other information on and tracked in a view of the real world, creating the illusion that they occupy the same space. Intevac has developed and demonstrated wide FOV AR displays for use in HMDs.
Soldier Mobility
Intevac is developing a digital-fused binocular night-vision goggle with AR which will integrate the next-generation EBAPS. This goggle will demonstrate superior night-vision capability, with digital advantages, such as zoom, information overlay, and wireless image transmission and reception.
Intevac is developing a digital night-vision camera for the U.S. Army’s Integrated Visual Augmentation System (“IVAS”) program. The IVAS will incorporate head, body, and weapon technologies on individual soldiers. It is a single platform that soldiers can use to fight, rehearse, and train that provides increased mobility and situational awareness necessary to achieve overmatch against adversaries and includes a squad-level combat training capability.
Commercial Products
Low-Light Cameras
Photonics’ MicroVista® product line of commercial compact and lightweightlow-light Complementary Metal–Oxide–Semiconductor (“CMOS”) cameras provides high sensitivity in the ultraviolet, visible or NIR regions of the spectrum for use in industrial inspection,bio-medical and scientific applications. These cameras are primarily sold through distribution channels and to original equipment manufacturers.
Customer Concentration
Historically, a significant portion of Intevac’s revenue in any particular period has been attributable to sales to a limited number of customers.
The following customers accounted for at least 10 percent of Intevac’s consolidated net revenues in fiscal 20192022 and 2018.2021.
2019 | 2018 | |||||||
Seagate Technology | 49 | % | 52 | % | ||||
U.S. Government | 20 | % | * | |||||
Jolywood (Hongkong) Industrial Holdings Co., Limited | 14 | % | * | |||||
HGST | * | 13 | % |
2022 | 2021 | |||||||
Seagate Technology | 80 | % | 60 | % | ||||
Western Digital Corporation | 18 | % | 25 | % | ||||
Amkor Technology, Inc. | * | 10 | % |
* Less than 10%
Intevac expectsOur reliance on sales to relatively few customers has increased with the disposition of our Photonics business, and we expect that sales of Intevac’sour products to relatively few customers will continue to account for a high percentage of Intevac’sour revenues in the foreseeable future.future, particularly as we realign our operations to focus on the HDD and DCP markets.
Foreign sales accounted for 67%87% of revenue in fiscal 20192022 and 71%90% of revenue in fiscal 2018.2021. The majority of Intevac’s foreign sales are to companies in Asia or to U.S. companies for use in their Asian manufacturing or development operations. Intevac anticipates that foreign sales will continue to be a significant portion of Intevac’s TFE revenues. Intevac’s disk sputtering equipment customers include magnetic disk manufacturers, such as Fuji Electric and Showa Denko, and vertically integrated HDD manufacturers, such as Seagate Technology, Western Digital Corporation and HGST. Intevac’s PV solar equipment customers include several major solar cell manufacturers. Intevac’s DCP equipment customers include DCP manufacturers, such as Truly Opto-electronics. In December 2022, the Company entered a joint development agreement with a major provider of glass and glass ceramic materials for our TRIO platform. Intevac’s customers’ manufacturing facilities are primarily located in California, China, Taiwan, Japan, Malaysia, Philippines, Portugal and Singapore.
Competition
The principal competitive factors affecting the markets for Intevac TFEIntevac’s products include price, product performance and functionality, ease of integration, customer support and service, reputation and reliability. Intevac has one major competitor,
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Canon Anelva, in the hard disk driveHDD equipment market and has historically experienced intense worldwide competition for magnetic disk sputtering equipment. Intevac primarily faces competition from large established global competitors in the PV equipment market including Centrotherm Photovoltaics, Jusung, Kingston and Von Ardenne. Intevac faces competition in the DCP market from optical coating equipment manufacturers such as Optorun, Shincron and Shincron,Hongda, glass manufacturers that may develop scratch resistant glass, touchscreen manufacturers that may adopt harder substrate materials, or other equipment companies, chemical companies or the display cover plate manufacturers themselves that may offer competing protective coatings including DLC, NCVM and AR. Intevac’s competitors for PVD processes in thefan-out packaging market include the companies SPTS Technologies, Evatec AG, ULVAC Technologies, Inc., Tango Systems, Inc., and NEXX Systems. These competitors generally have substantially greater financial, technical, marketing, manufacturing and other resources as compared to Intevac.
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Furthermore, any of Intevac’s competitors may develop enhancements to, or future generations of, competitive products that offer superior price or performance features. In addition, new competitors, with enhanced products may enter the markets that Intevac currently serves.
The principal competitive factors affecting Photonics products include price, extremelow-light level performance, power consumption, resolution, size, easePrior to the implementation of integration, reliability, spectral band, reputation and customer support and service. Intevac faces substantial competition for Photonics products, and many competitors have substantially greater resources and brand recognition. In the military market for soldier and helicopter night vision goggles, Elbit Systems andL-3 Communications are large and well-established defense contractors and are the primary U.S. manufacturers of analog image intensifier tubes usedits restructuring program inGeneration-III night-vision devices. For long range airborne targeting applications, Intevac competes against camera providers using low light CMOS imagery. Intevac expects that other companies will develop digital night-vision products and aggressively promote their sales. Within thenear-eye display market, March 2022, Intevac also currently facesfaced competition from Rockwell-Collins, Kopin and Six 15 Technologieslarge established global competitors in the defense spacePV equipment market including Centrotherm Photovoltaics, Jusung, Kingstone, Von Ardenne and anticipates thatBelight Technology and competitors for PVD processes in the future it will experience competition from lower performance, niche commercial HMD providers expanding into defense applications, all of which can offer cost-competitive products.fan-out packaging market such as SPTS Technologies (a KLA company), Evatec AG, ULVAC Technologies, Inc., Tango Systems, Inc. (an Applied Materials company) and ASM NEXX, Inc.
Marketing and Sales
TFE salesSales are made primarily through Intevac’s direct sales force. Intevac also sells its products through distributors in Japan and China. The selling process for Intevac’s TFE products is multi-level and lengthy, involving individuals from marketing, engineering, operations, customer service and senior management.
Installing and integrating new equipment requires a substantial investment by a customer. Sales of Intevac’s systems depend, in significant part, upon the decision of a prospective customer to replace obsolete equipment or to increase manufacturing capacity by upgrading or expanding existing manufacturing facilities or by constructing new manufacturing facilities, all of which typically involve a significant capital commitment. Intevac’s systems have a lengthy sales cycle, during which Intevac may expend substantial funds and management time and effort with no assurance that a sale will result.
The production of large complex systems requires Intevac to make significant investments in inventory both to fulfill customer orders and to maintain adequate supplies of spare parts to service previously shipped systems. Intevac maintains inventories of spare parts in the United States, Singapore, Malaysia and China to support its TFE customers. Intevac often requires its TFE customers to pay for systems in three installments, with a portion of the system price billed upon receipt of an order, a portion of the price billed upon shipment, and the balance of the price and any sales tax due upon completion of installation and acceptance of the system at the customer’s factory.
Intevac provides process and applications support, customer training, installation,start-up assistance and post-installation service support to Intevac’s TFE customers. Intevac supports U.S. customers from Intevac headquarters in Santa Clara, California, and has field offices in Singapore, China, and Malaysia to support Intevac’s customers in Asia.
Warranties for Intevac’s TFE products typically range between 12 and 24 months from customer acceptance. During the warranty period any necessarynon-consumable parts are supplied and installed without charge.
Sales of Photonics products for military applications are primarily made to the end user through Intevac’s direct sales force. Intevac sells to the U.S. government and to leading defense contractors such as Lockheed Martin Corporation, Northrop Grumman Corporation, Elbit Systems of America, Raytheon, Leonardo DRS, BAE Systems and Safran Electronics and Defense.
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Intevac is subject to long sales cycles in the Photonics segment because many of Intevac’s products, such as Intevac’s night-vision systems, typically must be designed into Intevac’s customers’ products, which are often complex andstate-of-the-art. These development cycles are generally multi-year, and Intevac’s sales are dependent on Intevac’s customer successfully integrating Intevac’s product into its product, completing development of its product and then obtaining production orders for its product. Sales of these products are also often dependent on ongoing funding of defense programs by the U.S. government and its allies. Additionally, sales to international customers are contingent on issuance of export licenses by the U.S. government.
Photonics generally invoices its research and development customers either as costs are incurred, or as program milestones are achieved, depending upon the particular contract terms. As a government contractor, Intevac invoices customers using estimated annual rates approved by the Defense Contracts Audit Agency (“DCAA”).
Research and Development and Intellectual Property
Intevac’s long-term growth strategy requires continued development of new products. Intevac works closely with Intevac’s customers to design products that meet their planned technical and production requirements. Product development and engineering organizations are located primarily in the United States and Singapore.
Intevac’s competitive position significantly depends on Intevac’s research, development, engineering, manufacturing and marketing capabilities, and not just on Intevac’s patent position. However, protection of Intevac’s technological assets by obtaining and enforcing intellectual property rights, including patents, is important. Therefore, Intevac’s practice is to file patent applications in the United States and other countries for inventions that Intevac considers important. Although Intevac does not consider Intevac’s business materially dependent upon any one patent, the rights of Intevac and the products made and sold under Intevac’s patents along with other intellectual property, including trademarks,know-how, trade secrets and copyrights, taken as a whole, are a significant element of Intevac’s business.
Intevac enters into patent and technology licensing agreements with other companies when management determines that it is in Intevac’s best interest to do so. Intevac pays royalties under existing patent license agreements for use of certain patented technologies in several of Intevac’s products. Intevac also receives, from time to time, royalties from licenses granted to third parties. Royalties received from or paid to third parties have not been material to Intevac’s consolidated results of operations.
In the normal course of business, Intevac periodically receives and makes inquiries regarding possible patent infringements. In dealing with such inquiries, it may be necessary or useful for us to obtain or grant licenses or other rights.
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However, there can be no assurance that such licenses or rights will be available to us on commercially reasonable terms, or at all. If Intevac is not able to resolve or settle claims, obtain necessary licenses and/or successfully prosecute or defend Intevac’s position, Intevac’s business, financial condition and results of operations could be materially and adversely affected.
Manufacturing
Intevac manufactures its TFE products at its facilities in California and Singapore. Intevac’s TFE manufacturing operations include electromechanical assembly, vacuum processing, fabrication of sputter sources, and system assembly, alignment and testing.
Photonics products are manufactured at Intevac’s facility in California. Photonics manufactures sensors, cameras, integrated camera systems, andnear-eye display systems using advanced manufacturing techniques and equipment. Intevac’s operations include vacuum processing, and electromechanical and optical system assembly.
Employees
At December 28, 2019, Intevac had 272 employees, including 14 contract employees.
Compliance with EnvironmentalGovernment Regulations
Intevac isWe are subject to a variety ofvarious government regulations in the United States as well as various international locations where we operate. These regulations cover several diverse areas including environmental compliance, import and export controls, economic sanctions, data and privacy protection, transfer pricing rules, anti-bribery, anti-trafficking and anti-trust provisions. Our policies mandate compliance with applicable laws and regulations administered by various state, federal and international agencies. We instituted various training programs to educate our employees on compliance with governmental regulations, as well as applied legal and ethical practices in our everyday work. We are subject to international, federal, state, and local legislation, regulations, and other requirements relating to the use, storage, discharge, handling, emission, generation, manufacture, treatment and disposal of toxic or otherwise hazardous substances, chemicals, materials or waste. Intevac treatswaste; recycling and product packaging; worker health and safety; and other activities affecting the environment, our workforce, and the management of our manufacturing operations. We believe that our operations and facilities comply in all material respects with applicable environmental laws and worker health and safety laws. We treat the cost of complying with government regulations and operating a safe workplace as a normal cost of business
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and allocates the cost of these activities to all functions, except where the cost can be isolated and charged to a specific function. The environmental standards and regulations promulgated by government agencies in California and Singapore are particularly rigorous and set a high standard of compliance. Intevac believes itsIn 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. We believe our costs of compliance with these regulations and standards are comparable to other companies operating similar facilities in these jurisdictions. We are also subject to import/export controls, tariffs, and other trade-related regulations and restrictions in the countries in which we have operations or otherwise do business. These controls, tariffs, regulations, and restrictions (including those related to, or affected by, United States-China relations) have had, and we believe may continue to have, a material impact on our business, including our ability to sell products and to manufacture or source components. The development of additional statutes and regulations and interpretation of existing statutes and regulations with respect to our industry can be expected to evolve over time. As with any commercial enterprise, we cannot predict with certainty the nature or direction of the development of federal statutes and regulations that will affect our business operations.
Human Capital Resources
General Information About Our Human Capital Resources
As of December 31, 2022, we had 166 employees, including 12 contract employees. Approximately 52% of our employees are located in the United States and 48% are located in Asia. Of our total workforce, 43 employees are involved in research and development; 81 employees are involved in operations, manufacturing, service and quality assurance; and 42 employees are involved in sales, order administration, marketing, finance, information technology, general management and other administrative functions.
Core Principles
Our core values are integral to our Company culture. We pride ourselves in providing a safe and positive work environment where mutual respect and ethical conduct is a core value. We believe in continuous learning and professional development and provide employees with opportunities to grow.
Community Involvement
Our employees are committed to making a difference in the community by actively volunteering and fundraising for many charities, including the American Cancer Society, Second Harvest, Humane Society, Make-a-Wish Foundation, and Salvation Army.
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Health and Safety
The health and safety of our employees is of utmost importance to us. We conduct regular self-assessments and audits to ensure compliance with our health and safety guidelines and regulatory requirements. Our ultimate goal is to achieve a level of work-related injuries as close to zero as possible through continuous investment in our safety programs. We provide protective gear (e.g. eye protection, masks and gloves) as required by applicable standards and as appropriate given employee job duties. Annual participation in trainings related to ethics, environment, health and safety, and emergency responses are at or near 100%.
Refer to “Impact of COVID-19” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information on actions taken by the Company to support its employees in response to the COVID-19 pandemic.
Talent Management
We regularly monitor and review with management human capital metrics that are key to our business, including hiring statistics, promotion rates, turnover rates, career growth and development, and diversity and inclusion.
Hiring Practices
It is our policy to hire and promote the best-qualified person for the job and comply fully with all domestic, foreign and local laws relating to discrimination in the workplace. Our good faith outreach efforts are designed to ensure that there are no barriers for members of any group and to encourage interest by all qualified persons. We believe our actions enhance diversity, including recruiting at venues representing women, minorities and U.S. military veterans.
Turnover
We continually monitor employee turnover rates, both regionally and as a whole, as our success depends upon retaining our highly trained engineering, manufacturing and operating personnel. The average tenure of our employees is 10.0 years in the United States and 9.1 years in Asia.
Diversity and Inclusion
Recognizing and respecting our global presence, we strive to maintain a diverse and inclusive workforce everywhere we operate. We believe that a diverse and motivated workforce is vital to our success. We strive to advance diversity and inclusion through various talent acquisition programs to attract, retain and develop a diverse, highly-skilled work force. We conduct employee surveys to provide on-going feedback on how we are doing against our commitment to treat all employees fairly and provide equal opportunity in an environment free of discrimination. Our diversity and inclusion principles are also reflected in our employee training, in particular by educating employees about our policies against harassment and bullying and about the elimination of bias in the workplace.
Management Team
We believe our management team has the experience necessary to effectively execute our strategy and advance our product and technology leadership. Our chief executive officer has more than 25 years of industry experience. He is supported by an experienced and talented professional team.
Training and Talent Development
We are committed to the continued development of our employees. Strategic talent reviews and succession planning occur on a planned cadence annually – globally and across all business areas. We are committed to identifying and developing the talents of our next generation leaders. We have a robust talent and succession planning process and have established specialized programs to support the development of our talent pipeline for critical roles in management, engineering, and operations. We also provide technical, professional and leadership training to our employees. We recognize and support the growth and development of our employees and offer opportunities to participate in internal as well as external learning opportunities. In 2022, the Company initiated a leadership training program. Approximately 50 employees globally participated in the leadership training program at a cost of approximately $2,800 per employee. The Company plans to increase the number of employees participating in this program in 2023 by 50%.
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Compensation and Benefits
We strive to offer employees regionally competitive compensation and benefits that are aligned to our values. All employees receive a base salary, incentive compensation and welfare benefits. Depending on the region, benefits may include medical, dental and vision coverage, short and long-term disability income protection, flexible spending plans (health, dependent and limited flexible spending) and basic and supplemental life insurance, accidental death and dismemberment insurance and retirement savings plan. Intevac pays the majority or all of the costs for these benefits.
We have various employee incentive plans. Our profit-sharing plan provides for the distribution of a percentage of pre-tax profits to substantially all of our employees not eligible for other performance-based incentive plans. Our executives and key contributors participate in bonus plans based on the achievement of profitability and other individual performance goals and objectives.
To foster a stronger sense of ownership and align the interests of employees with our stockholders we grant equity-based awards, including restricted stock units and performance-based restricted stock units to eligible employees. We also have an employee stock purchase plan, which provides employees with the opportunity to purchase Intevac common stock at a discount through payroll deductions. See Note 4 to the consolidated financial statements for a description of these plans.
Oversight and Management
As noted in its charter, our Compensation Committee is responsible for periodically reviewing our employee programs and initiatives, including healthcare and other benefits, as well as our management development and succession planning practices and strategies.
Information about our Executive Officers
Certain information about our executive officers and other key officers as of February 12, 202016, 2023 is listed below:
Name | Age | Position | ||||
Executive Officers: | ||||||
| President and Chief Executive Officer | |||||
James Moniz | Executive Vice President, Finance and Administration, Chief Financial Officer, Secretary and Treasurer | |||||
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| 55 |
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Other Key Officers: | ||||||
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| 60 |
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Mr. Blonigan Hunton joined Intevac in July 2013January 2022 as President and Chief Executive Officer.Officer and a member of the Board of Directors. Prior to joining Intevac, Mr. Bloniganco-founded Orbotech LT Solar in 2009 andHunton served as the company’sPresident and Chief Executive Officer until 2013.at Photon Control Inc., a fiber optics equipment manufacturing company, from May 2019 to July 2021. From 2006 until 2009,July 2017 to May 2019, he was the President and Chief OperatingExecutive Officer at Photon Dynamics,Ferrotec (USA) Corporation, an electronics component manufacturing company. From April 2017 to July 2017, Mr. Hunton served as Special Projects Manager at Ferrotec GmbH. Mr. Hunton served as Managing Director at Hunton Associates Ltd, a management consulting company, from January 2016 to July 2017. From 2012 to 2015, Mr. Hunton served as Chief Executive Officer of MBA Polymers, Inc. In 1991,, a recycling company. From 1985 to 2012, Mr. Blonigan joined Applied Materials’ AKT display subsidiary. During his tenure at AKT, he held various positions. In 2003, he was appointed President andHunton served in this role until 2006; from 1999 through 2003 he was Vice President, and prior to that time he was Director of Engineering and New Product Development.various management roles at the Edwards Group, a global vacuum technology company. Mr. BloniganHunton holds a BS in electronicmechanical engineering technology from DeVry University Missouriof Manchester Institute of Science and Technology.
Mr. Monizjoined Intevac as Executive Vice President, Finance and Administration, Chief Financial Officer and Treasurer in November 2014. Mr. Moniz previously served as the Chief Financial Officer of Nanometrics, Inc. from 2009 until his retirement in 2011. During 2008, Mr. Moniz was the Chief Financial Officer at Photon Dynamics, Inc. From 2000 until 2008, Mr. Moniz served as the Chief Financial Officer at Nextest Systems Corporation. Prior to Nextest, Mr. Moniz held senior financial management positions at Millennia Vision Corporation, Lockheed Martin Corporation, Loral Corporation and Varian Associates. Mr. Moniz holds an MBA, a BS in accounting and a BS in marketing from San Jose State University.
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Mr. Justyn has served Dickinson joined Intevac as Executive Vice President and General Manager, Photonics from February 2018. Mr. Justyn served as Senior Vice President of Global Operations in August 2022. Mr. Dickinson previously served as Director, Mechanical Engineer within the ICAPS group (encompassing chips for IoT, communications, automotive, power, and sensors) of Applied Materials, Inc. from February 2015April 2021 to February 2018.August 2022. From January 2018 to April 2021, Mr. JustynDickinson served as Managing Director of the Livermore Business Unit of Ferrotec USA. From 2012 until April 2018, Mr. Dickinson served as Applications Engineering Director, Distinguished Member of the Technical Staff at Applied Materials, Inc. From 1995 to 2012, Mr. Dickinson held various management and engineering roles at the Edwards Group. Mr. Dickinson holds a MS in Mechanical Engineering and Materials from the University of London.
Dr. Harkness has served as Vice President Photonics fromof Product Development and Technology since May 2022. Dr. Harkness re-joined Intevac in October 20082018 as a Senior Member of the Technical Staff and accepted increasing responsibility leadership positions to February 2015. Mr. Justyninclude his current role. From 2014 to 2018, Dr. Harkness served as ViceFounder and President TFE Manufacturing from April 1997 to October 2008. Mr. Justyn joinedof HIA, Inc., a magnetron development company that was acquired by Intevac in February 1991August 2022. In 2013 to 2014, Dr. Harkness was a Technologist for Veeco Instruments, a global capital equipment company. From 2012 to 2013, Dr. Harkness was Device Physicist for Plextronics Inc., a start-up venture in OLED solution processing. From 1998 to 2009, Dr. Harkness held various technical leadership roles at Seagate Technology in the component development organization for hard disk drive products. From 2010 to 2012 and has served infrom 1996 to 1998, Dr. Harkness held various management and engineering roles in our TFE Products Divisionat Intevac. Dr. Harkness holds a Ph.D. and our former night-vision business. Mr. Justyn holds a BS in chemicalmaterial science and engineering from the University of California, Santa Barbara.Florida.
Mr. Cho Popovich joined Intevac in January 2014 and currently serves as Executive Vice President of Business Development in October 2022. From February 2018 to November 2022 Mr. Popovich served as a director of Intevac. Beginning in March 2022, Mr. Popovich has served as an independent industry consultant to semiconductor and General Manager, TFE. Priordisplay-related companies, and from May 2022 to joiningOctober 2022, provided professional services to Intevac related to business development activities in its equipment growth initiatives. From November 2017 to February 2022, Mr. Cho was President,Popovich served as the Chief Executive Officer andCo-Founderof REEnewal Corporation.3D Glass Solutions, a privately-held company producing glass-based system-on-chip and system-in-package. In 2017, Mr. Popovich was the Chief Strategy Officer of Semblant, Inc., a start-up specializing in waterproof nano-coatings for consumer electronics products. From 20062013 until 2017, Mr. Popovich held corporate vice president positions at Henkel Corporation, a multi-national chemical and consumer goods company. From 2002 until 2013, Mr. Popovich served as general manager, vice president at Amkor Technology, an outsourced provider in the semiconductor assembly and packaging industry. From 1996 until 2002, Mr. Popovich served as a director at ChipPAC Inc, a semiconductor company. Mr. Popovich holds a BS in Ceramic Science & Engineering from Pennsylvania State University.
Ms. Valencia joined Intevac as Vice President of Sales in November 2022. From August 2021 to 2011, Mr. ChoNovember 2022, Ms. Valencia served as Senior Director, Semiconductor Sales at MKS Corporation, a provider of semiconductor manufacturing, advanced electronics and specialty industrial application products. From July 2019 to August 2021, Ms. Valencia served as Vice President / Generalat Photon Control Inc., a provider of optical sensors and systems to the semiconductor equipment industry. From March 2013 to July 2019, Ms. Valencia was Sales Director at Ferrotec (USA) Corporation, an electronics component manufacturing company. From 2011 until 2013, Ms. Valencia was Western Regional Sales Manager at Maine Machine, a manufacturer of the Testerhigh tolerance precision machined components and Repair Business Units of Orbotech LTD.assemblies. From 2005 to 2006, Mr. Cho2008 until 2011, Ms. Valencia served as Vice President, Product DevelopmentKey Account Manager at MetaraEntegris Corporation, a provider of advanced materials and materials handling solutions for semiconductor manufacturing processes. From 2006 until 2008, Ms. Valencia served as Western Regional Sales Manager at SUSS MicroTec Inc. From 1992 to 2005, Mr. Cho held various management positions at Novellus Systems, Inc. Prior to Novellus, Mr. Cho worked, a supplier of equipment and process solutions for Digital Equipment Corporationthe semiconductor industry and Intermec Corporation. Mr. Choadjacent markets such as advanced packaging, microelectromechanical systems (MEMS) and light emitting diode (LED). Ms. Valencia holds a BS in electrical engineeringBiology from Washington State University and an MBA from University of Phoenix.
Mr. Aebihas served as Chief Technology Officer of the Photonics business since August 2006. Previously, Mr. Aebi served as President of the Photonics Division from July 2000 to July 2006 and as General Manager of the Photonics Division since May 1995. Mr. Aebi was elected as a Vice President of the Company in September 1995. From 1988 through 1994, Mr. Aebi was the Engineering Manager of the night-vision business Intevac acquired from Varian Associates in 1991, where he was responsible for new product development in the areas of advanced photocathodes and image intensifiers. Mr. Aebi holds a BS in physics and an MS in electrical engineering from Stanford University.
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Mr. Bluck rejoined Intevac as Chief Technology Officer of TFE in August 2004. Mr. Bluck had previously worked at Intevac from December 1996 to November 2002 in various engineering positions. The business unit Mr. Bluck worked for was sold to Photon Dynamics in November 2002, and he was employed there as Vice President, Rapid Thermal Process Product Engineering until August 2004. Mr. Bluck holds a BS in physics from San Jose State University.
Ms. Burk joined Intevac in May 2000 and currently serves as Senior Vice President of Global Human Resources. Prior to joining Intevac, Ms. Burk served as Human Resources Manager of Moen, Inc. from 1999 to 2000 and as Human Resources Manager of Lawson Mardon from 1994 to 1999. Ms. Burk holds a BS in sociology from Northern IllinoisNotre Dame de Namur University.
Available Information
Intevac’s website is http://www.intevac.com. Intevac makes available free of charge, on or through its website, its annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with, or furnishing them to, the SEC. This website address is intended to be an inactive textual reference only and none of the information contained on Intevac’s website is part of this report or is incorporated by reference herein.
Trademarks
Intevac’s trademarks include the following: “200 Lean®,” “DiamondCladTM,” “DIAMOND DOG™,” “EBAPS®,” “ENERGi®,” “LIVAR®,” “INTEVAC LSMA®,” “INTEVAC MATRIX®,” “MicroVista®,” “NightVista®,” “oDLC®,” and “INTEVAC VERTEXTRIO®™,” “VERTEX MarathonTM,” and “VERTEX SPECTRATM.”
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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.Annual Report on Form 10-K.
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 PV solar cells 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. OurFor 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. SalesHowever, sales of systems and upgrades for magnetic disk production in 2019, 2020 and 2021 were slightly down from the levels in 2018 as this customer took delivery of fourfewer or no (in the case of 2021 and 2022) systems. Intevac expects sales of systems and upgrades for magnetic disk production in 20202023 will be at levels similar levels fromto the levels in 2019.2022.
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.
In recent years Reductions in capital investment could be particularly pronounced as the photovoltaic (solar) market has undergone a downturn, which is likely to impact our salescost of PV equipment. The solar industry from time to time experiencesobtaining capital increases during periods of structural imbalance between supply and demand, and such periods put intense pressure on our customers’ pricing. The solar industry is currently in such a period. Competition in solar markets globally and across the solar value chain is intense, and could remain that way for an extended period of time. During any such period, solar module manufacturers may reduce their sales prices in response to competition, even below their manufacturing costs, in order to generate sales and may do so for a sustained period of time. As a result, our customers may be unable to sell their solar modules or systems at attractive prices or for a profit during a period of excess supply of solar modules, which would adversely affect their results of operations and their ability to make capital investments such as purchasing our products.rapidly rising interest rates.
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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.
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, resulting from factors such as the COVID-19 pandemic, such as labor supply and shipping container shortages, 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, there can be no assurances that unforeseen events impacting the supply chain will not have a material adverse effect on our business, financial condition and results of operations in the future. Additionally, the impacts supply chain disruptions have on our suppliers are not within our control. It is not currently possible to predict how long it will take for these supply chain disruptions to cease. Prolonged supply chain disruptions impacting us and our suppliers could interrupt product manufacturing, increase lead times, increase product costs and continue to increase shipping costs, all of which may have a material adverse effect on our business, financial condition and results of operations.
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 rapidly rising interest rates and inflation.
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Global economic conditions may harm our industry, business and results of operations.
We operate globally and as a result our business, revenues 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 rate fluctuations, interest rates, tax rates, economic uncertainty, political instability, changes in laws, and trade barriers and sanctions. Recently, inflation rates in the U.S. have increased to levels not seen in several years. Such economic volatility could adversely affect our business, financial condition, results of operations and cash flows, and future market disruptions could negatively impact us. 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.
The impact of the COVID-19 pandemic, or similar global health concerns, has negatively impacted and could continue to negatively impact our operations, supply chain and customer base.
The COVID-19 pandemic has severely restricted the level of economic activity around the world, which may impact demand for our products. Our operations and supply chains for certain of our products or services have been and could continue to be negatively impacted by the regional or global outbreak of illnesses, including COVID-19. The impact of COVID-19, including changes in consumer behavior, pandemic fears, and market downturns as well as restrictions on business and individual activities has created significant volatility in the global economy and led to reduced economic activity. There have been extraordinary actions taken by federal, state, and local public health and governmental authorities to contain the spread of COVID-19 and although many restrictions that were in place have eased in many localities, some areas that had previously eased restrictions have reverted to more stringent limitations in light of the emergence of new strains of COVID-19. There remains significant uncertainty concerning the magnitude of the impact and the duration of the COVID-19 pandemic. The extent that our operations will continue to be impacted by the COVID-19 pandemic will depend on future developments, including any new potential waves of the virus, new strains of the virus, and the success of vaccination programs, all of which are highly uncertain and cannot be accurately predicted.
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.
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.
The Photonics business is also subjectOur results of operations could be materially harmed if we are unable to long sales cycles because manyaccurately 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. If we fail to accurately forecast customer demand, we may experience excess inventory levels or a
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shortage of itsproduct to deliver to 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 our military imaging products, often must be designed into the customers’ end products,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, or political or labor instability or unrest, civil unrest, riots or insurrections, public health crises such as the COVID-19 pandemic (or other future pandemics or epidemics), including the severity and transmission rates of new variants, which are often complexstate-of-the-art products. These development cycles are typically multi-year,could adversely affect customer confidence and our sales are contingent on our customers successfully integrating our product into their product, completing developmentspending or interrupt production and distribution of their product and then obtaining production ordersraw materials.
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. In addition, if we underestimate the demand for theirour products, we may not be able to produce products to meet our customer requirements, and this could result in delays in the shipment of our products, therefore impacting our ability to recognize revenue, generate lost sales, and cause damage to our reputation and relationships with our customers. Inaccurate forecasts may also adversely impact our ability to prepare forward-looking statements and meet investor expectations.
Challenges in forecasting demand can also make it difficult to estimate future results of operations and financial condition from period to period. A failure to accurately predict the level of demand for our products or manage product from the U.S. government or its allies.inventory in an effective and efficient manner could adversely impact our results of operations and cause us not to achieve our expected financial results.
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. In the PV equipment market, Intevac faces competition from large established competitors including Centrotherm Photovoltaics, Jusung, Kingston and Von Ardenne. In the market for our military imaging products we experience competition from companies such as Elbit Systems andL-3 Communications. Some of our competitors have substantially greater financial, technical, marketing, manufacturing and other resources than we do, especially in the DCP and PV equipment markets.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 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 other PVD systems, our coating systems for DCP, our solar systems for PV applications, our digital night-vision products and ournear-eye display products. Our success in developing and selling new products depends upon a variety of factors, including
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our ability to: predict future customer requirements; make technological advances; achieve a low total cost of ownership for our products; introduce new products on schedule; manufacture products cost-effectively including transitioning production to volume manufacturing; commercialize and attain customer acceptance of our products; and 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 PV and display cover glass markets. Our expansion into the PV and cover glass markets 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 markets, to successfully develop cost effective products to address the markets or to establish effective sales and support of the 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.
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, 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, particularly as we realign our operations to focus on the HDD and DCP markets. 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 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. Orders from a relatively limited number of manufacturers have accounted for, and will likely continue to account for, a substantial portion of our revenues. The loss of one of these large customers, or delays in purchasing by them, couldwould have a material and adverse effect on our revenues.
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 and PV solar cells our customers produce with our systems; (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
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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 shares. 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 be able to obtain export licenses from the U.S. government permitting delivery of our products to international customers.
Many of our products, especially Photonics products, require export licenses from U.S. government agencies under the Export Administration Act, the Trading with the Enemy Act of 1917, the Arms Export Act of 1976 or the International Traffic in Arms Regulations. These regulations limit the potential market for some of our products. We can give no assurance that we will be successful in obtaining all the licenses necessary to export our products. Heightened government scrutiny of export
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licenses for defense related products has resulted in lengthened review periods for our license applications. Exports to countries that are not considered by the U.S. government to be allies are likely to be prohibited, and even sales to U.S. allies may be limited. Failure to comply with export control laws, including identification and reporting of all exports andre-exports of controlled technology or exports made without correct license approval or improper license use could result in severe penalties and revocation of licenses. Failure to obtain export licenses, delays in obtaining licenses, or revocation of previously issued licenses would prevent us from selling the affected products outside the United States and could negatively impact our results of operations.
The Photonics business is dependent on U.S. government contracts, which are subject to fixed pricing, immediate termination and a number of procurement rules and regulations.
We sell our Photonics products and services directly to the U.S. government, as well as to prime contractors for various U.S. government programs. The U.S government is considering significant changes in the level of existing,follow-on or replacement programs. We cannot predict the impact of potential changes in priorities due to military transformations and/or the nature of futurewar-related activities. A shift of government priorities to programs in which we do not participate and/or reductions in funding for or the termination of programs in which we do participate, unless offset by other programs and opportunities, could have a material adverse effect on our financial position, results of operations, or cash flows.
Funding of multi-year government programs is subject to congressional appropriations, and there is no guarantee that the U.S. government will make further appropriations. Sales to the U.S. government and its prime contractors may also be affected by changes in procurement policies, budget considerations and political developments in the United States or abroad. For example, if the U.S. government is less focused on defense spending or there is a decrease in hostilities, demand for our products could decrease. The loss of funding for a government program would result in a loss of future revenues attributable to that program. The influence of any of these factors, which are beyond our control, could negatively impact our results of operations.
A significant portion of our U.S. government revenue is derived from fixed-price development and production contracts. Under fixed-price contracts, unexpected increases in the cost to develop or manufacture a product, whether due to inaccurate estimates in the bidding process, unanticipated increases in material costs, reduced production volumes, inefficiencies or other factors, are borne by us. We have experienced cost overruns in the past that have resulted in losses on certain contracts, and may experience additional cost overruns in the future. We are required to recognize the total estimated impact of cost overruns in the period in which they are first identified. Such cost overruns could have a material adverse effect on our results of operations.
Generally, government contracts contain provisions permitting termination, in whole or in part, without prior notice at the government’s convenience upon the payment of compensation only for work done and commitments made at the time of termination. We cannot ensure that one or more of the government contracts under which we, or our customers, operate will not be terminated under these circumstances. Also, we cannot ensure that we, or our customers, would be able to procure new government contracts to offset the revenues lost as a result of any termination of existing contracts, nor can we ensure that we, or our customers, will continue to remain in good standing as federal contractors.
As a U.S. government contractor we must comply with specific government rules and regulations and are subject to routine audits and investigations by U.S. government agencies. If we fail to comply with these rules and regulations, the results could include: (1) reductions in the value of our contracts; (2) reductions in amounts previously billed and recognized as revenue; (3) contract modifications or termination; (4) the assessment of penalties and fines; and (5) suspension or debarment from government contracting or subcontracting for a period of time or permanently.
Our business could be negatively impacted by cyber and other security threats or disruptions.
As a defense contractor, we face various cyber and other security threats, including espionage and 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 in general 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
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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. 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.
Our success depends on international sales and the management of global operations.
In previous years, the majority of our revenues have come from regions outside the United States. 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. We expect that international sales will continue to account for a significant portion of our total revenue in future years. 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 growing manufacturing business 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 sparesspare 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 credit markets; (13) variations in tariffs, quotas, tax codes and other market barriers; and (14) barriers to movement of cash.
We must regularly assess the size, capability and location of our global infrastructure and make appropriate changes to address these issues.
Difficulties in integrating past or future acquisitions 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. With any divestiture, there are risks that future operating results could be unfavorably impacted if targeted objectives, such as cost savings, are not achieved or if other business disruptions occur as a result of the divestiture or activities related to the divestiture.
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
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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 tonon-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 our TRIO coating platform for DCP. Our success in developing and selling new products depends upon a variety of factors, including our ability to: predict future customer requirements; make technological advances; achieve a low total cost of ownership for our products; introduce new products on schedule; manufacture products cost-effectively including transitioning production to volume manufacturing; commercialize and attain customer acceptance of our products; and 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
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expand into new or related markets, including the display cover glass market. Our expansion into the cover glass 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, to successfully develop cost effective products to address the market or to establish effective sales and support of the new products would have a material adverse effect on certain suppliersfuture revenues and profits. In addition, if we invest in products for parts usedwhich 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.
We are a manufacturing business. Purchased parts constitute the largest component of Our future success depends in part on our product cost. Our ability to manufacture depends on the timely delivery of parts, componentsdevelop and subassemblies from suppliers. We obtain some of the key componentsoffer new products with improved capabilities and subassemblies used into continue to enhance our existing products. If new products from a single supplierhave reliability or a limited group of suppliers. If any ofquality problems, our suppliers fail to deliver quality parts on a timely basis, weperformance may experiencebe impacted by reduced orders, higher manufacturing costs, delays in manufacturing, which could result in delayed product deliveries, increased costs to expedite deliveries or develop alternative suppliers, or require redesign of ouracceptance and payment for new products to accommodate alternative suppliers. Some of our suppliers are thinly capitalized and may be vulnerable to failure.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.
Risks Related to Government Regulation
We may not be able to obtain export licenses from the U.S. government permitting delivery of our products to international customers.
Many of our products, require export licenses from U.S. government agencies under the Export Administration Act. These regulations limit the potential market for some of our products. We can give no assurance that we will be successful in obtaining all the licenses necessary to export our products. Heightened government scrutiny of export licenses for defense related products has resulted in lengthened review periods for our license applications. Failure to comply with export control laws, including identification and reporting of all exports and re-exports of controlled technology or exports made without correct license approval or improper license use could be involvedresult in litigation.
From timesevere penalties and revocation of licenses. Failure to time we may be involvedobtain export licenses, delays in litigationobtaining licenses, or revocation of various types, including litigation alleging infringement of intellectual property rights and other claims and customer disputes. Litigation is expensive, subjectspreviously issued licenses would prevent us tofrom selling the risk of significant damages and requires significant management time and attentionaffected products outside the United States and could have a material and adverse effect onnegatively impact our business, financial condition and results of operations.
We are subject to risks ofnon-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.
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General Risk Factors
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.
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, we recently settled an action against us under the Private Attorneys General Act (“PAGA”) for $1.0 million. Litigation is expensive, subjects us to the risk of significant damages and 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
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communications infrastructure due to power loss, telecommunications failure, human error, physical or electronic security
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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. Beginning in 2004, our Form10-K has included a report by management of their assessment of the adequacy of such internal control. Additionally, our independent registered public accounting firm must publicly attest to the effectiveness of our internal control over financial reporting. We have completed the evaluation of our internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act. Although our assessment, testing, and evaluation resulted in our conclusion that as of December 28, 2019,31, 2022, our internal controlscontrol over financial reporting werewas effective, we cannot predict the outcome of our testing in future periods. Ongoing compliance with this requirement is complex, costly and time-consuming. If Intevac fails to maintain effective internal control over financial reporting; or our management does not timely assess the adequacy of such internal control; or our independent registered public accounting firm does not deliver an unqualified opinion as to the effectiveness of our 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.
Item 1B. | Unresolved Staff Comments |
None.
Item 2. | Properties |
Intevac maintains its corporate headquarters in Santa Clara, California. The location, approximate size and type of facility of the principal properties are listed below. Intevac leases all of its properties and does not own any real estate.
Location | Square Footage | Principal Use | ||||
Santa Clara, | 169,583 | * | Corporate Headquarters; Marketing, Manufacturing, Engineering and Customer Support | |||
Singapore | 31,947 | |||||
Malaysia | 1,291 | |||||
Shenzhen, China | 2,568 |
* | In connection with the disposition of our Photonics business, we entered into a lease assignment agreement with EOTECH that assigns the lease obligation for two buildings in our California campus consisting of 94,890 square feet of rentable space to EOTECH. As part of the assignment, we agreed to subsidize a portion of EOTECH’s lease payments through the remainder of the lease term which expires in March 2024. |
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Intevac considers these properties adequate to meet its current and future requirements. Intevac regularly assesses the size, capability and location of its global infrastructure and periodically makes adjustments based on these assessments.
Item 3. | 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. For a description of our material pending legal proceedings, see Note 12 “Commitments and Contingencies” to the consolidated financial statements in Part II, Item 8 of this Annual Report. See also “Risk Factors” in Part I, Item 1A of this Annual Report.
Item 4. | Mine Safety Disclosures |
Not applicable.
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PART II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information
Intevac common stock is traded on The Nasdaq Stock Market (NASDAQ Global Select) under the symbol “IVAC.” As of February 12, 2020,16, 2023, there were 7573 holders of record.
Recent Sales of Unregistered Securities
None.
Dividend Policy
We currently anticipate that we will retain our earnings, if any, for use in the operation of our business and do not expect to pay cash dividends on our capital stock in the foreseeable future.
Repurchases of Intevac Common Stock
On November 21, 2013, Intevac’s Board of Directors approved a stock repurchase program authorizing up to $30.0 million in repurchases. On August 15, 2018, Intevac’s Board of Directors approved a $10.0 million increase to the original stock repurchase program authorizing up to $40.0 million. At December 28, 2019, $10.8 million remains available for future stock repurchases underThere is no expiration date on this authorization, and we may suspend, amend or discontinue the repurchase program.program at any time. Intevac did not make any common stock repurchases during the three months ended December 28, 2019.31, 2022. At December 31, 2022, $10.4 million remains available for future stock repurchases under the repurchase program.
Item 6. |
|
Not applicable for smaller reporting companies.
2021
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Management’s Discussion and Analysis (MD&A)(“MD&A”) is intended to facilitate an understanding of Intevac’s business and results of operations. This MD&A should be read in conjunction with Intevac’s Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included elsewhere in thisForm 10- K. The following discussion contains forward-looking statements and should also be read in conjunction with the cautionary statement set forth at the beginning of thisForm 10-K. MD&A includes the following sections:
• | Overview: a summary of Intevac’s business, measurements and opportunities. |
• | Results of Operations: a discussion of operating results. |
• | Liquidity and Capital Resources: an analysis of cash flows, sources and uses of cash, and financial position. |
• | Critical Accounting |
Discontinued Operations
On December 30, 2021, the Company completed the sale of its Photonics business to EOTECH. 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 consolidated financial statements in Item 8 of this Annual Report. The Company has recast prior period amounts presented within this Annual Report to provide visibility and comparability.
Overview
Intevac is a provider of vacuum deposition equipment for a wide variety of thin-film applications, and a leading provider of digital night-vision technologies and products to the defense industry.applications. The Company leverages its core capabilities in high-volume manufacturing of small substrates to provide process manufacturing equipment solutions to the HDD, DCP,hard disk drive (“HDD”) and solar celldisplay cover panel (“DCP”) industries. Intevac also provides sensors, cameras and systems for government applications such as night vision and long-range target identification. Intevac’s customers include manufacturers of hard disk media DCPs and solar cells as well as the U.S. government and its agencies, allies and contractors.DCPs. Intevac reports two segments: TFE and Photonics.
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 TFE customers. Intevac’s products are highly technical and are sold primarily through Intevac’s direct sales force. Intevac also sells its products through distributors in Japan and China.
Intevac’s results of operations are driven by a number of factors including success in its equipment growth initiatives in the DCP and solar marketsmarket 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 theend-user demand for PCs, enterprise data storage, nearline “cloud” applications, video players and video game consoles that include such drives. Intevac continues to execute its strategy of equipment diversification into new marketsbeyond the HDD industry by introducing new products, such asfocusing on the Company’s ability to provide proprietary tools to enhance scratch protection and durability for a thin-film PVD application for protective coating forthe DCP market and by working to develop the next generation of high volume DCP manufacturing and a thin-film PVD application for PV solar cell manufacturing.equipment. Intevac believes that expansion into these marketsits renewed focus on the DCP 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 and PV cells as well as other factors such as global economic conditions and technological advances in fabrication processes.
In March 2022, the Company approved and implemented a restructuring program to realign the Company’s operational focus, scale the business and improve costs. The restructuring program includes (i) reducing the Company’s headcount and (ii) eliminating several research and development (“R&D”) programs and product offerings. As part of this realignment effort, the Company ceased its efforts to develop and market several of its manufacturing platforms for the DCP, PV and ASP industries and ceased offering certain legacy products within these industries.
Fiscal Year | 2019 | 2018 | Change 2019 vs. 2018 | |||||||||
(in thousands, except percentages and per share amounts) | ||||||||||||
Net revenues | $ | 108,885 | $ | 95,114 | $ | 13,771 | ||||||
Gross profit | $ | 40,868 | $ | 32,694 | $ | 8,174 | ||||||
Gross margin percent | 37.5 | % | 34.4 | % | 3.1 points | |||||||
Operating income (loss) | $ | 3,925 | $ | (4,217 | ) | $ | 8,142 | |||||
Net income | $ | 1,148 | $ | 3,581 | * | $ | (2,433 | ) | ||||
Net income per diluted share | $ | 0.05 | $ | 0.16 | * | $ | (0.11 | ) |
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Fiscal Year | 2022 | 2021 | Change 2022 vs. 2021 | |||||||||
(in thousands, except percentages and per share amounts) | ||||||||||||
Net revenues | $ | 35,761 | $ | 38,524 | $ | (2,763 | ) | |||||
Gross profit | $ | 15,086 | $ | 7,067 | $ | 8,019 | ||||||
Gross margin percent | 42.2 | % | 18.3 | % | 23.9 points | |||||||
Operating loss | $ | (16,512 | ) | $ | (22,476 | ) | $ | 5,964 | ||||
Net loss from continuing operations | $ | (16,754 | ) | $ | (23,057 | ) | $ | 6,303 | ||||
Net income (loss) from discontinued operations, net of tax | $ | (321 | ) | $ | 49,677 | $ | (49,998 | ) | ||||
Net income (loss) | $ | (17,075 | ) | $ | 26,620 | $ | (43,695 | ) | ||||
Net income (loss) per basic and diluted share | $ | (0.68 | ) | $ | 1.09 | $ | (1.77 | ) |
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Fiscal 20182021 financial results reflected a challenging environment. In 2018, Intevacfiscal 2021, we recognized revenue on fourour first MATRIX PVD system for ASP and sold the Photonics division and recognized a gain of $54.3 million and received cash of $70 million upon the closing of the transaction. Fiscal 2021 financial results for our continuing operations reflected a challenging environment as we did not recognize revenue on any 200 Lean HDD systems assystems. During fiscal 2021, we recorded an $8.4 million inventory valuation write-down primarily related to our HDD customer upgraded the technology level of their manufacturing capacity. In 2018, Intevac recognized revenue on the three solar implant ENERGi systems shipped in the previous year. Photonics continued to deliver production shipments of the night-vision camera modules for the F35 Joint Strike Fighter program in fiscal 2018. With the completion of
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the Apache program in 2017, the Photonics revenue profile moved from a product-driven one to a funded R&D revenue profile. Photonics margins and operating results were negatively impacted by ahigher-mix of lower margin technology development contracts versus product sales. Fiscal 2018 net income reflected recognition of an income tax benefit and lower operating expensesVertex inventory due to business conditions and lack of demand. During fiscal 2021, we received $83,000 in government assistance related to COVID-19 from the government of Singapore, of which $56,000 was reported as a reduction of cost containment activities put in place in the first quarter of fiscal 2018, offset in part by lower net revenues, $10,000 was reported as a reduction of R&D expenses and lower gross margins.$17,000 was reported as a reduction of selling, general and administrative expenses. During fiscal 2018, the Company reversed the valuation allowance recorded against the deferred tax assets related to its Singapore operations. This reversal resulted in the recognition of anon-cash income tax benefit of $7.9 million. During fiscal 2018, the Company2021, we did not recognize an income tax benefit on itsour U.S. net operating loss.
Fiscal 20192022 financial results reflected an improveda continued challenging environment as the Company resumed its growth trajectory. Fiscal 2019 HDD equipment sales were slightly lower than 2018. Intevac recognizedat similar levels to fiscal 2021, and we did not recognize revenue on fourany 200 Lean HDD systems with an additional twosystems. Higher gross margin in backlog atfiscal 2022 reflects the endhigher-margin contribution from HDD upgrades, offset in part by $755,000 in charges for excess and obsolete inventory as part of the year. In 2019, Intevac recognized revenue on nine solar implant ENERGi systems. We also made significant progressCompany’s realignment effort. R&D expenses for fiscal 2022 include $1.5 million in our TFE growth initiatives, placing evaluation tools with leading manufacturers in both the display cover glass market and the advanced semiconductor packaging market. In fiscal 2019, Photonics business levels were higher comparedexpenditures related to the prior year due primarilydisposal of certain lab equipment as part of the realignment effort. The cost of employee severance associated with the realignment effort of $1.2 million was offset in full by stock-based compensation forfeitures related to the $31.6 million U.S. Army IVAS contract award. Photonics continued to deliver production shipmentsemployees affected by the reduction in workforce. TSA and shared service fees were $989,000 for fiscal 2022, of the night-vision camera modules for the F35 Joint Strike Fighter program in fiscal 2019 and resumed shipmentswhich $23,000 was reported as a reduction of the Apache camera in the second halfcost of 2019. Fiscal 2019 net income was the result of higher net revenues and higher gross margins. During 2019,$966,000 was reported as a reduction of selling, general and administrative expenses. The agreed-upon charges for such services are generally intended to allow the service provider to recover all costs and expenses of providing such services. The Company received an unfavorable decision on its appealdid not receive any government assistance related to a tax auditCOVID-19 from the government of Singapore in Singapore and although management has decided to appeal this decision, management determined that the Company could no longer support a more likely than not position. Accordingly, the Company recorded a charge of $732,000 which is included in the provision for income taxes.fiscal 2022. During fiscal 2019, the Company2022, we did not recognize an income tax benefit on itsour U.S. net operating loss.
We believe that wefiscal 2023 will continue to be a challenging year, and Intevac does not expect be profitable in fiscal 2020.2023. Intevac expects that 2023 HDD equipment sales will be down from 2019 levels as asimilar to 2022 levels. We believe there will be improvements to our HDD manufacturer takes delivery ofequipment sales in the two 200 Lean HDD systems in backlog. In 2020, Intevac expects higher sales of new TFE productsfuture as we expect to: (i) convert at least one ofa customer to start taking deliveries from the twoeleven systems under evaluation at customer factoriesin backlog starting in fiscal 2023. In fiscal 2023, we expect to begin recognizing revenue from our TRIO platform as the product completes qualifications and (ii) obtain follow on production ordersshipments. However, 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, rising inflation and interest rates may impact demand for our VERTEX coating system for DCPsproducts and services and our solar implant ENERGi system. cost to provide products and services.
The second evaluation system at a customer factory is expectedImpact of COVID-19
The impact of COVID-19, including changes in consumer behavior, pandemic fears, and market downturns, as well as restrictions on business and individual activities, has created significant volatility in the global economy and led to convertreduced economic activity. Although COVID-19 vaccines are now broadly distributed and administered, there remains significant uncertainty concerning the magnitude of the impact and the duration of the COVID-19 pandemic. As new strains of COVID-19 develop, the continued impacts to revenue in 2021. In 2020, we expect Increased product revenue in Photonics as weour business could be material to our fiscal 2023 results. Further, the impacts of inflation and interest rate fluctuations on our business and the broader economy, which may continue to deliver product shipmentsbe exacerbated by the economic recovery from the COVID-19 pandemic, may also impact our financial condition and results of operations. Our customers may delay or cancel orders due to reduced demand, supply chain disruptions, and/or travel restrictions and border closures.
In Singapore, Intevac received government assistance under the Job Support Scheme (“JSS”). The purpose of the Apache cameraJSS was to provide wage support to employers to help them retain their local employees. Under the JSS, Intevac received $83,000 in JSS grants in fiscal 2021. Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), we deferred the payment of the employer portion of payroll taxes in fiscal 2020 and received tax benefits from the employee retention tax credit. We repaid the first installment of the deferred payroll taxes at the end of fiscal 2021 and the night-vision camera modules forsecond installment of the F35 Joint Strike Fighter program. In 2020, we expect increased contract R&D revenue as development work continues ondeferred payroll taxes at the multi-year IVAS contract award forend of fiscal 2022.
During both fiscal 2022 and fiscal 2021, the developmentCompany’s expenses included approximately $67,000 and production of digital night-vision cameras$159,000, respectively, due to support the U.S. Army’s IVAS program. For fiscal 2020, Intevac expects that Photonics profits will be higher than fiscal 2019 as Photonics results will reflect higher revenue levels.costs related to actions taken in response to COVID-19.
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Results of Operations
Net revenues
2019 | 2018 | Change 2019 vs. 2018 | ||||||||||
(in thousands) | ||||||||||||
TFE | $ | 73,678 | $ | 69,348 | $ | 4,330 | ||||||
Photonics | ||||||||||||
Products | 15,550 | 15,972 | (422 | ) | ||||||||
Contract R&D | 19,657 | 9,794 | 9,863 | |||||||||
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35,207 | 25,766 | 9,441 | ||||||||||
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Total net revenues | $ | 108,885 | $ | 95,114 | $ | 13,771 | ||||||
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Fiscal Year | Change 2022 vs. 2021 | |||||||||||
2022 | 2021 | |||||||||||
(in thousands) | ||||||||||||
Total net revenues | $ | 35,761 | $ | 38,524 | $ | (2,763 | ) | |||||
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Net revenues consist primarily of sales of equipment used to manufacture thin-film disks, PV cells, DCPs, and advanced semiconductor packaging and related equipment and system components; sales oflow-light imaging products; and revenue from contract R&D related to the development of electro-optical sensors, cameras and systems.equipment.
The increasedecrease in TFE revenues in fiscal 20192022 versus fiscal 20182021 was due primarily to higherlower systems sales as TFE recognized revenue on four 200 Lean HDD systems and nine solar implant ENERGi systems,lower service and spare parts sales, offset in part by decreases inhigher technology upgrade sales. In fiscal 2022, we recognized revenue recognized on technology upgrades, service and spare parts. In fiscal 2018, TFE2021, we recognized revenue recognized four 200 Lean HDD systems and three solar implant ENERGi systems as well ason one MATRIX PVD system for ASP, technology upgrades, service and spare parts. Since implementing our restructuring program, we expect to see declining revenue from our PV cells, ASP products and equipment.
Backlog
December 31, 2022 | January 1, 2022 | |||||||
(in thousands) | ||||||||
Total backlog | $ | 121,743 | $ | 24,725 | ||||
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Photonics revenues increased by 36.6% to $35.2 million in fiscal 2019 versus fiscal 2018. Photonics product revenue reflected the resumption of the Apache camera shipments and higher unit shipments for the F35 Joint Strike Fighter program night-vision camera. Contract R&D revenue in fiscal 2019 increased as a result of development on the IVAS program.
Backlog
December 28, 2019 | December 29, 2018 | |||||||
(in thousands) | ||||||||
TFE | $ | 21,391 | $ | 64,803 | ||||
Photonics | 71,015 | 43,711 | ||||||
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Total backlog | $ | 92,406 | $ | 108,514 | ||||
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TFE backlog at December 28, 201931, 2022 included twoeleven 200 Lean HDD systems. TFE backlogBacklog at December 29, 2018January 1, 2022 included sixone 200 Lean HDD system. From late 2021 through the first half of 2022, Intevac received orders for approximately $70 million for eleven 200 Lean HDD systems, intended to expand our customers’ media manufacturing capacity. With the slowing of HDD unit demand that occurred beginning in mid-2022, our customers elected to accelerate deployment of HAMR system upgrades during this period of lower capacity utilization, and nine ENERGi solar ion implant systems.at the same time elected to spread their expected media capacity additions more ratably over the next two- to four-year period. Our HDD revenues through the 2023 timeframe are expected to consist primarily of HDD upgrades, spares and field service. On December 31, 2022, we had $121.7 million of backlog and expect to recognize as revenue: 38% in 2023, 21% in 2024, 0% in 2025 and 41% in 2026.
Significant portions of Intevac’s revenues in any particular period have been attributable to sales to a limited number of customers. The following customers accounted for at least 10 percent of Intevac’s consolidated net revenues in fiscal 20192022 and 2018.2021.
2019 | 2018 | |||||||
Seagate Technology | 49 | % | 52 | % | ||||
U.S. Government | 20 | % | * | |||||
Jolywood (Hongkong) Industrial Holdings Co., Limited | 14 | % | * | |||||
HGST | * | 13 | % |
2022 | 2021 | |||||||
Seagate Technology | 80 | % | 60 | % | ||||
Western Digital Corporation | 18 | % | 25 | % | ||||
Amkor Technology, Inc. | * | 10 | % |
* | Less than 10% |
Revenue by geographic region
2019 | 2018 | Fiscal Year | ||||||||||||||||||||||||||||||
(in thousands) | 2022 | 2021 | ||||||||||||||||||||||||||||||
TFE | Photonics | Total | TFE | Photonics | Total | (in thousands) | ||||||||||||||||||||||||||
United States | $ | 1,306 | $ | 34,664 | $ | 35,970 | $ | 4,050 | $ | 23,862 | $ | 27,912 | $ | 4,558 | $ | 3,670 | ||||||||||||||||
Asia | 72,372 | — | 72,372 | 65,298 | 31 | 65,329 | 31,103 | 31,004 | ||||||||||||||||||||||||
Europe | — | 543 | 543 | — | 1,648 | 1,648 | 100 | 3,850 | ||||||||||||||||||||||||
Rest of World | — | — | — | — | 225 | 225 | ||||||||||||||||||||||||||
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Total net revenues | $ | 73,678 | $ | 35,207 | $ | 108,885 | $ | 69,348 | $ | 25,766 | $ | 95,114 | $ | 35,761 | $ | 38,524 | ||||||||||||||||
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International sales include products shipped to overseas operations of U.S. companies. The increase in sales to the U.S. region in 2019fiscal 2022 versus 2018fiscal 2021, reflected higher Photonics contract R&D work. There were no TFE systems sold to factories in the U.S. in 2019 or 2018.
HDD upgrade, spare parts and service sales. The increase in sales to the
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Asia region in 2019fiscal 2022 versus 2018fiscal 2021, reflected higher systemHDD upgrade sales offset in part by lower technology upgrade, service and spare parts and service sales. Sales to the Asia region in 2019 included four 200 Lean HDD systems and nine solar implant ENERGiall periods presented did not include any systems. Sales to the Asia region in 2018 included four 200 Lean HDD systems and three solar implant ENERGi systems.
Sales to the Europe region and Rest of World in 2019 and 2018 were not significant.fiscal 2021 included one MATRIX PVD system for advanced semiconductor packaging.
Gross margin
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Gross margin
Fiscal Year | Change 2019 vs. 2018 | |||||||||||
2019 | 2018 | |||||||||||
(in thousands, except percentages) | ||||||||||||
TFE gross profit | $ | 27,377 | $ | 25,328 | $ | 2,049 | ||||||
% of TFE net revenues | 37.2 | % | 36.5 | % | ||||||||
Photonics gross profit | $ | 13,491 | $ | 7,366 | $ | 6,125 | ||||||
% of Photonics net revenues | 38.3 | % | 28.6 | % | ||||||||
Total gross profit | $ | 40,868 | $ | 32,694 | $ | 8,174 | ||||||
% of net revenues | 37.5 | % | 34.4 | % |
Fiscal Year | Change 2022 vs. 2021 | |||||||||||
2022 | 2021 | |||||||||||
(in thousands, except percentages) | ||||||||||||
Total gross profit | $ | 15,086 | $ | 7,067 | $ | 8,019 | ||||||
% of net revenues | 42.2 | % | 18.3 | % |
Cost of net revenues consists primarily of purchased materials and costs attributable to contract R&D, and also includes assembly, test and installation labor and overhead, customer-specific engineering costs, warranty costs, royalties, provisions for inventory reserves and scrap.
TFE grossGross margin was 37.2%42.2% in fiscal 20192022 compared to 36.5%18.3% in fiscal 2018.2021. Fiscal 20192022 gross margins improved over fiscal 2018 as higher margins on2021 primarily due to lower inventory write downs. The improvement in the gross margin percentage for fiscal 2022 was due primarily to the higher-margin contribution from HDD upgrades, were offset in part by $755,000 in charges for excess and obsolete inventory as part of the Company’s realignment effort. Fiscal 2021 gross margin reflected an $8.4 million inventory valuation write-down primarily related to our solar and Vertex inventory, as well as a lower marginsmargin on the salefirst MATRIX PVD system for ASP. As part of nine solar implant ENERGi systems.the 2022 realignment effort, the Company no longer offers the MATRIX PVD system for ASP. Gross margins in the TFE businesswill continue to vary depending on a number of factors, including product mix, product cost, system configuration and pricing, factory utilization, and provisions for excess and obsolete inventory.
Photonics gross margin was 38.3% in fiscal 2019 compared to 28.6% in fiscal 2018. The improvement in gross margin for fiscal 2019 over fiscal 2018 is due primarily to higher revenue levels and improved margins on contract R&D work. Manufacturing costs for digital night-vision products decreased in fiscal 2019 and 2018 as a result of cost reductions and yield improvements.
Research and development
Fiscal Year | Change 2019 vs. 2018 | |||||||||||
2019 | 2018 | |||||||||||
(in thousands) | ||||||||||||
Research and development expense | $ | 14,309 | $ | 16,862 | $ | (2,553 | ) |
Fiscal Year | Change 2022 vs. 2021 | |||||||||||
2022 | 2021 | |||||||||||
(in thousands) | ||||||||||||
Research and development expense | $ | 13,722 | $ | 12,176 | $ | 1,546 |
Research and development expense consists primarily of salaries and related costs of employees engaged in, and prototype materials used in ongoing research, design and development activities for PV cell manufacturing equipment, DCP manufacturing equipment, HDD disk sputtering equipment, semiconductorFan-outPV cell manufacturing equipment and Photonics products.semiconductor Fan-out equipment. As part of this realignment effort, in March 2022, the Company ceased its efforts to develop and market several of its manufacturing platforms for the DCP, PV and ASP industries.
TFE researchResearch and development spending in fiscal 2019 decreased2022 increased compared to fiscal 20182021 due to higher spending on DCP development, offset in part by lower spending on HDD, semiconductorFan-out development.
Research and developmentPV development. R&D spending for Photonics increased during 2019 as compared to fiscal 2018 primarily2022 includes $1.5 million in expenditures related to the developmentdisposal of certain lab equipment as part of the next generation of our low light level CMOS camera. Research and development expenses do not include costs of $12.3 million and $9.1 million in 2019 and 2018, respectively, which are related to customer-funded contract R&D programs and therefore included in cost of net revenues.realignment effort.
Selling, general and administrative
Fiscal Year | Change 2019 vs. 2018 | |||||||||||
2019 | 2018 | |||||||||||
(in thousands) | ||||||||||||
Selling, general and administrative expense | $ | 22,627 | $ | 20,188 | $ | 2,439 |
Fiscal Year | Change 2022 vs. 2021 | |||||||||||
2022 | 2021 | |||||||||||
(in thousands) | ||||||||||||
Selling, general and administrative expense | $ | 17,876 | $ | 17,367 | $ | 509 |
Selling, general and administrative expense consists primarily of selling, marketing, customer support, financial and management costs. All domestic sales and the majority of international sales of HDD disk sputtering products in Asia are made through Intevac’s direct sales force. Intevac also sells its TFE products through distributors in Japan and China. Intevac has offices in Singapore, Malaysia and China to support Intevac’s TFE customers in Asia.
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Selling, general and administrative expenses increased in 2019fiscal 2022 over the amount spent in 2018fiscal 2021 due to higher variable compensation costs,expenses, higher stock compensation expenses, higher consulting expenses, increased spending to supporttravel expenses
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and by one-time severance charges associated with the realignment effort, offset in part by lower legal expenses, cost savings as a customer evaluation of a next generation product and the lapseresult of the 2018 cost containment initiatives which included temporary salary reductions for executive management.
Acquisition-related (benefit), net
Fiscal Year | Change 2019 vs. 2018 | |||||||||||
2019 | 2018 | |||||||||||
(in thousands) | ||||||||||||
Acquisition-related (benefit), net | $ | 7 | $ | (139 | ) | $ | 146 |
Acquisition-related (benefit), net, represents the changerestructuring program implemented in the fair valuefirst quarter of fiscal 2022 and TSA reimbursements. Selling, general and administrative expense in fiscal 2022 is net of $966,000 in TSA and shared services fees earned since the Photonics divestiture. The agreed-upon charges for such services are generally intended to allow the service provider to recover all costs and expenses of providing such services. The TSA was substantially concluded in the second quarter of fiscal 2022. In August 2022, Intevac and EOTECH entered into a contingent consideration earnout arrangement relatedShared Services Agreement to share certain building maintenance costs. Selling, general and administrative expenses in fiscal 2021 included the SIT acquisition. The earnout period terminated$1.0 million accrual for settlement of the PAGA lawsuit which was paid on June 30, 2019.January 20, 2023.
Cost reduction plan plans
During the first quarter of fiscal 2018, Intevac substantially completed implementation2022, the Company implemented a restructuring program (the “2022 Cost Reduction Plan”) to realign the Company’s operational focus, scale the business and improve costs. The restructuring program includes (i) reducing the Company’s headcount and (ii) eliminating several R&D programs and product offerings. As part of this realignment effort, the Company ceased its efforts to develop and market several of its manufacturing platforms for the DCP, PV and ASP industries and ceased offering certain legacy products in these industries. We incurred restructuring costs of $1.2 million for estimated severance and the related modification of certain stock-based awards. Other costs incurred as part of the 2018 cost2022 Cost Reduction Plan include: (i) a benefit of $1.3 million related to the stock-based compensation forfeitures related to the employees affected by the reduction plan (the “2018 Plan”), whichin workforce, (ii) $1.5 million for fixed asset disposals and (iii) $755,000 for write-offs of excess inventory. The 2022 Cost Reduction Plan reduced expenses and reduced itsthe workforce by 6 percent. The total cost of implementing the 20182022 Cost Reduction Plan was $95,000 of which $61,000 was reported under cost of net revenues and $34,000 was reported under operating expenses.expenses in the consolidated statements of operations. Substantially all cash outlays in connection with the 20182022 Cost Reduction Plan were completed in the fourth quarter of fiscal 2018.2022. Implementation of the 20182022 Cost Reduction Plan reducedis expected to reduce salary, wages and other employee-related expenses by approximately $1.8$2.1 million on an annual basis and reduce depreciation expense by $720,000 on an annual basis.
During the third quarter of fiscal 2021, Intevac substantially completed implementation of the 2021 cost reduction plan (the “2021 Cost Reduction Plan”), which was intended to reduce expenses and reduce its workforce by 5.2 percent. The total cost of implementing the 2021 Cost Reduction Plan was $319,000, of which $224,000 was reported under cost of net revenues and $95,000 was reported under operating expenses during fiscal 2021. Substantially all cash outlays in connection with the 2021 Cost Reduction Plan were completed in the third quarter of fiscal 2021. Implementation of the 2021 Cost Reduction Plan is expected to reduce salary, wages and other employee-related expenses by approximately $2.0 million on an annual basis.
Interest income and other income (expense), net
Fiscal Year | Change 2019 vs. 2018 | |||||||||||
2019 | 2018 | |||||||||||
(in thousands) | ||||||||||||
Interest income and other income (expense), net | $ | 582 | $ | 622 | $ | (40 | ) |
Fiscal Year | Change 2022 vs. 2021 | |||||||||||
2022 | 2021 | |||||||||||
(in thousands) | ||||||||||||
Interest income and other income (expense), net | $ | 1,085 | $ | (6 | ) | $ | 1,091 |
Interest income and other income (expense), net in fiscal 20192022 included $574,000$1.2 million of interest income on investments, and $20,000 earnoutother income from a divestiture,of $31,000 offset in part by $85,000$186,000 of foreign currency losses. Interest income and other income (expense), net in fiscal 20182021 included $516,000$29,000 of interest income on investments, and $135,000 earnoutother income from a divestiture,of $30,000 offset in part by $80,000$65,000 of foreign currency losses. The increase in interest income in 20192022 over 20182021 reflected higher invested balances and higher interest rates on Intevac’s investments and higher invested balances.investments.
Provision for (benefit from) income taxes
Fiscal Year | Change 2019 vs. 2018 | |||||||||||
2019 | 2018 | |||||||||||
(in thousands) | ||||||||||||
Provision for (benefit from) income taxes | $ | 3,359 | $ | (7,176 | ) | $ | 10,535 |
Fiscal Year | Change 2022 vs. 2021 | |||||||||||
2022 | 2021 | |||||||||||
(in thousands) | ||||||||||||
Provision for income taxes | $ | 1,327 | $ | 575 | $ | 752 |
DuringIntevac’s effective tax rate from continuing operations was (8.6%) for fiscal 2018 the Company reversed the2022 and (2.6%) for fiscal 2021 and we recorded income tax expense of $1.3 million in fiscal 2022 and $575,000 in fiscal 2021. 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 recorded against thefor domestic deferred tax assets, related to its Singapore operations. This reversal resulted in the recognition of anon-cash incomeincluding net operating loss carryforwards and certain domestic tax benefit of $7.9 million.
During 2019 the Company received an unfavorable decision on its appeal to a tax audit in Singapore and although management plans to pursue an appeal to the Singapore High Court, management determined that the Company could no longer support a more likely than not position. Accordingly, the Company recorded a charge of $732,000 in provision for income taxes.
credits. Intevac’s effective income tax rate was 74.5% for fiscal 2019 and 199.6% for fiscal 2018. Our effective income tax rate in 2018, excluding the impact of the reduction in our deferred income tax asset valuation allowance was (20.4%). Intevac’s tax rate differs from the applicableU.S. statutory ratesrate in both fiscal 2022 and fiscal 2021 primarily due primarily to establishment and reversal of a valuation allowance, the utilization of deferred and current credits and the effect of permanent differences, adjustments of prior permanent differences and changes in estimates of uncertain tax positions. Intevac’s future effectiveCompany not recognizing an income tax rate dependsbenefit on variousthe domestic loss.
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In fiscal 2021, we did not recognize income tax expense on the gain from the sale of Photonics. The gain for federal purposes was offset by net operating losses. In California, we used tax credits to offset the tax due on the gain.
We assess the likelihood that our deferred tax assets will be recovered based upon our consideration of many factors, including the level of
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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 accordingly.
In fiscal 2014, a valuation allowance of $9.4 million was established on a portion of the Singapore deferred tax asset. The Company concluded that, as of December 29, 2018, it is more likely than not that the Company will generate sufficient taxable income in Singapore to realize its deferred tax assets and reversed the valuation allowance during the fourth quarter of 2018. This reversal resulted in the recognition of anon-cash income tax benefit of $7.9 million for fiscal 2018. The Company has considered all positive and negative evidence regarding the ability to fully realize the deferred tax asset, including past operating results and the forecast of future taxable income. This conclusion, and the resulting reversal of the deferred tax asset valuation allowance, is based upon consideration of a number of factors, including the Company’s completion of 7 consecutive quarters of profitability and its forecast of future profitability under multiple scenarios that support the utilization of net operating loss carryforwards. After recognizing the reversal, the Company does not have a remaining valuation allowance against the deferred tax assets in Singapore at December 28, 2019.
In fiscal 2012, a valuation allowance of $23.4 million was established to record the portion of the U.S. federal deferred tax asset that more likely than not will not be realized. For fiscal 2019 a valuation allowance decrease of $689,000 and for fiscal 2018 a valuation allowance increase of $930,000, respectively, were recorded for the U.S. federal deferred tax asset. A valuation allowance is recorded against the entire state deferred tax asset which consists of state income tax temporary differences and deferred research and other tax credits that are not realizable in the foreseeable future. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimatescurrent economic climate, our expectations of future taxable income, duringand our ability to project such income. We maintain a full valuation allowance for our U.S. deferred tax assets due to uncertainty regarding their realization as of December 31, 2022.
Discontinued operations
Fiscal Year | Change 2022 vs. 2021 | |||||||||||
2022 | 2021 | |||||||||||
(in thousands) | ||||||||||||
Income (loss) from discontinued operations, net of tax | $ | (321 | ) | $ | 49,677 | $ | (49,998 | ) |
Income (loss) from discontinued operations consists primarily of the carryforward period are reduced or increased, or if objective negative evidenceresults of operations of the Photonics business which was sold to EOTECH on December 30, 2021. The loss from discontinued operations in fiscal 2022 decreased to a net loss of $321,000 as compared to income of $49.7 million in fiscal 2021. The loss from discontinued operations for fiscal 2022 includes salaries and wages and employee benefits up to and including January 4, 2022, the date when employees were conveyed to EOTECH, severance for several employees that were not hired by EOTECH, stock-based compensation expense associated with the acceleration of stock awards, contract termination costs associated with software maintenance agreements, settlement of the net working capital adjustment and incremental legal expenses associated with the divestiture, offset in part by a stock-based compensation divestiture-related forfeiture benefit. Discontinued operations in fiscal 2021 included the gain on the sale of the Photonics business of $54.3 million, partially offset by the loss from the Photonics division, net of tax, which included $2.6 million of asset impairment and restructuring charges related to impairment on the right-of-use (“ROU”) asset, lease exit costs associated with a rent subsidy provided to EOTECH and employee termination costs.
Upon the closing of the sale of the Photonics business on December 30, 2021, we received initial gross proceeds of $70.0 million. In January 2022, we delivered to EOTECH a draft closing statement that would reduce the working capital portion of the purchase price by $74,000. As a result, we have recognized a gain on the sale of $54.3 million computed as $70 million initial gross proceeds less (i) the potential $74,000 post closing adjustment, (ii) the carrying value of the assets and liabilities of $12.4 million transferred in the form of cumulative losses is no longer presenttransaction and additional weight may be given to subjective evidence such as our projections for growth.(iii) $3.2 million in transaction-related costs.
Liquidity and Capital Resources
At December 28, 2019,31, 2022, Intevac had $42.8$112.8 million in cash, cash equivalents, restricted cash and investments compared to $40.3$121.2 million at December 29, 2018.January 1, 2022. During fiscal 2019,2022, cash, cash equivalents, restricted cash and investments increaseddecreased by $2.5$8.3 million due primarily to cash generatedused by operating activities, purchases of fixed assets, the acquisition of Hia, Inc. and tax payments related to the net share settlement of restricted stock units offset in part by cash received from the sale of Intevac common stock to Intevac’s employees through Intevac’s employee benefit plans, offset in part by cash used for repurchases of common stock, purchases of fixed assets and tax payments related to the net share settlement of restricted stock units.plans.
Cash, cash equivalents, restricted cash and investments consist of the following:
December 28, 2019 | December 29, 2018 | December 31, 2022 | January 1, 2022 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Cash and cash equivalents | $ | 19,767 | $ | 18,715 | $ | 68,904 | $ | 102,728 | ||||||||
Restricted cash | 787 | 1,169 | 786 | 786 | ||||||||||||
Short-term investments | 16,720 | 16,076 | 25,541 | 10,221 | ||||||||||||
Long-term investments | 5,537 | 4,372 | 17,585 | 7,427 | ||||||||||||
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Total cash, cash-equivalents, restricted cash and investments | $ | 42,811 | $ | 40,332 | $ | 112,816 | $ | 121,162 | ||||||||
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Cash used by operating activities totaled $7.4 million in fiscal 2022 compared to cash generated by operating activities totaled $4.9 millionof $278,000 in 2019. Cash used in operating activities totaled $1.7 million in 2018. Improvedfiscal 2021. Lower operating cash flow in 2019fiscal 2021 was a result of net income and improved working capital.a larger loss recognized from continuing operations.
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Accounts receivable totaled $28.6$15.8 million at December 28, 2019 compared to $27.731, 2022 and $14.3 million at December 29, 2018. Customer advances for products that had not been shipped to customers and included in accounts receivable were $201,000 at December 28, 2019 compared to $3.7 million at December 29, 2018.January 1, 2022. The number of days outstanding for Intevac’s accounts receivable was 72123 at December 28, 201931, 2022 compared to 7890 at December 29, 2018.January 1, 2022. Net inventories totaled $24.9$30.0 million at December 28, 201931, 2022 compared to $30.6$5.8 million at January 1, 2022. Inventory turns were 1.1 in fiscal 2022 and were 0.8 in fiscal 2021. Accounts payable increased to $11.6 million at December 29, 2018. Net inventories31, 2022 compared $5.3 million at December 28, 2019January 1, 2022 primarily related to increased purchases of inventory. Accounts payable at January 1, 2022 included one VERTEX SPECTRA system for DCP under evaluation in a customer’s factory and one MATRIX PVD system for advance semiconductor packaging under evaluation inpayable of $2.0 million as a customer’s factory. Net inventories at December 29, 2018 included three ENERGiimplant systems in finished goods and one ENERGiimplant system in work in process that were virtually complete and shippedcommission to the customer in January 2019. Inventory turnsinvestment banker for the Photonics sale. Other accrued liabilities were 2.5 in fiscal 2019 and were 2.2 in fiscal 2018. Accounts payable decreased to $4.2$5.4 million at December 28, 2019 compared to $6.131, 2022 and $3.7 million at December 29, 2018 due to lower
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manufacturing activities at the end of the year. Other accrued liabilities decreased to $3.6 million at December 28, 2019 compared to $5.0 million at December 29, 2018 primarily due to lower deferred revenue balances.January 1, 2022. Other accrued liabilities at December 29, 201831, 2022 and January 1, 2022 included $1.1a $1.0 million in deferred revenue related toaccrual for the recognitionsettlement of the ASC 606 transition adjustment.PAGA lawsuit which was paid on January 20, 2023. Accrued payroll and related liabilities increaseddecreased to $6.5$3.1 million at December 28, 201931, 2022 compared to $4.7$5.5 million at December 29, 2018January 1, 2022 as a result of higherlower variable compensation accruals. Customer advances decreasedincreased from $14.3$2.1 million at January 1, 2022 to $24.7 million at December 29, 2018 to $4.0 million at December 28, 201931, 2022 as a result of recognition of revenue.new orders. Customer advances for orders with deliveries beyond one year are included in long term liabilities.
Investing activities used cash of $5.8$28.4 million in 2019fiscal 2022 and $1.0generated cash of $71.2 million in 2018.fiscal 2021. Proceeds from the sale of the assets that comprised the Photonics business totaled $70.0 million in fiscal 2021. Purchases of investments, net of proceeds from sales and maturities of investments, totaled $1.7$25.7 million in 2019.fiscal 2022. Proceeds from sales and maturities of investments, net of purchases of investments, totaled $2.2$2.4 million in 2018.fiscal 2021. Capital expenditures were $4.1$1.9 million in 2019fiscal 2022, and $3.2$1.2 million in 2018.fiscal 2021.
During fiscal 2022, the Company acquired the outstanding shares of Hia, Inc, a supplier of magnetic bars, to bring the manufacturing of these magnetic bars in-house and to protect our technology and product quality while continuing to improve our products. The Company paid $700,000 on the closing date of the acquisition. Further contingent consideration will consist of amounts payable upon achievement of certain development and commercialization milestones, which is estimated to be up to $500,000, and a royalty arrangement. Contingent consideration is not recorded in an asset acquisition until the contingency is resolved (when the contingent consideration is paid or becomes payable) or when probable and reasonably estimable. The first milestone was achieved and contingent consideration in the amount of $250,000 was paid on January 17, 2023 and was accrued in the fourth quarter of 2022. Transaction costs incurred in connection with the Hia acquisition totaled $63,000.
Financing activities generated cash of $1.5$2.4 million in 2019fiscal 2022 and $1.8$1.9 million in 2018.fiscal 2021. The sale of Intevac common stock to Intevac’s employees through Intevac’s employee benefit plans provided $2.3$3.1 million in 2019fiscal 2022 and $3.2$2.6 million in 2018.fiscal 2021. Tax payments related to the net share settlement of restricted stock units were $404,000$724,000 in 2019fiscal 2022 and $831,000$734,000 in 2018.fiscal 2021. In November 2013, Intevac’s Board of Directors approved a stock repurchase program authorizing up to $30 million in repurchases. On August 15, 2018, Intevac’s Board of Directors approved a $10.0 million increase to the original stock repurchase program authorizing up to $40.0 million in repurchases. Cash used to repurchaseThere were no repurchases of common stock totaled $111,000 in 2019fiscal 2022 and $558,000 in 2018.
In connection with the acquisition of SIT, Intevac agreed to pay to the selling shareholders in cash a revenue earnout on Intevac’s net revenue from commercial sales of certain solar implant products over a specified period up to an aggregate of $9.0 million. The earnout period terminated on June 30, 2019. Payments made associated with the revenue earnout obligation were $230,000 in 2019.fiscal 2021, respectively.
Intevac’s investment portfolio consists principally of investment grade money market mutual funds, U.S. treasury and agency securities, asset backed securities, certificates of deposit, 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 December 28, 2019,31, 2022, approximately $11.6$39.9 million of cash and cash equivalents and $3.4$3.2 million of short term investments were domiciled in foreign tax jurisdictions. Intevac expects a significant portion of these funds to remain off shoreoffshore 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.
Intevac believesWe believe that itsour existing cash, cash equivalents and investments and cash flows from operating activities will be sufficientadequate to meet Intevac’s cash requirementsour liquidity needs for the next 12twelve months and for the foreseeable future beyond the next twelve months. Intevac intends to undertake approximately $6.0 million inOur significant funding requirements include procurement of manufacturing inventories, operating expenses, non-cancelable operating lease obligations, capital expenditures, duringcontingent consideration payments, settlement of the next 12 months.PAGA litigation 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 fiscal 2023 are projected to be approximately $4.0 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 $787,000$786,000 as of December 28, 2019.31, 2022. These letters of credit and bank guarantees are collateralized by $787,000$786,000 of restricted cash. We do not
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maintain any otheroff-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 consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported. Note 1 of Notes to Consolidated Financial Statements describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies. Note that these critical accounting policies and estimates relate solely to our continuing operations. The accounting policies related to our discontinued operations are discussed in Note 2, “Divestiture and Discontinued Operations,” to our consolidated financial statements.
A critical accounting policy is defined as one that is both material to the presentation of Intevac’s consolidated financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on Intevac’s financial condition or results of operations. Specifically, these policies have the following attributes: (1) Intevac is
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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.
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 became 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. These uncertainties are discussed in the section above entitled “Risk Factors.” Based on a critical assessment of its 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 accounting principles generally accepted in the United States of America and provide a meaningful presentation of Intevac’s financial condition and results of operations.
Management believes that the following are critical accounting policies:
Revenue Recognition
In our TFE segment, aA majority of our equipment sales revenue, continues to bewhich includes systems, technology upgrades, service and spare parts is recognized when products are shipped from our manufacturing facilities. Revenue recognition for our equipment sales arrangements, which includes systems, technology upgrades, service and spare parts, remains materially consistent with our historical practice.
In our TFE segment, weWe recognize revenue for equipment sales at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. Intevac recognizes revenue in certain circumstances before delivery has occurred (commonly referred to as bill and hold transactions). In such circumstances, among other things, risk of ownership has passed to the customer, the customer has made a written fixed commitment to purchase the finished goods, the customer has requested the finished goods be held for future delivery as scheduled and designated by them, and no additional performance obligations exist by Intevac. For these transactions, the finished goods are segregated from inventory and normal billing and credit terms granted. Our contracts with customers may include multiple performance obligations. For such arrangements, underUnder the new revenue standard we allocate revenue for such arrangements to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or by using expected cost plus margin. Under the new revenue standard, theThe expected costs associated with our base warranties continue to beare recognized as expense when the equipment is sold.
In our Photonics segment, we recognize revenue for cost plus fixed fee (“CPFF”) and firm fixed price (“FFP”) government contracts over time under thecost-to-cost method for the majority of our government contracts, which is consistent with our historical revenue recognition model. Revenue on the majority of our government contracts will continue to be recognized over time because of the continuous transfer of control to the customer. For U.S. government contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. Similarly, fornon-U.S. government contracts, the customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment for work performed to date to deliver products or services that do not have an alternative use to the Company. Under the new standard, thecost-to-cost measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as we incur costs.
The majority of our contracts in our Photonics segment have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product lifecycle (development and production). For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.
In our Photonics segment, we recognize revenue for homogenous manufactured military products sold to the U.S. government and its contractors over time under theunits-of-delivery method because of the continuous transfer of control to the customer. Intevac believes that theunits-of-delivery method is an appropriate measure for measuring progress for the manufactured units as an equal amount of value is individually transferred to the customer upon delivery. The Company previously recognized revenue for substantially all manufactured military products sold to the U.S. government and its contractors when the customers took delivery of the products, which was generally upon shipment.
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The nature of our contracts in our Photonics segment gives rise to several types of variable consideration including tiered pricing. Allocation of contract revenues among Photonics military products, and the timing of the recognition of those revenues, is impacted by agreements with tiered pricing or variable rate structures. We include variable consideration in the estimated transaction price when there is a basis to reasonably estimate the amount of the consideration. These estimates are based on historical experience, anticipated performance and our best judgment at the time. Because of our certainty in estimating these amounts, they are included in the transaction price of our contracts and the associated remaining performance obligations.
Accounting for CPFF and FFP contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For these contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer.
As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulativecatch-up method. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter it is identified.
Inventories
Inventories are valued using average actual costs and are stated at the lower of cost or net realizable value. The carrying value of inventory is reduced for estimated obsolescence by the difference between its cost and the net realizable value based upon assumptions about future demand. Intevac evaluates the inventory carrying value for potential excess and obsolete
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inventory exposures by analyzing historical and anticipated demand. In addition, inventories are evaluated for potential obsolescence due to the effect of known and anticipated engineering change orders and new products. If actual demand were to be substantially lower than estimated, additional inventory adjustments for excess or obsolete inventory might be required, which could have a material adverse effect on Intevac’s business, financial condition and results of operations.
Warranty
Intevac estimates the costs that may be incurred under the warranty it provides and records a liability in the amount of such costs at the time the related revenue is recognized. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs. Intevac’s warranty obligation is affected by product failure rates, material usage, and labor costs incurred in correcting product failures during the warranty period. As Intevac’s customer service engineers and process support engineers are highly trained and deployed globally, labor availability is a significant factor in determining labor costs. The quantity and availability of critical replacement parts is another significant factor in estimating warranty costs. Unforeseen component failures or exceptional component performance can also result in changes to warranty costs. If actual warranty costs differ substantially from our estimates, revisions to the estimated warranty liability would be required.
Income Taxes
Intevac accounts for income taxes by recognizing deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities, net operating losses and tax credit carryforwards. Deferred tax assets are also reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. Management has determined that it is more likely than not that its future taxable income will not be sufficient to realize its entire deferred tax assets.
In determining whether to establish or maintain a valuation allowance against a deferred tax asset, the Company reviews available evidence to determine whether it is more likely than not that all or a portion of the Company’s net deferred tax assets will be realized in future periods. Consideration is given to various positive and negative factors that could affect the realization of the net deferred tax assets. In making such a determination, the Company considers, among other things, future reversals of existing taxable temporary differences, projected future taxable income,tax-planning strategies, historical financial
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performance, the length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The effective tax rate is highly dependent upon the geographic composition of worldwide earnings, tax regulations governing each region,non-tax deductible expenses and availability of tax credits. Management carefully monitors the changes in many factors and adjusts the effective income tax rate as required. If actual results differ from these estimates, Intevac could be required to record additional valuation allowances on deferred tax assets or adjust its effective income tax rate, which could have a material adverse effect on Intevac’s business, financial condition and results of operations.
The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with Intevac’s expectations could have a material impact on Intevac’s results of operations and financial condition.
Valuation of Acquisition-Related Contingent ConsiderationEquity-Based Compensation
Contingent consideration relatedRestricted stock units (“RSUs”) granted to a business combination is recordedemployees and directors are measured at their fair value on the grant date. All RSUs granted in fiscal years 2022 and 2021 were granted for no consideration; therefore, their fair value was equal to the share price at the acquisition date at the estimated fair value of the contingent payments. The acquisition date fair value is measured based on the consideration expected to be transferred (probability-weighted), discounted back to present value. The discount rate used is determined at the time of the acquisition in accordance with accepted valuation methods.grant. The fair value of the acquisition-related contingent consideration is remeasured at the estimated fair value at each reporting periodperformance-based restricted stock units (“PRSUs”) granted in fiscal years 2022 and 2021 with the change in fair value recognized as income or expense in the consolidated statements of income.
Equity-Based Compensation
Intevac records compensation expense for equity-based awardsmarket-based conditions was calculated using the Black-Scholes option pricingMonte Carlo model. This model requires Intevac to estimate the expected volatility of the price of Intevac’s common stock and the expected life of the equity-based awards. Estimating volatility and expected life requires significant judgment and an analysis of historical data. Intevac accounts for forfeitures as they occur rather than estimating expected forfeitures. Intevac may have to increase or decrease compensation expense for equity-based awards if actual results differ significantly from Intevac’s estimates.
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable for smaller reporting companies.
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of
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 28, 2019, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 12, 2020, expressed an unqualified opinion.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of the new lease standard.
/s/ BPM LLP
We have served
San Jose, California
February 12, 2020
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/s/ BPM LLP |
We have served as the Company’s auditor since 2015. |
San Jose, California |
February 16, 2023 |
December 28, 2019 | December 29, 2018 | |||||||
(In thousands, except par value) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 19,767 | $ | 18,715 | ||||
Short-term investments | 16,720 | 16,076 | ||||||
Trade and other accounts receivable, net of allowances of $0 at both December 28, 2019 and December 29, 2018 | 28,619 | 27,717 | ||||||
Inventories | 24,907 | 30,597 | ||||||
Prepaid expenses and other current assets | 1,504 | 2,528 | ||||||
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Total current assets | 91,517 | 95,633 | ||||||
Property, plant and equipment, net | 11,598 | 11,198 | ||||||
Operating leaseright-of-use-assets | 10,279 | — | ||||||
Long-term investments | 5,537 | 4,372 | ||||||
Restricted cash | 787 | 1,169 | ||||||
Intangible assets, net of amortization of $8,113 and $7,498 at December 28, 2019 and December 29, 2018, respectively | 274 | 889 | ||||||
Deferred income taxes and other long-term assets | 6,330 | 8,809 | ||||||
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Total assets | $ | 126,322 | $ | 122,070 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current operating lease liabilities | $ | 2,524 | $ | — | ||||
Accounts payable | 4,199 | 6,053 | ||||||
Accrued payroll and related liabilities | 6,488 | 4,689 | ||||||
Other accrued liabilities | 3,593 | 4,952 | ||||||
Customer advances | 4,007 | 14,314 | ||||||
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Total current liabilities | 20,811 | 30,008 | ||||||
Noncurrent liabilities: | ||||||||
Noncurrent operating lease liabilities | 9,532 | — | ||||||
Other long-term liabilities | 186 | 2,438 | ||||||
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Total noncurrent liabilities | 9,718 | 2,438 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Undesignated preferred stock, $0.001 par value, 10,000 shares authorized, no shares issued and outstanding | — | — | ||||||
Common stock, $0.001 par value : | ||||||||
Authorized shares—50,000 issued and outstanding shares—23,346 and 22,700 at December 28, 2019 and December 29, 2018, respectively | 23 | 23 | ||||||
Additionalpaid-in capital | 188,290 | 183,204 | ||||||
Treasury stock, 4,989 shares at December 28, 2019 and 4,965 shares at December 29, 2018 | (29,158 | ) | (29,047 | ) | ||||
Accumulated other comprehensive income | 424 | 378 | ||||||
Accumulated deficit | (63,786 | ) | (64,934 | ) | ||||
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Total stockholders’ equity | 95,793 | 89,624 | ||||||
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Total liabilities and stockholders’ equity | $ | 126,322 | $ | 122,070 | ||||
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December 31, 2022 | January 1, 2022 | |||||||
(In thousands, except par value) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 68,904 | $ | 102,728 | ||||
Short-term investments | 25,541 | 10,221 | ||||||
Trade and other accounts receivable, net of allowances of $0 at both December 31, 2022 and January 1, 2022 | 15,823 | 14,261 | ||||||
Inventories | 30,003 | 5,791 | ||||||
Prepaid expenses and other current assets | 1,898 | 1,827 | ||||||
Total current assets | 142,169 | 134,828 | ||||||
Property, plant and equipment, net | 3,658 | 4,759 | ||||||
Operating lease right-of-use | 3,390 | 4,520 | ||||||
Long-term investments | 17,585 | 7,427 | ||||||
Restricted cash | 786 | 786 | ||||||
Intangible assets, net of amortization of $42 ,000 at December 31, 2022 | 1,090 | — | ||||||
Deferred income taxes and other long-term assets | 4,381 | 5,449 | ||||||
Total assets | $ | 173,059 | $ | 157,769 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current operating lease liabilities | $ | 3,404 | $ | 3,119 | ||||
Accounts payable | 11,610 | 5,320 | ||||||
Accrued payroll and related liabilities | 3,087 | 5,505 | ||||||
Other accrued liabilities | 5,430 | 3,665 | ||||||
Customer advances | 2,444 | 2,107 | ||||||
Total current liabilities | 25,975 | 19,716 | ||||||
Noncurrent liabilities: | ||||||||
Noncurrent operating lease liabilities | 1,417 | 3,675 | ||||||
Customer advances | 22,215 | — | ||||||
Other long-term liabilities | — | 363 | ||||||
Total noncurrent liabilities | 23,632 | 4,038 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Undesignated preferred stock, $0.001 par value, 10,000 shares authorized, no shares issued and outstanding | — | — | ||||||
Common stock, $0.001 par value : | ||||||||
Authorized shares — 50,000 issued and outstanding shares — 25,548 and 24,636 at December 31, 2022 and January 1, 2022, respectively | 26 | 25 | ||||||
Additional paid-in capital | 206,355 | 199,073 | ||||||
Treasury stock, 5,087 shares at both December 31, 2022 and January 1, 2022 | (29,551 | ) | (29,551 | ) | ||||
Accumulated other comprehensive income (loss) | (193 | ) | 578 | |||||
Accumulated deficit | (53,185 | ) | (36,110 | ) | ||||
Total stockholders’ equity | 123,452 | 134,015 | ||||||
Total liabilities and stockholders’ equity | $ | 173,059 | $ | 157,769 | ||||
33
Year Ended, | ||||||||
December 28, 2019 | December 29, 2018 | |||||||
(In thousands, except per share amounts) | ||||||||
Net revenues: | ||||||||
Systems and components | $ | 89,228 | $ | 85,320 | ||||
Technology development | 19,657 | 9,794 | ||||||
|
|
|
| |||||
Total net revenues | 108,885 | 95,114 | ||||||
Cost of net revenues: | ||||||||
Systems and components | 55,678 | 53,334 | ||||||
Technology development | 12,339 | 9,086 | ||||||
|
|
|
| |||||
Total cost of net revenues | 68,017 | 62,420 | ||||||
Gross profit | 40,868 | 32,694 | ||||||
Operating expenses: | ||||||||
Research and development | 14,309 | 16,862 | ||||||
Selling, general and administrative | 22,627 | 20,188 | ||||||
Acquisition-related (benefit), net | 7 | (139 | ) | |||||
|
|
|
| |||||
Total operating expenses | 36,943 | 36,911 | ||||||
|
|
|
| |||||
Operating income (loss) | 3,925 | (4,217 | ) | |||||
|
|
|
| |||||
Interest income | 574 | 516 | ||||||
Other income (expense), net | 8 | 106 | ||||||
|
|
|
| |||||
Income (loss) before income taxes | 4,507 | (3,595 | ) | |||||
Provision for (benefit from) income taxes | 3,359 | (7,176 | ) | |||||
|
|
|
| |||||
Net income | $ | 1,148 | $ | 3,581 | ||||
|
|
|
| |||||
Net income per share: | ||||||||
Basic | $ | 0.05 | $ | 0.16 | ||||
Diluted | $ | 0.05 | $ | 0.16 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 23,063 | 22,519 | ||||||
Diluted | 23,340 | 22,904 |
OPERATIONS
Year Ended, | ||||||||
December 31, 2022 | January 1, 2022 | |||||||
(In thousands, except per share amounts) | ||||||||
Net revenues | $ | 35,761 | $ | 38,524 | ||||
Cost of net revenues | 20,675 | 31,457 | ||||||
Gross profit | 15,086 | 7,067 | ||||||
Operating expenses: | ||||||||
Research and development | 13,722 | 12,176 | ||||||
Selling, general and administrative | 17,876 | 17,367 | ||||||
Total operating expenses | 31,598 | 29,543 | ||||||
Operating loss | (16,512 | ) | (22,476 | ) | ||||
Interest income | 1,240 | 29 | ||||||
Other income (expense), net | (155 | ) | (35 | ) | ||||
Loss from continuing operations before provision for income taxes | (15,427 | ) | (22,482 | ) | ||||
Provision for income taxes | 1,327 | 575 | ||||||
Net loss from continuing operations | (16,754 | ) | (23,057 | ) | ||||
Income (loss) from discontinued operations: | ||||||||
Loss from Photonics division, net of tax | (321 | ) | (4,664 | ) | ||||
Gain on sale of Photonics division, net of tax | — | 54,341 | ||||||
Total income (loss) from discontinued operations, net of tax | (321 | ) | 49,677 | |||||
Net income (loss) | $ | (17,075 | ) | $ | 26,620 | |||
Net income (loss) per share: | ||||||||
Basic and diluted—continuing operations | $ | (0.67 | ) | $ | (0.95 | ) | ||
Basic and diluted—discontinued operations | $ | (0.01 | ) | $ | 2.04 | |||
Basic and diluted—net income (loss) | $ | (0.68 | ) | $ | 1.09 | |||
Weighted average shares outstanding: | ||||||||
Basic and diluted | 25,192 | 24,348 |
34
Year Ended, | ||||||||
December 28, 2019 | December 29, 2018 | |||||||
(In thousands) | ||||||||
Net income | $ | 1,148 | $ | 3,581 | ||||
Other comprehensive income (loss), before tax | ||||||||
Change in unrealized net gain onavailable-for-sale investments | 70 | 18 | ||||||
Foreign currency translation gains and (losses) | (24 | ) | (130 | ) | ||||
|
|
|
| |||||
Other comprehensive income (loss), before tax | 46 | (112 | ) | |||||
Income tax expense related to items in other comprehensive income (loss) | — | — | ||||||
|
|
|
| |||||
Other comprehensive income (loss), net of tax | 46 | (112 | ) | |||||
|
|
|
| |||||
Comprehensive income | $ | 1,194 | $ | 3,469 | ||||
|
|
|
|
(LOSS)
Year Ended, | ||||||||
December 31, 2022 | January 1, 2022 | |||||||
(In thousands) | ||||||||
Net income (loss) | $ | (17,075 | ) | $ | 26,620 | |||
Other comprehensive income (loss), before tax | ||||||||
Change in unrealized net loss on available-for-sale | (454 | ) | (68 | ) | ||||
Foreign currency translation gains (losses) | (317 | ) | 6 | |||||
Other comprehensive loss, before tax | (771 | ) | (62 | ) | ||||
Income tax expense related to items in other comprehensive loss | — | — | ||||||
Other comprehensive loss, net of tax | (771 | ) | (62 | ) | ||||
Comprehensive income (loss) | $ | (17,846 | ) | $ | 26,558 | |||
35
Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
Balance at December 30, 2017 | 21,811 | $ | 22 | $ | 177,521 | 4,845 | $ | (28,489 | ) | $ | 490 | $ | (66,881 | ) | $ | 82,663 | ||||||||||||||||
Cumulative effect of accounting change | — | — | — | — | — | — | (1,634 | ) | (1,634 | ) | ||||||||||||||||||||||
Shares issued in connection with: | ||||||||||||||||||||||||||||||||
Exercise of stock options | 323 | — | 1,573 | — | — | — | — | 1,573 | ||||||||||||||||||||||||
Settlement of RSUs | 434 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Employee stock purchase plan | 411 | 1 | 1,634 | — | — | — | — | 1,635 | ||||||||||||||||||||||||
Shares withheld in connection with net share settlement of RSUs |
| (159 | ) |
| — |
|
| (831 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| (831 | ) | ||||||||
Equity-based compensation expense | — | — | 3,307 | — | — | — | — | 3,307 | ||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 3,581 | 3,581 | ||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (112 | ) | — | (112 | ) | ||||||||||||||||||||||
Common stock repurchases | (120 | ) | — | — | 120 | (558 | ) | — | — | (558 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at December 29, 2018 | 22,700 | $ | 23 | $ | 183,204 | 4,965 | $ | (29,047 | ) | $ | 378 | $ | (64,934 | ) | $ | 89,624 | ||||||||||||||||
Shares issued in connection with: | ||||||||||||||||||||||||||||||||
Exercise of stock options | 175 | — | 799 | — | — | — | — | 799 | ||||||||||||||||||||||||
Settlement of RSUs | 199 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Employee stock purchase plan | 370 | — | 1,466 | — | — | — | — | 1,466 | ||||||||||||||||||||||||
Shares withheld in connection with net share settlement of RSUs | (74 | ) | — | (404 | ) | — | — | — | — | (404 | ) | |||||||||||||||||||||
Equity-based compensation expense | — | — | 3,225 | — | — | — | — | 3,225 | ||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 1,148 | 1,148 | ||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 46 | — | 46 | ||||||||||||||||||||||||
Common stock repurchases | (24 | ) | — | — | 24 | (111 | ) | — | — | (111 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at December 28, 2019 | 23,346 | $ | 23 | $ | 188,290 | 4,989 | $ | (29,158 | ) | $ | 424 | $ | (63,786 | ) | $ | 95,793 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
Balance at January 2, 2021 | 23,874 | $ | 24 | $ | 193,173 | 5,087 | $ | (29,551 | ) | $ | 640 | $ | (62,730 | ) | $ | 101,556 | ||||||||||||||||
Shares issued in connection with: | ||||||||||||||||||||||||||||||||
Exercise of stock options | 76 | — | 440 | — | — | — | — | 440 | ||||||||||||||||||||||||
Settlement of RSUs | 383 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Employee stock purchase plan | 435 | 1 | 2,191 | — | — | — | — | 2,192 | ||||||||||||||||||||||||
Shares withheld in connection with net share settlement of RSUs | (132 | ) | — | (734 | ) | — | — | — | — | (734 | ) | |||||||||||||||||||||
Equity-based compensation expense | — | — | 4,003 | — | — | — | — | 4,003 | ||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 26,620 | 26,620 | ||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (62 | ) | — | (62 | ) | ||||||||||||||||||||||
Balance at January 1 2022 | 24,636 | $ | 25 | $ | 199,073 | 5,087 | $ | (29,551 | ) | $ | 578 | $ | (36,110 | ) | $ | 134,015 | ||||||||||||||||
Shares issued in connection with: | ||||||||||||||||||||||||||||||||
Exercise of stock options | 388 | 1 | 1,872 | — | — | — | — | 1,873 | ||||||||||||||||||||||||
Settlement of RSUs | 371 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Employee stock purchase plan | 279 | — | 1,244 | — | — | — | — | 1,244 | ||||||||||||||||||||||||
Shares withheld in connection with net share settlement of RSUs | (126 | ) | — | (724 | ) | — | — | — | — | (724 | ) | |||||||||||||||||||||
Equity-based compensation expense | — | — | 4,890 | — | — | — | — | 4,890 | ||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (17,075 | ) | (17,075 | ) | ||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (771 | ) | — | (771 | ) | ||||||||||||||||||||||
Balance at December 31, 2022 | 25,548 | $ | 26 | $ | 206,355 | 5,087 | $ | (29,551 | ) | $ | (193 | ) | $ | (53,185 | ) | $ | 123,452 | |||||||||||||||
36
Year Ended | ||||||||
December 28, 2019 | December 29, 2018 | |||||||
(In thousands) | ||||||||
Operating activities | ||||||||
Net income | $ | 1,148 | $ | 3,581 | ||||
Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities: | ||||||||
Depreciation & amortization | 2,976 | 3,999 | ||||||
Net amortization (accretion) of investment premiums and discounts | (75 | ) | (97 | ) | ||||
Amortization of intangible assets | 615 | 615 | ||||||
Equity-based compensation | 3,225 | 3,307 | ||||||
Straight-line rent adjustment and amortization of lease incentives | (289 | ) | (31 | ) | ||||
Deferred income taxes | 1,661 | (7,909 | ) | |||||
Change in the fair value of acquisition-related contingent consideration | 7 | (139 | ) | |||||
Loss on disposal of equipment | 120 | 442 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (902 | ) | (7,243 | ) | ||||
Inventories | 6,301 | 3,278 | ||||||
Prepaid expenses and other assets | 1,621 | (141 | ) | |||||
Accounts payable | (1,850 | ) | 2,104 | |||||
Accrued payroll and other accrued liabilities | 694 | (6,770 | ) | |||||
Customer advances | (10,307 | ) | 3,288 | |||||
|
|
|
| |||||
Total adjustments | 3,797 | (5,297 | ) | |||||
|
|
|
| |||||
Net cash and cash equivalents provided by (used in) operating activities | 4,945 | (1,716 | ) | |||||
Investing activities | ||||||||
Purchase of investments | (23,306 | ) | (27,353 | ) | ||||
Proceeds from sales and maturities of investments | 21,642 | 29,567 | ||||||
Purchase of leasehold improvements and equipment | (4,107 | ) | (3,244 | ) | ||||
|
|
|
| |||||
Net cash and cash equivalents used in investing activities | (5,771 | ) | (1,030 | ) | ||||
Financing activities | ||||||||
Proceeds from issuance of common stock | 2,265 | 3,208 | ||||||
Common stock repurchases | (111 | ) | (558 | ) | ||||
Taxes paid related to net share settlement | (404 | ) | (831 | ) | ||||
Payment of acquisition-related contingent consideration | (230 | ) | — | |||||
|
|
|
| |||||
Net cash and cash equivalents provided by financing activities | 1,520 | 1,819 | ||||||
Effect of exchange rate changes on cash | (24 | ) | (130 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 670 | (1,057 | ) | |||||
Cash, cash equivalents and restricted cash at beginning of period | 19,884 | 20,941 | ||||||
|
|
|
| |||||
Cash, cash equivalents and restricted cash at end of period | $ | 20,554 | $ | 19,884 | ||||
|
|
|
| |||||
Cash paid (received) for: | ||||||||
Income taxes | $ | 1,016 | $ | 991 | ||||
Income tax refund | $ | (157 | ) | $ | — |
Year Ended | ||||||||
December 31, 2022 | January 1, 2022 | |||||||
(In thousands) | ||||||||
Operating activities | ||||||||
Net income (loss) | $ | (17,075 | ) | $ | 26,620 | |||
Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 1,446 | 3,456 | ||||||
Net amortization (accretion) of investment premiums and discounts | (196 | ) | 109 | |||||
Amortization of intangible assets | 42 | — | ||||||
Gain on sale of Photonics division | — | (54,341 | ) | |||||
Asset impairment charges | — | 1,246 | ||||||
Equity-based compensation | 4,890 | 4,003 | ||||||
Straight-line rent adjustment and amortization of lease incentives | (843 | ) | (463 | ) | ||||
Foreign currency loss on liquidation of entity | 14 | — | ||||||
Loss on disposal of fixed assets | 1,467 | — | ||||||
Deferred income taxes | 836 | 25 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (1,528 | ) | 10,850 | |||||
Inventories | (24,105 | ) | 9,597 | |||||
Prepaid expenses and other assets | 42 | 6 | ||||||
Accounts payable | 6,290 | (932 | ) | |||||
Accrued payroll and other accrued liabilities | (1,266 | ) | (1,972 | ) | ||||
Customer advances | 22,552 | 2,074 | ||||||
Total adjustments | 9,641 | (26,342 | ) | |||||
Net cash and cash equivalents provided by (used in) operating activities | (7,434 | ) | 278 | |||||
Investing activities | ||||||||
Purchase of investments | (52,385 | ) | (17,148 | ) | ||||
Proceeds from sales and maturities of investments | 26,649 | 19,550 | ||||||
Purchase of Hia, Inc., net of cash acquired | (763 | ) | — | |||||
Proceeds from sale of Photonics division | — | 70,000 | ||||||
Purchase of leasehold improvements and equipment | (1,919 | ) | (1,198 | ) | ||||
Net cash and cash equivalents provided by (used in) investing activities | (28,418 | ) | 71,204 | |||||
Financing activities | ||||||||
Proceeds from issuance of common stock | 3,083 | 2,632 | ||||||
Taxes paid related to net share settlement | (724 | ) | (734 | ) | ||||
Net cash and cash equivalents provided by financing activities | 2,359 | 1,898 | ||||||
Effect of exchange rate changes on cash | (331 | ) | 6 | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (33,824 | ) | 73,386 | |||||
Cash, cash equivalents and restricted cash at beginning of period | 103,514 | 30,128 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 69,690 | $ | 103,514 | ||||
Cash paid (received) for: | ||||||||
Income taxes | $ | 569 | $ | 559 | ||||
Income tax refund | $ | — | $ | (18 | ) |
37
Business and Basis of Presentation
30, 2021, the Company completed the sale of its Photonics business to EOTECH, LLC, a Michigan limited liability company (“EOTECH”), in exchange for (i) $70.0 million in cash consideration (as may be increased or decreased by certain closing net working capital adjustments), (ii) up to $30.0 million in earnout payments and (iii) the assumption by EOTECH of certain liabilities of the Photonics business.
38
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Contingent Consideration and Purchased Intangible Assets
Contingent consideration related to a business combination is recorded at the acquisition date at the estimated fair value of the contingent payments. The acquisition date fair value is measured based on the consideration expected to be transferred (probability-weighted), discounted back to present value. The discount rate used is determined at the time of the acquisition in accordance with accepted valuation methods. The fair value of the acquisition-related contingent consideration is remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense in the consolidated statements of income.
Purchased intangible assets other than goodwill are amortized over their useful lives unless these lives are determined to be indefinite. Purchased intangible assets are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally one to thirteen years using the straight line method. In 2012, as a result of its impairment analysis, Intevac wrote off all of the goodwill in both its TFE and Photonics reporting units.
39
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
On a quarterly basis, Intevac provides for income taxes based upon an annual effective income tax rate.
operations.
On December 31, 2017, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of the accumulated deficit.
In our TFE segment, a
In our TFE segment, weWe recognize revenue for equipment sales at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. Intevac recognizes revenue in certain circumstances before delivery has occurred (commonly referred to as bill and hold transactions). In such circumstances, among other things, risk of ownership has passed to the customer, the customer has made a written fixed commitment to purchase the finished goods, the customer has requested the finished goods be held for future delivery as scheduled and designated by them, and no additional performance obligations exist by Intevac. For these transactions, the finished goods are segregated from inventory and normal billing and credit terms granted. Our contracts with customers may include multiple performance obligations. For such arrangements, under the new revenue standard we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or by using expected cost plus margin. Under the new revenue standard, the expected costs associated with our base warranties continue to beare recognized as expense when the equipment is sold.
40
Revenue on the majority of our government contracts will continue to be recognized over time because of the continuous transfer of control to the customer. For U.S. government contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. Similarly, fornon-U.S. government contracts, the customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment for work performed to date to deliver products or services that do not have an alternative use to the Company. Under the new standard, thecost-to-cost measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as we incur costs.
The majority of our contracts in our Photonics segment have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product lifecycle (development and production). For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.
In our Photonics segment, we recognize revenue for homogenous manufactured military products sold to the U.S. government and its contractors over time under theunits-of-delivery method because of the continuous transfer of control to the customer. Intevac believes that theunits-of-delivery method is an appropriate measure for measuring progress for the manufactured units as an equal amount of value is individually transferred to the customer upon delivery. The Company previously recognized revenue for substantially all manufactured military products sold to the U.S. government and its contractors when the customers took delivery of the products, which was generally upon shipment.
The nature of our contracts in our Photonics segment gives rise to several types of variable consideration including tiered pricing. Allocation of contract revenues among Photonics military products, and the timing of the recognition of those revenues, is impacted by agreements with tiered pricing or variable rate structures. We include variable consideration in the estimated transaction price when there is a basis to reasonably estimate the amount of the consideration. These estimates are based on historical experience, anticipated performance and our best judgment at the time. Because of our certainty in estimating these amounts, they are included in the transaction price of our contracts and the associated remaining performance obligations.
Accounting for CPFF and FFP contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For these contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer.
As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulativecatch-up method. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter it is identified.
Adoption of New Accounting Standards
We adopted ASUNo. 2016-02, Leases (Topic 842), as of December 30, 2018, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at the beginning of the period of adoption. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification, and we elected the hindsight practical
41
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
expedient to determine the lease term for existing leases. We determined that most renewal options would not be reasonably certain in determining the expected lease term. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
Adoption of the new standard resulted in the recording of net lease assets of $11.6 million and lease liabilities of $13.7 million, as of December 30, 2018. The standard did not have an impact on our consolidated results of operations or cash flows.
The effect of the changes made to our consolidated December 30, 2018 balance sheet for the adoption of the new lease standard was as follows (in thousands):
Balance at December 29, 2018 | Adjustments Due to ASC 842 | Balance at December 30, 2018 | ||||||||||||
Prepaid expenses and other current assets | $ | 2,528 | $ | (221 | ) | 1 | $ | 2,307 | ||||||
|
|
|
|
|
| |||||||||
Total current assets | $ | 95,633 | $ | (221 | ) | 1 | $ | 95,412 | ||||||
|
|
|
|
|
| |||||||||
Operating leaseright-of-use assets | $ | — | $ | 11,635 | 1,2,3 | $ | 11,635 | |||||||
|
|
|
|
|
| |||||||||
Total assets | $ | 122,070 | $ | 11,414 | 1,2,3 | $ | 133,484 | |||||||
|
|
|
|
|
| |||||||||
Current operating lease liabilities | $ | — | $ | 2,581 | 5 | $ | 2,581 | |||||||
|
|
|
|
|
| |||||||||
Accounts payable | $ | 6,053 | $ | (4 | ) | 4 | $ | 6,049 | ||||||
|
|
|
|
|
| |||||||||
Other accrued liabilities | $ | 4,952 | $ | (13 | ) | 3 | $ | 4,939 | ||||||
|
|
|
|
|
| |||||||||
Total current liabilities | $ | 30,008 | $ | 2,564 | 3,4,5 | $ | 32,572 | |||||||
|
|
|
|
|
| |||||||||
Noncurrent operating lease liabilities | $ | — | $ | 11,120 | 5 | $ | 11,120 | |||||||
|
|
|
|
|
| |||||||||
Other long-term liabilities | $ | 2,438 | $ | (2,270 | ) | 3 | $ | 168 | ||||||
|
|
|
|
|
| |||||||||
Totalnon-current liabilities | $ | 2,438 | $ | 8,850 | 3,4,5 | $ | 11,288 | |||||||
|
|
|
|
|
| |||||||||
Total liabilities and stockholders’ equity | $ | 122,070 | $ | 11,414 | 4,5 | $ | 133,484 | |||||||
|
|
|
|
|
|
|
|
|
|
|
Upon adoption of the new revenue standard, we recorded a cumulative effect adjustment to the beginning balance of our consolidated December 31, 2017 balance sheet for the impact of the allocation and the timing of the recognition of revenues for an open Photonics military product agreement with a tiered pricing structure. This change will also result in increased revenue in subsequent periods from this agreement. The cumulative effect of the changes made to our consolidated December 31, 2017 balance sheet were as follows (in thousands):
Balance at December 30, 2017 | Adjustments Due to ASC 606 | Balance at December 31, 2017 | ||||||||||
Other accrued liabilities | $ | 7,688 | $ | 1,634 | $ | 9,322 | ||||||
|
|
|
|
|
| |||||||
Accumulated deficit | $ | (66,881 | ) | $ | (1,634 | ) | $ | (68,515 | ) | |||
|
|
|
|
|
|
42
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Loss)
Foreign currency | Unrealized holding gains (losses) on available-for-sale investments | Total | ||||||||||
(in thousands) | ||||||||||||
Balance at December 30, 2017 | $ | 535 | $ | (45 | ) | $ | 490 | |||||
|
|
|
|
|
| |||||||
Other comprehensive income (loss) before reclassification | (130 | ) | 18 | (112 | ) | |||||||
Amounts reclassified from other comprehensive income (loss) | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Net current-period other comprehensive income (loss) | (130 | ) | 18 | (112 | ) | |||||||
|
|
|
|
|
| |||||||
Balance at December 29, 2018 | $ | 405 | $ | (27 | ) | $ | 378 | |||||
|
|
|
|
|
| |||||||
Other comprehensive income (loss) before reclassification | (24 | ) | 70 | 46 | ||||||||
Amounts reclassified from other comprehensive income (loss) | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Net current-period other comprehensive income (loss) | (24 | ) | 70 | 46 | ||||||||
|
|
|
|
|
| |||||||
Balance at December 28, 2019 | $ | 381 | $ | 43 | $ | 424 | ||||||
|
|
|
|
|
|
January 1, 2022:
Foreign currency | Unrealized holding gains (losses) on available-for-sale investments | Total | ||||||||||
(in thousands) | ||||||||||||
Balance at January 2, 2021 | $ | 602 | $ | 38 | $ | 640 | ||||||
Other comprehensive income (loss) before reclassification | 6 | (68 | ) | (62 | ) | |||||||
Amounts reclassified from other comprehensive income (loss) | — | — | — | |||||||||
Net current-period other comprehensive income (loss) | 6 | (68 | ) | (62 | ) | |||||||
Balance at January 1, 2022 | 608 | (30 | ) | 578 | ||||||||
Other comprehensive loss before reclassification | (331 | ) | (454 | ) | (785 | ) | ||||||
Amounts reclassified from other comprehensive income (loss) | 14 | — | 14 | |||||||||
Net current-period other comprehensive loss | (317 | ) | (454 | ) | (771 | ) | ||||||
Balance at December 31, 2022 | $ | 291 | $ | (484 | ) | $ | (193 | ) | ||||
Cash proceeds | $ | 70,000 | ||
Working capital adjustment | (74 | ) | ||
69,926 | ||||
Assets sold: | ||||
Accounts receivable | 3,535 | |||
Inventories | 6,301 | |||
Other current assets | 72 | |||
Property, plant and equipment | 3,987 | |||
Total assets sold | 13,895 | |||
Liabilities divested: | ||||
Accounts payable | 888 | |||
Other accrued expenses | 594 | |||
Total liabilities divested | 1,482 | |||
Transaction and other costs | (3,172 | ) | ||
Gain on sale | $ | 54,341 | ||
Year Ended, | ||||||||
December 31, 2022 | January 1, 2022 | |||||||
(In thousands, except per share amounts) | ||||||||
Net revenues: | ||||||||
Systems and components | $ | — | $ | 15,932 | ||||
Technology development | — | 11,735 | ||||||
Total net revenues | — | 27,667 | ||||||
Cost of net revenues: | ||||||||
Systems and components | — | 12,252 | ||||||
Technology development | — | 8,885 | ||||||
Total cost of net revenues | — | 21,137 | ||||||
Gross profit | — | 6,530 | ||||||
Operating expenses: | ||||||||
Research and development | — | 2,653 | ||||||
Selling, general and administrative | 321 | 5,937 | ||||||
Asset impairment and restructuring charges | — | 2,604 | ||||||
Total operating expenses | 321 | 11,194 | ||||||
Year Ended, | ||||||||
December 31, 2022 | January 1, 2022 | |||||||
(In thousands, except per share amounts) | ||||||||
Operating income (loss)—discontinued operations | (321 | ) | (4,664 | ) | ||||
Other income (expense)—discontinued operations | — | — | ||||||
Income (loss) discontinued operations before provision for (benefit from) income taxes | (321 | ) | (4,664 | ) | ||||
Gain on disposal of discontinued operations before income taxes | — | 54,341 | ||||||
Total income (loss) from discontinued operations, before tax | (321 | ) | 49,677 | |||||
Provision for (benefit from) income taxes | — | — | ||||||
Net income (loss) discontinued operations net of tax | $ | (321 | ) | $ | 49,677 | |||
2022 | 2021 | |||||||
(in thousands) | ||||||||
Depreciation and amortization | $ | — | $ | 1,366 | ||||
Asset impairment charges | $ | — | $ | 1,246 | ||||
Equity-based compensation | $ | (229 | ) | $ | 1,167 | |||
Purchase of leasehold improvements and equipment | $ | — | $ | 429 |
recognition
2021.
TFE | 2019 | 2018 | ||||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
HDD | DCP | PV | Total | HDD | DCP | PV | Total | |||||||||||||||||||||||||
Systems, upgrades and spare parts | $ | 52,759 | $ | — | $ | 15,653 | $ | 68,412 | $ | 55,793 | $ | 1 | $ | 5,253 | $ | 61,047 | ||||||||||||||||
Field service | 5,210 | 2 | 54 | 5,266 | 8,255 | — | 46 | 8,301 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total TFE net revenues | $ | 57,969 | $ | 2 | $ | 15,707 | $ | 73,678 | $ | 64,048 | $ | 1 | $ | 5,299 | $ | 69,348 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photonics | 2019 | 2018 | ||||||
(in thousands) | ||||||||
Products: | ||||||||
Military products | $ | 12,480 | $ | 13,828 | ||||
Commercial products | 640 | 335 | ||||||
Repair and other services | 2,430 | 1,809 | ||||||
|
|
|
| |||||
Total Photonics product net revenues | 15,550 | 15,972 | ||||||
Technology development: | ||||||||
FFP | 12,521 | 2,463 | ||||||
CPFF | 7,134 | 7,258 | ||||||
Time and materials | 2 | 73 | ||||||
|
|
|
| |||||
Total technology development net revenues | 19,657 | 9,794 | ||||||
|
|
|
| |||||
Total Photonics net revenues | $ | 35,207 | $ | 25,766 | ||||
|
|
|
|
Primary Geography Markets
2019 | 2018 | |||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
TFE | Photonics | Total | TFE | Photonics | Total | |||||||||||||||||||
United States | $ | 1,306 | $ | 34,664 | $ | 35,970 | $ | 4,050 | $ | 23,862 | $ | 27,912 | ||||||||||||
Asia | 72,372 | — | 72,372 | 65,298 | 31 | 65,329 | ||||||||||||||||||
Europe | — | 543 | 543 | — | 1,648 | 1,648 | ||||||||||||||||||
Rest of World | — | — | — | — | 225 | 225 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total net revenues | $ | 73,678 | $ | 35,207 | $ | 108,885 | $ | 69,348 | $ | 25,766 | $ | 95,114 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
44
2022 | 2021 | |||||||||||||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||||
HDD | DCP | PV | ASP | Total | HDD | DCP | PV | ASP | Total | |||||||||||||||||||||||||||||||
Systems, upgrades and spare parts | $ | 29,507 | $ | 1 | $ | 273 | $ | 100 | $ | 29,881 | $ | 28,300 | $ | 3 | $ | 258 | $ | 3,850 | $ | 32,411 | ||||||||||||||||||||
Field service | 5,647 | 43 | 190 | — | 5,880 | 6,031 | 14 | 68 | — | 6,113 | ||||||||||||||||||||||||||||||
Total net revenues | $ | 35,154 | $ | 44 | $ | 463 | $ | 100 | $ | 35,761 | $ | 34,331 | $ | 17 | $ | 326 | $ | 3,850 | $ | 38,524 | ||||||||||||||||||||
2022 | 2021 | |||||||
(in thousands) | ||||||||
United States | $ | 4,558 | $ | 3,670 | ||||
Asia | 31,103 | 31,004 | ||||||
Europe | 100 | 3,850 | ||||||
Total net revenues | $ | 35,761 | $ | 38,524 | ||||
2019 | 2018 | |||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
TFE | Photonics | Total | TFE | Photonics | Total | |||||||||||||||||||
Products transferred at a point in time | $ | 73,678 | $ | 2,430 | $ | 76,108 | $ | 69,348 | $ | 1,809 | $ | 71,157 | ||||||||||||
Products and services transferred over time | — | 32,777 | 32,777 | — | 23,957 | 23,957 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total net revenues | $ | 73,678 | $ | 35,207 | $ | 108,885 | $ | 69,348 | $ | 25,766 | $ | 95,114 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
2022 | 2021 | |||||||
(in thousands) | ||||||||
Products transferred at a point in time | $ | 35,761 | $ | 38,524 | ||||
Products and services transferred over time | — | — | ||||||
Total net revenues | $ | 35,761 | $ | 38,524 | ||||
December 28, 2019 | December 29, 2018 | Change | ||||||||||
(In thousands) | ||||||||||||
TFE: | ||||||||||||
Contract assets: | ||||||||||||
Accounts receivable, unbilled | $ | 760 | $ | 514 | $ | 246 | ||||||
|
|
|
|
|
| |||||||
Contract liabilities: | ||||||||||||
Deferred revenue | $ | 320 | $ | 633 | $ | (313 | ) | |||||
Customer advances | 4,007 | 14,314 | (10,307 | ) | ||||||||
|
|
|
|
|
| |||||||
$ | 4,327 | $ | 14,947 | $ | (10,620 | ) | ||||||
|
|
|
|
|
| |||||||
Photonics: | ||||||||||||
Contract assets: | ||||||||||||
Accounts receivable, unbilled | $ | 3,210 | $ | 1,493 | $ | 1,717 | ||||||
Retainage | 99 | 157 | (58 | ) | ||||||||
|
|
|
|
|
| |||||||
$ | 3,309 | $ | 1,650 | $ | 1,659 | |||||||
|
|
|
|
|
| |||||||
Contract liabilities: | ||||||||||||
Deferred revenue | $ | — | $ | 1,101 | $ | (1,101 | ) | |||||
|
|
|
|
|
|
2022:
December 31, 2022 | January 1, 2022 | Change | ||||||||||
(In thousands) | ||||||||||||
Contract assets: | ||||||||||||
Accounts receivable, unbilled | $ | 424 | $ | 99 | $ | 325 | ||||||
Contract liabilities: | ||||||||||||
Deferred revenue | $ | 2,446 | $ | 65 | $ | 2,381 | ||||||
Customer advances | 24,659 | 2,107 | 22,552 | |||||||||
$ | 27,105 | $ | 2,172 | $ | 24,933 | |||||||
customer as of December 31, 2022.
Accounts receivable, unbilled in our Photonics segment represents a contract asset for revenue that has been recognized in advance31, 2022.
billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly) or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. Our contracts with the U.S. government may also contain retainage provisions. Retainage represents a contract asset for the portion of the contract price earned by us for work performed, but held for payment by the U.S. government as a form of security until satisfactory completion of the contract. The retainage is billable upon completion of the contract performance and approval of final indirect expense rates by the government. During fiscal 2019, contract assets in our Photonics segment increased by $1.7 million primarily due to the revenue recognized on FFP contracts in advance of billing and the accrual of revenue incurred costs under CPFF contracts, offset in part by the completion of certain CPFF contracts and the final settlement of retainage amounts under certain CPFF contracts.
Customer advances in our Photonics segment generally represent deposits from customers upon contract execution and upon achievement of contractual milestones which represents a contract liability. These deposits are liquidated when revenue is recognized. Deferred revenue in our Photonics segment included amounts deferred for the impact of the allocation and the timing of the recognition of revenues for a military product agreement with a tiered pricing structure. During fiscal 2019, we recognized revenue in our Photonics segment of $1.1 million related to the above mentioned military product agreement that was included in deferred revenue at the beginning of the period.
3.2026.
13, 2030.
In 2003, Intevac’s stockholders approved adoption of the ESPP, which serves as the successor to the Employee Stock Purchase Plan originally adopted in 1995. Upon adoption of the ESPP, all shares available for issuance under the prior plan were transferred to the ESPP.
46
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2019 | 2018 | |||||||
Equity-based compensation by type of award: | ||||||||
Stock options | $ | 819 | $ | 775 | ||||
RSUs | 1,657 | 1,251 | ||||||
Employee stock purchase plan | 749 | 1,281 | ||||||
|
|
|
| |||||
Total equity-based compensation | $ | 3,225 | $ | 3,307 | ||||
|
|
|
|
2022 | 2021 | |||||||
Equity-based compensation by type of award: | ||||||||
Stock options | $(156) | $198 | ||||||
RSUs | 2,184 | 2,341 | ||||||
PRSUs | 2,379 | 478 | ||||||
Employee stock purchase plan | 483 | 986 | ||||||
Total equity-based compensation | $ | 4,890 | $ | 4,003 | ||||
(a) | A reversal of $1.3 million in equity-based compensation expense related to forfeitures of awards due to our reduction in workforce and a $37,000 benefit related to the modification of certain stock-based awards for fiscal year 2022. (See Note 13. Restructuring and Other Costs, Net); and |
(b) | Equity based compensation reported in discontinued operations of $ (229,000) and $1.2 million for fiscal years 2022 and 2021, respectively. Equity-based compensation expense allocated to discontinued operations for fiscal year 2022 includes $75,000 related to the modification of certain stock-based awards and is net of a divestiture-related forfeiture benefit of $446,000 that was recognized when employees were conveyed to EOTECH upon closing. (See Note 2. Divestiture and Discontinued Operations.) |
2019 | 2018 | |||||||
Stock Options: | ||||||||
Weighted-average fair value of grants per share | $ | 2.06 | $ | 1.97 | ||||
Expected volatility | 43.23 | % | 43.83 | % | ||||
Risk free interest rate | 1.86 | % | 2.58 | % | ||||
Expected term of options (in years) | 4.6 | 4.4 | ||||||
Dividend yield | None | None |
Performance The Company did not grant any stock options (“PSOs”) vest upon the achievement of certain market conditions (our stock performance) during a set performance period (typically 4 years) subject to the grantee’s continued service with Intevac through the date the applicable market condition is achieved. The fair value is based on the values calculated under the Monte Carlo simulation model on the grant date. Compensation cost is not adjusted in future periods for subsequent changes in the expected outcome of market related conditions. The compensation expense is recognized over the derived service period. We granted 37,500 of such stock options to the chief executive officer in 2019. These PSOs have a derived service period of 1.1 years.
Intevac estimated the weighted-average fair value of PSO’s using the following weighted-average assumptions:
2019 | ||||
Weighted-average fair value of grants per share | $ | 1.75 | ||
Expected volatility | 43.43 | % | ||
Risk free interest rate | 1.96 | % | ||
Expected term (in years) | 4.60 | |||
Dividend yield | None |
47
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
Options outstanding at December 29, 2018 | 2,070,749 | $ | 6.76 | 3.78 | $ | 339,821 | ||||||||||
Options granted | 372,500 | $ | 5.46 | |||||||||||||
Options cancelled and forfeited | (171,268 | ) | $ | 7.82 | ||||||||||||
Options exercised | (175,371 | ) | $ | 4.55 | ||||||||||||
|
| |||||||||||||||
Options outstanding at December 28, 2019 | 2,096,610 | $ | 6.63 | 3.75 | $ | 2,048,964 | ||||||||||
|
| |||||||||||||||
Options exercisable at December 28, 2019 | 1,294,681 | $ | 6.73 | 2.65 | $ | 1,097,036 |
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
Options exercisable at January 1, 2022 | 1,457,587 | $ | 6.55 | 2.31 | $ | 7,622 | ||||||||||
Options cancelled and forfeited | (686,144 | ) | $ | 7.24 | ||||||||||||
Options exercised | (388,344 | ) | $ | 4.82 | ||||||||||||
Options outstanding at December 31, 2022 | 383,099 | $ | 7.07 | 2.40 | $ | 327,711 | ||||||||||
Options exercisable at December 31, 2022 | 357,915 | $ | 7.17 | 2.33 | $ | 306,868 |
Shares | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
Non-vested RSUs at December 29, 2018 | 462,409 | $ | 6.92 | 1.47 | $ | 2,362,910 | ||||||||||
Granted | 319,743 | $ | 5.59 | |||||||||||||
Vested | (198,065 | ) | $ | 7.08 | ||||||||||||
Cancelled | (30,732 | ) | $ | 5.96 | ||||||||||||
|
| |||||||||||||||
Non-vested RSUs at December 28, 2019 | 553,355 | $ | 6.15 | 1.30 | $ | 3,713,012 | ||||||||||
|
|
Shares | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
Non-vested RSUs at January 1, 2022 | 843,578 | $ | 5.51 | 1.39 | $ | 3,973,252 | ||||||||||
Granted | 1,128,649 | $ | 5.06 | |||||||||||||
Vested | (248,355 | ) | $ | 5.55 | ||||||||||||
Cancelled | (414,080 | ) | $ | 5.46 | ||||||||||||
Non-vested RSUs at December 31, 2022 | 1,309,792 | $ | 5.14 | 1.21 | $ | 8,474,354 | ||||||||||
Shares | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
Non-vested PRSUs at January 1, 2022 | 189,858 | $ | 5.95 | 1.38 | $ | 894,231 | ||||||||||
Granted | 1,183,400 | $ | 3.58 | |||||||||||||
Vested | (122,655 | ) | $ | 4.44 | ||||||||||||
Cancelled | (161,264 | ) | $ | 6.01 | ||||||||||||
Non-vested PRSUs at December 31, 2022 | 1,089,339 | $ | 3.54 | 0.49 | $ | 7,048,023 | ||||||||||
2022 | ||||
Weighted-average fair value of grants per share | $ | 3.58 | ||
Expected volatility | 56.70 | % | ||
Risk-free interest rate | 3.11 | % | ||
Dividend yield | None |
2021 | ||||
Weighted-average fair value of grants per share | $ | 7.65 | ||
Expected volatility | 56.26 | % | ||
Risk-free interest rate | 0.15 | % | ||
Dividend yield | None |
2019 | 2018 | |||||||
Stock Purchase Rights: | ||||||||
Weighted-average fair value of grants per share | $ | 1.73 | $ | 2.24 | ||||
Expected volatility | 45.81 | % | 47.64 | % | ||||
Risk free interest rate | 2.28 | % | 2.01 | % | ||||
Expected term of purchase rights (in years) | 0.91 | 1.33 | ||||||
Dividend yield | None | None |
2022 | 2021 | |||||||
Stock Purchase Rights: | ||||||||
Weighted-average fair value of grants per share | $ | 1.26 | $ | 2.59 | ||||
Expected volatility | 52.57 | % | 60.88 | % | ||||
Risk free interest rate | 1.94 | % | 0.08 | % | ||||
Expected term of purchase rights (in years) | 1.24 | 0.91 | ||||||
Dividend yield | None | None |
48
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2019 | 2018 | |||||||
(in thousands, except per share amounts) | ||||||||
Shares purchased | 370 | 411 | ||||||
Weighted-average purchase price per share | $ | 3.96 | $ | 3.98 | ||||
Aggregate intrinsic value of purchase rights exercised | $ | 513 | $ | 750 |
2022 | 2021 | |||||||
(in thousands, except per share amounts) | ||||||||
Shares purchased | 279 | 435 | ||||||
Weighted-average purchase price per share | $ | 4.46 | $ | 5.05 | ||||
Aggregate intrinsic value of purchase rights exercised | $ | 220 | $ | 671 |
4.
2019 | 2018 | |||||||
(in thousands, except per share amounts) | ||||||||
Net income | $ | 1,148 | $ | 3,581 | ||||
|
|
|
| |||||
Weighted-average shares—basic | 23,063 | 22,519 | ||||||
Effect of dilutive potential common shares | 277 | 385 | ||||||
|
|
|
| |||||
Weighted-average shares—diluted | 23,340 | 22,904 | ||||||
|
|
|
| |||||
Net income per share—basic | $ | 0.05 | $ | 0.16 | ||||
|
|
|
| |||||
Net income per share—diluted | $ | 0.05 | $ | 0.16 | ||||
|
|
|
|
The potentially dilutive securities were excluded (as common stock equivalents)
2022 | 2021 | |||||||
(in thousands, except per share amounts) | ||||||||
Net loss from continuing operations | $ | (16,754 | ) | $ | (23,057 | ) | ||
Net income (loss) from discontinued operations, net of tax | (321 | ) | 49,677 | |||||
Net income (loss) | $ | (17,075 | ) | $ | 26,620 | |||
Weighted-average shares – basic | 25,192 | 24,348 | ||||||
Effect of dilutive potential common shares | — | — | ||||||
Weighted-average shares – diluted | 25,192 | 24,348 | ||||||
Basic and diluted net income (loss) per share: | ||||||||
Continuing operations | $ | (0.67 | ) | $ | (0.95 | ) | ||
Discontinued operations | $ | (0.01 | ) | $ | 2.04 | |||
Net income (loss) per share | $ | (0.68 | ) | $ | 1.09 |
2019 | 2018 | |||||||
(in thousands, except per share amounts) | ||||||||
Stock options to purchase common stock | 1,235 | 1,612 | ||||||
RSUs | 5 | 124 | ||||||
Employee stock purchase plan | 3 | 254 |
5.Company’s equity instruments are considered antidilutive.
49
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2019 | 2018 | |||||||
Seagate Technology | 60 | % | 45 | % | ||||
U.S. Government | 25 | % | * | |||||
HGST | * | 25 | % |
2022 | 2021 | |||||||
Seagate Technology | 88 | % | 47 | % | ||||
Western Digital Corporation | * | 30 | % | |||||
Amkor Technology, Inc. | * | 22 | % |
* | Less than 10% |
2019 | 2018 | |||||||
Seagate Technology | 49 | % | 52 | % | ||||
U.S. Government | 20 | % | * | |||||
Jolywood (Hongkong) Industrial Holdings Co., Limited | 14 | % | * | |||||
HGST | * | 13 | % |
2022 | 2021 | |||||||
Seagate Technology | 80 | % | 60 | % | ||||
Western Digital Corporation | 18 | % | 25 | % | ||||
Amkor Technology, Inc. | * | 10 | % |
* | Less than 10% |
6.DCP.
January 1, 2022:
December 28, | December 29, | |||||||
2019 | 2018 | |||||||
(in thousands) | ||||||||
Trade receivables and other | $ | 24,472 | $ | 25,397 | ||||
Unbilled costs and accrued profits | 4,069 | 2,164 | ||||||
Income tax receivable | 78 | 156 | ||||||
Less: allowance for doubtful accounts | — | — | ||||||
|
|
|
| |||||
$ | 28,619 | $ | 27,717 | |||||
|
|
|
|
50
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2022 | January 1, 2022 | |||||||
(in thousands) | ||||||||
Trade receivables and other | $ | 15,399 | $ | 14,162 | ||||
Unbilled costs and accrued profits | 424 | 99 | ||||||
Less: allowance for doubtful accounts | — | — | ||||||
$ | 15,823 | $ | 14,261 | |||||
December 28, | December 29, | |||||||
2019 | 2018 | |||||||
(in thousands) | ||||||||
Raw materials | $ | 15,286 | $ | 16,354 | ||||
Work-in-progress | 4,748 | 9,134 | ||||||
Finished goods | 4,873 | 5,109 | ||||||
|
|
|
| |||||
$ | 24,907 | $ | 30,597 | |||||
|
|
|
|
December 31, 2022 | January 1, 2022 | |||||||
(in thousands) | ||||||||
Raw materials | $ | 19,116 | $ | 5,323 | ||||
Work-in-progress | 9,499 | 468 | ||||||
Finished goods | 1,388 | — | ||||||
$ | 30,003 | $ | 5,791 | |||||
location where the sales transaction did not meet our revenue recognition criteria as set forth in Note 1.
December 28, 2019 | December 29, 2018 | |||||||
(in thousands) | ||||||||
Leasehold improvements | $ | 15,037 | $ | 14,923 | ||||
Machinery and equipment | 46,674 | 45,032 | ||||||
|
|
|
| |||||
61,711 | 59,955 | |||||||
Less accumulated depreciation and amortization | 50,113 | 48,757 | ||||||
|
|
|
| |||||
Total property, plant and equipment, net | $ | 11,598 | $ | 11,198 | ||||
|
|
|
|
Net
December 31, 2022 | January 1, 2022 | |||||||
(in thousands) | ||||||||
Leasehold improvements | $ | 9,567 | $ | 9,847 | ||||
Machinery and equipment | 19,016 | 23,818 | ||||||
28,583 | 33,665 | |||||||
Less accumulated depreciation and amortization | 24,925 | 28,906 | ||||||
Total property, plant and equipment, net | $ | 3,658 | $ | 4,759 | ||||
December 31, 2022 | January 1, 2022 | |||||||
(in thousands) | ||||||||
United States | $ | 3,143 | $ | 4,385 | ||||
Asia | 515 | 374 | ||||||
Net property, plant & equipment | $ | 3,658 | $ | 4,759 | ||||
December 28, 2019 | December 29, 2018 | |||||||
(in thousands) | ||||||||
Deferred income taxes | $ | 6,252 | $ | 7,913 | ||||
Income tax receivable | 78 | 157 | ||||||
Contested tax deposits | — | 723 | ||||||
Other | — | 16 | ||||||
|
|
|
| |||||
$ | 6,330 | $ | 8,809 | |||||
|
|
|
|
December 31, 2022 | January 1, 2022 | |||||||
(in thousands) | ||||||||
Deferred income taxes | $ | 4,356 | $ | 5,310 | ||||
Prepaid expenses | 25 | 139 | ||||||
$ | 4,381 | $ | 5,449 | |||||
51
December 31, 2022 | January 1, 2022 | |||||||
(in thousands) | ||||||||
Deferred revenue | $ | 2,446 | $ | 65 | ||||
Litigation settlement | 1,012 | 1,000 | ||||||
Other taxes payable | 838 | 1,318 | ||||||
Restructuring | 318 | 347 | ||||||
Acquisition–related contingent consideration payable (See Note 15. Acquisition of Hia, Inc.) | 250 | — | ||||||
Income taxes payable | 187 | 370 | ||||||
Accrued product warranties | 163 | 301 | ||||||
Other | 216 | 264 | ||||||
Total other accrued liabilities | $ | 5,430 | $ | 3,665 | ||||
December 31, 2022 | January 1, 2022 | |||||||
(in thousands) | ||||||||
Restructuring | $ | — | $ | 318 | ||||
Accrued product warranties | — | 45 | ||||||
Total other long-term liabilities | $ | — | $ | 363 | ||||
Other Accrued Liabilities
December 28, 2019 | December 29, 2018 | |||||||
(in thousands) | ||||||||
Deferred revenue | $ | 320 | $ | 1,734 | ||||
Other taxes payable | 1,155 | 928 | ||||||
Accrued product warranties | 846 | 839 | ||||||
Income taxes payable | 403 | 389 | ||||||
Provision for estimated losses on uncompleted contracts | — | 278 | ||||||
Acquisition-related contingent consideration | — | 223 | ||||||
Other | 869 | 561 | ||||||
|
|
|
| |||||
Total other accrued liabilities | $ | 3,593 | $ | 4,952 | ||||
|
|
|
|
Other Long-Term Liabilities
December 28, 2019 | December 29, 2018 | |||||||
(in thousands) | ||||||||
Deferred rent | $ | — | $ | 2,270 | ||||
Accrued product warranties | 176 | 158 | ||||||
Accrued income taxes | 10 | 10 | ||||||
|
|
|
| |||||
Total other long-term liabilities | $ | 186 | $ | 2,438 | ||||
|
|
|
|
7. Purchased Intangible Assets, Net
Information regarding acquisition-related intangible assets is as follows:
December 28, 2019 | December 29, 2018 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Customer relationships | $ | 3,119 | $ | 3,083 | $ | 36 | $ | 3,119 | $ | 3,040 | $ | 79 | ||||||||||||
Purchased technology | 5,148 | 4,910 | 238 | 5,148 | 4,338 | 810 | ||||||||||||||||||
Covenants not to compete | 40 | 40 | — | 40 | 40 | — | ||||||||||||||||||
Backlog | 80 | 80 | — | 80 | 80 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total amortizable intangible assets | $ | 8,387 | $ | 8,113 | $ | 274 | $ | 8,387 | $ | 7,498 | $ | 889 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets by segment as of December 28, 2019 are as follows: TFE; $238,000 and Photonics; $36,000.
Total amortization expense of purchased intangibles for both fiscal 2019 and 2018 was $615,000.
Estimated future amortization expense related to finite-lived purchased intangible assets as of December 28, 2019, is as follows.
(in thousands) | ||||
2020 | $ | 274 | ||
|
|
In connection with the acquisition of SIT, Intevac agreed to pay to the selling shareholders in cash a revenue earnout on Intevac’s net revenue from commercial sales of certain products over a specified period up to an aggregate of $9.0 million.
52
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The earnout period terminated on June 30, 2019. There is no remaining contingent consideration obligation associated with the earnout agreement at December 28, 2019.
The following table represents a reconciliation of the change in the fair value measurement of the contingent consideration liability for fiscal 2019 and 2018:
2019 | 2018 | |||||||
(in thousands) | ||||||||
Beginning balance | $ | 223 | $ | 362 | ||||
Changes in fair value | 7 | (139 | ) | |||||
Cash payments made | (230 | ) | — | |||||
|
|
|
| |||||
Ending balance | $ | — | $ | 223 | ||||
|
|
|
|
9. Financial Instruments
December 28, 2019 | ||||||||||||||||
Amortized Cost | Unrealized Holding Gains | Unrealized Holding Losses | Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Cash | $ | 16,512 | $ | — | $ | — | $ | 16,512 | ||||||||
Money market funds | 3,255 | — | — | 3,255 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total cash and cash equivalents | $ | 19,767 | $ | — | $ | — | $ | 19,767 | ||||||||
Short-term investments: | ||||||||||||||||
Certificates of deposit | $ | 3,000 | $ | 1 | $ | — | $ | 3,001 | ||||||||
Commercial paper | 1,891 | 2 | — | 1,893 | ||||||||||||
Corporate bonds and medium-term notes | 6,383 | 25 | — | 6,408 | ||||||||||||
U.S. treasury and agency securities | 5,417 | 1 | — | 5,418 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total short-term investments | $ | 16,691 | $ | 29 | $ | — | $ | 16,720 | ||||||||
Long-term investments: | ||||||||||||||||
Certificates of deposit | $ | 499 | $ | 1 | $ | — | $ | 500 | ||||||||
Corporate bonds and medium-term notes | 2,530 | 12 | — | 2,542 | ||||||||||||
U.S. treasury and agency securities | 2,494 | 1 | — | 2,495 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total long-term investments | $ | 5,523 | $ | 14 | $ | — | $ | 5,537 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total cash, cash equivalents, and investments | $ | 41,981 | $ | 43 | $ | — | $ | 42,024 | ||||||||
|
|
|
|
|
|
|
|
53
December 31, 2022 | ||||||||||||||||
Amortized Cost | Unrealized Holding Gains | Unrealized Holding Losses | Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Cash | $ | 26,465 | $ | — | $ | — | $ | 26,465 | ||||||||
Money market funds | 9,589 | — | — | 9,589 | ||||||||||||
Commercial paper | 32,856 | — | 6 | 32,850 | ||||||||||||
Total cash and cash equivalents | $ | 68,910 | $ | — | $ | 6 | $ | 68,904 | ||||||||
Short-term investments: | ||||||||||||||||
Asset backed securities | $ | 2,012 | $ | — | $ | 13 | $ | 1,999 | ||||||||
Certificates of deposit | 3,850 | — | 10 | 3,840 | ||||||||||||
Commercial paper | 9,443 | — | 28 | 9,415 | ||||||||||||
Corporate bonds and medium-term notes | 4,210 | — | 32 | 4,178 | ||||||||||||
Municipal bonds | 1,486 | — | 25 | 1,461 | ||||||||||||
U.S. treasury securities | 4,771 | — | 123 | 4,648 | ||||||||||||
Total short-term investments | $ | 25,772 | $ | — | $ | 231 | $ | 25,541 | ||||||||
Long-term investments: | ||||||||||||||||
Asset backed securities | $ | 6,749 | $ | — | $ | 85 | $ | 6,664 | ||||||||
Corporate bonds and medium-term notes | 5,366 | — | 102 | 5,264 | ||||||||||||
Municipal bonds | 224 | — | 6 | 218 | ||||||||||||
U.S. treasury and agency securities | 5,493 | — | 54 | 5,439 | ||||||||||||
Total long-term investments | $ | 17,832 | $ | — | $ | 247 | $ | 17,585 | ||||||||
Total cash, cash equivalents, and investments | $ | 112,514 | $ | — | $ | 484 | $ | 112,030 | ||||||||
January 1, 2022 | ||||||||||||||||
Amortized Cost | Unrealized Holding Gains | Unrealized Holding Losses | Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Cash | $ | 102,494 | $ | — | $ | — | $ | 102,494 | ||||||||
Money market funds | 234 | — | — | 234 | ||||||||||||
Total cash and cash equivalents | $ | 102,728 | $ | — | $ | — | $ | 102,728 | ||||||||
Short-term investments: | ||||||||||||||||
Certificates of deposit | $ | 4,300 | $ | — | $ | — | $ | 4,300 | ||||||||
Commercial paper | 400 | — | — | 400 | ||||||||||||
Corporate bonds and medium-term notes | 2,916 | — | 3 | 2,913 | ||||||||||||
Municipal bonds | 700 | — | — | 700 | ||||||||||||
U.S. treasury securities | 1,910 | — | 2 | 1,908 | ||||||||||||
Total short-term investments | $ | 10,226 | $ | — | $ | 5 | $ | 10,221 | ||||||||
Long-term investments: | ||||||||||||||||
Asset backed securities | $ | 2,040 | $ | — | $ | 3 | $ | 2,037 | ||||||||
Certificates of deposit | 500 | — | 3 | 497 | ||||||||||||
Corporate bonds and medium-term notes | 1,521 | — | 6 | 1,515 | ||||||||||||
Municipal bonds | 145 | — | 1 | 144 | ||||||||||||
U.S. treasury securities | 3,246 | — | 12 | 3,234 | ||||||||||||
Total long-term investments | $ | 7,452 | $ | — | $ | 25 | $ | 7,427 | ||||||||
Total cash, cash equivalents, and investments | $ | 120,406 | $ | — | $ | 30 | $ | 120,376 | ||||||||
December 29, 2018 | ||||||||||||||||
Amortized Cost | Unrealized Holding Gains | Unrealized Holding Losses | Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Cash | $ | 13,334 | $ | — | $ | — | $ | 13,334 | ||||||||
Money market funds | 3,335 | — | — | 3,335 | ||||||||||||
U.S. treasury and agency securities | 2,046 | — | — | 2,046 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total cash and cash equivalents | $ | 18,715 | $ | — | $ | — | $ | 18,715 | ||||||||
Short-term investments: | ||||||||||||||||
Certificates of deposit | $ | 5,299 | $ | 1 | $ | 1 | $ | 5,299 | ||||||||
Commercial paper | 2,242 | — | 1 | 2,241 | ||||||||||||
Corporate bonds and medium-term notes | 4,759 | — | 13 | 4,746 | ||||||||||||
Municipal bonds | 500 | — | 2 | 498 | ||||||||||||
U.S. treasury and agency securities | 3,297 | — | 5 | 3,292 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total short-term investments | $ | 16,097 | $ | 1 | $ | 22 | $ | 16,076 | ||||||||
Long-term investments: | ||||||||||||||||
Certificates of deposit | $ | 500 | $ | — | $ | — | $ | 500 | ||||||||
Corporate bonds and medium-term notes | 2,879 | 4 | 4 | 2,879 | ||||||||||||
U.S. treasury and agency securities | 999 | — | 6 | 993 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total long-term investments | $ | 4,378 | $ | 4 | $ | 10 | $ | 4,372 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total cash, cash equivalents, and investments | $ | 39,190 | $ | 5 | $ | 32 | $ | 39,163 | ||||||||
|
|
|
|
|
|
|
|
Amortized Cost | Fair Value | |||||||
(in thousands) | ||||||||
Due in one year or less | $ | 19,946 | $ | 19,975 | ||||
Due after one through five years | 5,523 | 5,537 | ||||||
|
|
|
| |||||
$ | 25,469 | $ | 25,512 | |||||
|
|
|
|
Amortized Cost | Fair Value | |||||||
(in thousands) | ||||||||
Due in one year or less | $ | 68,217 | $ | 67,981 | ||||
Due after one through five years | 17,832 | 17,584 | ||||||
$ | 86,049 | $ | 85,565 | |||||
December 31, 2022 | ||||||||||||||||
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) | ||||||||||||||||
Asset backed securities | $ | 7,917 | $ | 90 | $ | 746 | $ | 8 | ||||||||
Certificates of deposit | 1,992 | 8 | 498 | 2 | ||||||||||||
Commercial paper | 37,887 | 34 | — | — | ||||||||||||
Corporate bonds and medium-term notes | 7,955 | 124 | 1,486 | 10 | ||||||||||||
Municipal bond | 1,535 | 30 | 144 | 1 | ||||||||||||
U.S. treasury and agency securities | 6,917 | 97 | 3,170 | 80 | ||||||||||||
$ | 64,203 | $ | 383 | $ | 6,044 | $ | 101 | |||||||||
54
Fair Value Measurements at December 28, 2019 | ||||||||||||
Total | Level 1 | Level 2 | ||||||||||
(in thousands) | ||||||||||||
Recurring fair value measurements: | ||||||||||||
Available-for-sale securities | ||||||||||||
Money market funds | $ | 3,255 | $ | 3,255 | $ | — | ||||||
U.S. treasury and agency securities | 7,913 | 7,913 | — | |||||||||
Certificates of deposit | 3,501 | — | 3,501 | |||||||||
Commercial paper | 1,893 | — | 1,893 | |||||||||
Corporate bonds and medium-term notes | 8,950 | — | 8,950 | |||||||||
|
|
|
|
|
| |||||||
Total recurring fair value measurements | $ | 25,512 | $ | 11,168 | $ | 14,344 | ||||||
|
|
|
|
|
|
31, 2022.
Fair Value Measurements at December 31, 2022 | ||||||||||||
Total | Level 1 | Level 2 | ||||||||||
(in thousands) | ||||||||||||
Recurring fair value measurements: | ||||||||||||
Money market funds | $ | 9,589 | $ | 9,589 | $ | — | ||||||
U.S. treasury and agency securities | 10,087 | 6,592 | 3,495 | |||||||||
Asset backed securities | 8,663 | — | 8,663 | |||||||||
Certificates of deposit | 3,840 | — | 3,840 | |||||||||
Commercial paper | 42,265 | — | 42,265 | |||||||||
Corporate bonds and medium-term notes | 9,442 | — | 9,442 | |||||||||
Municipal bonds | 1,679 | — | 1,679 | |||||||||
Total recurring fair value measurements | $ | 85,565 | $ | 16,181 | $ | 69,384 | ||||||
Notional Amounts | Derivative Liabilities | |||||||||||||||||||||||
Derivative Instrument | December 28, 2019 | December 29, 2018 | December 28, 2019 | December 29, 2018 | ||||||||||||||||||||
Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | |||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Undesignated Hedges: | ||||||||||||||||||||||||
Forward Foreign Currency Contracts | $ | 1,035 | 1,764 | * | $ | 4 | * | $ | 8 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total Hedges | $ | 1,035 | 1,764 | $ | 4 | $ | 8 | |||||||||||||||||
|
|
|
|
|
|
|
|
Notional Amounts | Derivative Assets | Derivative Assets | ||||||||||||||||||||||
Derivative Instrument | December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | ||||||||||||||||||||
Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | |||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Undesignated Hedges: | ||||||||||||||||||||||||
Forward Foreign Currency Contracts | $ | 2,240 | 815 | (a | ) | $ | 4 | (a | ) | $ | 14 | |||||||||||||
Total Hedges | $ | 2,240 | 815 | $ | 4 | $ | 14 | |||||||||||||||||
Other |
10.
At December 28, 2019, $10.831, 2022, $10.4 million remains available for future stock repurchases under the repurchase program.
55
The following table summarizes Intevac’s stock repurchases for fiscal 2019 and 2018:
2019 | 2018 | |||||||
(in thousands, except per share amounts) | ||||||||
Shares of common stock repurchased | 24 | 120 | ||||||
Cost of stock repurchased | $ | 111 | $ | 558 | ||||
Average price paid per share | $ | 4.67 | $ | 4.63 |
11.the accumulated deficit.
2019 | 2018 | |||||||
Federal: | ||||||||
Current | $ | — | $ | (313 | ) | |||
Deferred | — | — | ||||||
|
|
|
| |||||
— | (313 | ) | ||||||
State: | ||||||||
Current | 4 | 5 | ||||||
Deferred | — | — | ||||||
|
|
|
| |||||
4 | 5 | |||||||
Foreign: | ||||||||
Current | 1,694 | 1,041 | ||||||
Deferred | 1,661 | (7,909 | ) | |||||
|
|
|
| |||||
3,355 | (6,868 | ) | ||||||
Total | $ | 3,359 | $ | (7,176 | ) | |||
|
|
|
|
2022 | 2021 | |||||||
Federal: | ||||||||
Current | $ | — | $ | — | ||||
Deferred | (121 | ) | — | |||||
(121 | ) | — | ||||||
State: | ||||||||
Current | 4 | 4 | ||||||
Deferred | — | — | ||||||
4 | 4 | |||||||
Foreign: | ||||||||
Current | 490 | 546 | ||||||
Deferred | 954 | 25 | ||||||
1,444 | 571 | |||||||
Total | $ | 1,327 | $ | 575 | ||||
Income taxes on discontinued operations | $ | — | $ | — | ||||
Income taxes on continuing operations | $ | 1,327 | $ | 575 |
2019 | 2018 | |||||||
U.S | $ | (4,875 | ) | $ | (11,634 | ) | ||
Foreign | 9,382 | 8,039 | ||||||
|
|
|
| |||||
$ | 4,507 | $ | (3,595 | ) | ||||
|
|
|
| |||||
Effective tax rate | 74.5 | % | 199.6 | % | ||||
|
|
|
|
56
2022 | 2021 | |||||||
U.S | $ | (20,570 | ) | $ | (22,694 | ) | ||
Foreign | 5,143 | 212 | ||||||
$ | (15,427 | ) | $ | (22,482 | ) | |||
Effective tax rate | (8.6 | %) | (2.6 | %) | ||||
December 28, 2019 | December 29, 2018 | |||||||
Deferred tax assets: | ||||||||
Vacation, warranty and other accruals | $ | 635 | $ | 515 | ||||
Depreciation and amortization | 89 | 656 | ||||||
Intangible amortization | 804 | 902 | ||||||
Inventory valuation | 1,288 | 1,401 | ||||||
Deferred income | — | 256 | ||||||
Equity-based compensation | 1,593 | 1,411 | ||||||
Net operating loss, research and other tax credit carryforwards | 54,818 | 53,595 | ||||||
Other | 43 | 545 | ||||||
|
|
|
| |||||
59,270 | 59,281 | |||||||
Valuation allowance for deferred tax assets | (52,099 | ) | (50,804 | ) | ||||
|
|
|
| |||||
Total deferred tax assets | 7,171 | 8,477 | ||||||
|
|
|
| |||||
Deferred tax liabilities: | ||||||||
Purchased technology | (45 | ) | (181 | ) | ||||
Unbilled revenue | (874 | ) | (383 | ) | ||||
|
|
|
| |||||
Total deferred tax liabilities | (919 | ) | (564 | ) | ||||
|
|
|
| |||||
Net deferred tax assets | $ | 6,252 | $ | 7,913 | ||||
|
|
|
| |||||
As reported on the balance sheet: | ||||||||
Non-current deferred tax assets | $ | 6,252 | $ | 7,913 | ||||
|
|
|
|
December 31, 2022 | January 1, 2022 | |||||||
Deferred tax assets: | ||||||||
Vacation, warranty and other accruals | $ | 525 | $ | 627 | ||||
Intangible amortization | — | 282 | ||||||
Depreciation and amortization | 229 | — | ||||||
Purchased technology | 14 | 17 | ||||||
Inventory valuation | 1,116 | 1,653 | ||||||
Equity-based compensation | 841 | 1,343 | ||||||
Lease liability | 898 | 1,659 | ||||||
Section 174 R&D adjustment | 2,440 | — | ||||||
Net operating loss, research and other tax credit carryforwards | 56,310 | 53,684 | ||||||
Other | 7 | 22 | ||||||
62,380 | 59,287 | |||||||
Valuation allowance for deferred tax assets | (57,310 | ) | (52,703 | ) | ||||
Total deferred tax assets | 5,070 | 6,584 | ||||||
Deferred tax liabilities: | ||||||||
Intangible amortization | (160 | ) | — | |||||
Depreciation and amortization | — | (201 | ) | |||||
ROU asset | (554 | ) | (1,073 | ) | ||||
Total deferred tax liabilities | (714 | ) | (1,274 | ) | ||||
Net deferred tax assets | $ | 4,356 | $ | 5,310 | ||||
As reported on the consolidated balance sheets: | ||||||||
Non-current deferred tax assets | $ | 4,356 | $ | 5,310 | ||||
31, 2022.
57
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.
The U.S. federal corporate alternative minimum tax (“AMT”) has been repealed for tax years beginning after December 31, 2017. Intevac has recorded income tax receivables of $156,000 for unused AMT credit carryforwards. On the consolidated balance sheets, the short-term portion of the income tax receivable is included in trade and other accounts receivable, net, while the long-term portion is included in deferred income taxes and other long-term assets.
2019 | 2018 | |||||||
Income tax (benefit) at the federal statutory rate | $ | 947 | $ | (756 | ) | |||
State income taxes, net of federal benefit | 4 | 5 | ||||||
Change in valuation allowance: | ||||||||
U.S | (689 | ) | 930 | |||||
Foreign | — | (9,286 | ) | |||||
Effect of foreign operations taxed at various rates | (397 | ) | (254 | ) | ||||
Research tax credits | (1,710 | ) | (1,883 | ) | ||||
Effect of tax rate changes, permanent differences and adjustments of prior deferrals | 3,685 | 4,142 | ||||||
Unrecognized tax benefits | 1,519 | (74 | ) | |||||
|
|
|
| |||||
Total | $ | 3,359 | $ | (7,176 | ) | |||
|
|
|
|
2022 | 2021 | |||||||
Income tax at the federal statutory rate | $ | (3,240 | ) | $ | (4,721 | ) | ||
State income taxes, net of federal benefit | 4 | 4 | ||||||
Change in valuation allowance: | ||||||||
U.S | 3,129 | 94 | ||||||
Foreign | — | — | ||||||
Effect of foreign operations taxed at various rates | (219 | ) | 48 | |||||
Research tax credits | (788 | ) | (1,135 | ) | ||||
Effect of tax rate changes, permanent differences and adjustments of prior deferrals | 2,441 | 6,285 | ||||||
Unrecognized tax benefits | — | — | ||||||
Total provision for income taxes on continuing operations | $ | 1,327 | $ | 575 | ||||
2019 | 2018 | |||||||
Beginning balance | $ | 6,164 | $ | 5,678 | ||||
Additions based on tax positions related to the current year | 1,519 | 784 | ||||||
Settlements | — | (233 | ) | |||||
Lapse of statute of limitations | — | (65 | ) | |||||
|
|
|
| |||||
Ending balance | $ | 7,683 | $ | 6,164 | ||||
|
|
|
|
2021:
2022 | 2021 | |||||||
Beginning balance | $ | 718 | $ | 7,327 | ||||
Additions based on tax positions related to the current year | 12 | 24 | ||||||
Decreases for tax positions of prior years | — | (6,622 | ) | |||||
Lapse of statute of limitations | — | (11 | ) | |||||
Ending balance | $ | 730 | $ | 718 | ||||
58
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
consolidated statements of income.operations. During fiscal 20192022 and 2018,2021, Intevac recognized a net tax expense (benefit) for interest of $0 and $2,000, respectively.$0. As of December 28, 201931, 2022, Intevac had $2,000 ofdid not have any accrued interest related to unrecognized tax benefits, which was classified as a long-term liability in the consolidated balance sheets.benefits. Intevac did not accrue any penalties related to these unrecognized tax benefits because Intevac has other tax attributes which would offset any potential taxes due.
examination from 2017 forward.
12.
13.2021.
59
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 28, 2019 | December 30, 2018 | |||||||
(In thousands) | ||||||||
Assets: | ||||||||
Operating leaseright-of-use assets | $ | 10,279 | $ | 11,635 | ||||
Liabilities: | ||||||||
Current operating lease liabilities | $ | 2,524 | $ | 2,581 | ||||
Noncurrent operating lease liabilities | 9,532 | 11,120 | ||||||
|
|
|
| |||||
$ | 12,056 | $ | 13,701 | |||||
|
|
|
|
January 1, 2022.
December 31, 2022 | January 1, 2022 | |||||||
(in thousands) | ||||||||
Assets: | ||||||||
Operating lease ROU assets | $ | 3,390 | $ | 4,520 | ||||
Liabilities: | ||||||||
Current operating lease liabilities | $ | 3,404 | $ | 3,119 | ||||
Noncurrent operating lease liabilities | 1,417 | 3,675 | ||||||
$ | 4,821 | $ | 6,794 | |||||
2019 | 2018 | |||||||
(In thousands) | ||||||||
Operating lease cost | $ | 3,112 | $ | 3,024 | ||||
Short-term lease cost | 78 | 82 | ||||||
|
|
|
| |||||
Total lease cost | $ | 3,190 | $ | 3,106 | ||||
|
|
|
|
follows:
2022 | 2021 | |||||||
(in thousands) | ||||||||
Operating lease cost | $ | 1,624 | $ | 2,944 | ||||
Operating lease cost subleased / assigned property | 974 | — | ||||||
Short-term lease cost | 43 | 98 | ||||||
Less: sublease income | (974 | ) | — | |||||
Total lease cost, net | $ | 1,667 | $ | 3,042 | ||||
(In thousands) | ||||
2020 | $ | 3,219 | ||
2021 | 3,343 | |||
2022 | 3,428 | |||
2023 | 3,249 | |||
2024 | 529 | |||
|
| |||
Total lease payments | 13,768 | |||
Less: Interest | (1,712 | ) | ||
|
| |||
Present value of lease liabilities | $ | 12,056 | ||
|
|
Continuing Operations | Discontinued Operations | Total | ||||||||||
(in thousands) | ||||||||||||
2023 | $ | 1,819 | 1,769 | $ | 3,588 | |||||||
2024 | 655 | 296 | 951 | |||||||||
2025 | 408 | — | 408 | |||||||||
2026 | 100 | — | 100 | |||||||||
Total lease payments | $ | 2,982 | $ | 2,065 | 5,047 | |||||||
Less: Interest | (143 | ) | (83 | ) | (226 | ) | ||||||
Present value of lease liabilities | $ | 2,839 | $ | 1,982 | 4,821 | |||||||
| ||||
|
December 31, 2022 | January 1, 2022 | |||||||
Weighted-average remaining lease term (in years) | 1.69 | 2.11 | ||||||
Weighted-average discount rate | 5.81 | % | 6.40 | % |
2019 | ||||
Operating cash outflows from operating leases | $ | 3,484 | ||
|
| |||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 934 | ||
|
|
60
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2022 | 2021 | |||||||
(in thousands) | ||||||||
Operating cash outflows from operating leases | $ | 1,757 | $ | 3,382 | ||||
ROU asset impairment expense (reported in discontinued operations) | $ | — | $ | 1,246 | ||||
ROU assets obtained in exchange for new operating lease liabilities | $ | 1,122 | $ | — | ||||
operations.
2019 | 2018 | |||||||
(in thousands) | ||||||||
Beginning balance | $ | 997 | $ | 994 | ||||
Expenditures incurred under warranties | (625 | ) | (561 | ) | ||||
Accruals for product warranties | 955 | 641 | ||||||
Adjustments to previously existing warranty accruals | (305 | ) | (77 | ) | ||||
|
|
|
| |||||
Ending balance | $ | 1,022 | $ | 997 | ||||
|
|
|
|
61
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2022 | 2021 | |||||||
(in thousands) | ||||||||
Beginning balance | $ | 346 | $ | 480 | ||||
Expenditures incurred under warranties | (312 | ) | (622 | ) | ||||
Expenditures incurred under warranties included in discontinued operations | — | (89 | ) | |||||
Accruals for product warranties | 147 | 502 | ||||||
Accruals for product warranties included in discontinued operations | — | 122 | ||||||
Adjustments to previously existing warranty accruals | (18 | ) | 31 | |||||
Adjustments to previously existing warranty accruals included in discontinued operations | — | (31 | ) | |||||
Sale of Photonics division | — | (47 | ) | |||||
Ending balance | $ | 163 | $ | 346 | ||||
14. Segment
Intevac’s two reportable segments are: TFEmeal breaks, pay overtime and Photonics. Intevac’s chief operating decision-maker has been identified asreimburse business expenses for
Each reportable segment is separately managed and has separate financial results that are reviewed by Intevac’s chief operating decision-maker. Each reportable segment contains closely related products that are unique toCompany. Because of the particular segment. Segment operating profit is determined based upon internal performance measures useduncertainty surrounding this litigation, no litigation reserve had been previously established by the chief operating decision-maker.
Intevac derivesCompany resulting in the segment results from its internal management reporting system. The accounting policies Intevac uses to derive reportable segment results are substantiallyfull $1.0 million settlement expense being recognized in the same as those used for external reporting purposes. Management measures the performancefourth quarter of each reportable segment based upon several metrics, including orders, net revenues and operating income. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments. Intevac manages certain operating expenses separately at the corporate level. Intevac allocates certain of these corporate expenses to the segments in an amount equal to 3% of net revenues. Segment operating income excludes interest income/expense and other financial charges and income taxes according to how a particular reportable segment’s management is measured. Management does not consider impairment charges, gains and losses on divestitures and sales of intellectual property, and unallocated costs in measuring the performance of the reportable segments.
The TFE segment designs, develops and markets vacuum process equipment solutions for high-volume manufacturing of small substrates with precise thin-film properties, such as for the hard drive, solar cell and DCP industries, as well as other adjacent thin-film markets.
The Photonics segment develops compact, cost-effective, high-sensitivity digital-optical products for the capture and display oflow-light images. Intevac provides sensors, cameras and systems for government applications such as night vision.
Information for each reportable segment for fiscal 2019 and 2018 is as follows:
2019 | 2018 | |||||||
(in thousands) | ||||||||
Net Revenues | ||||||||
TFE | $ | 73,678 | $ | 69,348 | ||||
Photonics | 35,207 | 25,766 | ||||||
|
|
|
| |||||
Total segment net revenues | $ | 108,885 | $ | 95,114 | ||||
|
|
|
|
62
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2019 | 2018 | |||||||
(in thousands) | ||||||||
Operating Profit (Loss) | ||||||||
TFE | $ | 1,747 | $ | (1,335 | ) | |||
Photonics | 6,434 | 440 | ||||||
|
|
|
| |||||
Total segment operating profit (loss) | 8,181 | (895 | ) | |||||
|
|
|
| |||||
Unallocated costs | (4,256 | ) | (3,322 | ) | ||||
|
|
|
| |||||
Operating income (loss) | 3,925 | (4,217 | ) | |||||
|
|
|
| |||||
Interest income | 574 | 516 | ||||||
Other income (expense), net | 8 | 106 | ||||||
|
|
|
| |||||
Income (loss) before income taxes | $ | 4,507 | $ | (3,595 | ) | |||
|
|
|
|
2019 | 2018 | |||||||
(in thousands) | ||||||||
Depreciation and Amortization | ||||||||
TFE | $ | 1,909 | $ | 2,387 | ||||
Photonics | 1,310 | 1,870 | ||||||
|
|
|
| |||||
Total segment depreciation and amortization | 3,219 | 4,257 | ||||||
|
|
|
| |||||
Unallocated costs | 372 | 357 | ||||||
|
|
|
| |||||
Total consolidated depreciation and amortization | $ | 3,591 | $ | 4,614 | ||||
|
|
|
|
2019 | 2018 | |||||||
(in thousands) | ||||||||
Capital Additions | ||||||||
TFE | $ | 2,611 | $ | 1,640 | ||||
Photonics | 832 | 1,295 | ||||||
|
|
|
| |||||
Total segment capital additions | 3,443 | 2,935 | ||||||
|
|
|
| |||||
Unallocated | 664 | 309 | ||||||
|
|
|
| |||||
Total consolidated capital additions | $ | 4,107 | $ | 3,244 | ||||
|
|
|
|
2019 | 2018 | |||||||
(in thousands) | ||||||||
Segment Assets | ||||||||
TFE | $ | 51,153 | $ | 53,867 | ||||
Photonics | 22,071 | 16,721 | ||||||
|
|
|
| |||||
Total segment assets | 73,224 | 70,588 | ||||||
|
|
|
| |||||
Cash and investments | 42,024 | 39,163 | ||||||
Restricted cash | 787 | 1,169 | ||||||
Deferred income taxes | 6,252 | 7,913 | ||||||
Other current assets | 752 | 1,341 | ||||||
Common property, plant and equipment | 1,307 | 1,017 | ||||||
Common operating leaseright-of-use assets | 1,898 | — | ||||||
Other assets | 78 | 879 | ||||||
|
|
|
| |||||
Consolidated total assets | $ | 126,322 | $ | 122,070 | ||||
|
|
|
|
63
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Net property, plant and equipment by geographic region at December 28, 2019 and December 29, 2018 was as follows:
December 28, 2019 | December 29, 2018 | |||||||
(in thousands) | ||||||||
United States | $ | 11,420 | $ | 11,113 | ||||
Asia | 178 | 85 | ||||||
|
|
|
| |||||
Net property, plant & equipment | $ | 11,598 | $ | 11,198 | ||||
|
|
|
|
15.
As
Employee Termination Costs | Other Exit Costs | Total | ||||||||||
(in thousands) | ||||||||||||
Balance at January 2, 2021 | $ | — | $ | — | $ | — | ||||||
Provision for restructuring charges under the 2021 Cost Reduction Plan | 319 | — | 319 | |||||||||
Cash payments made | (319 | ) | — | (319 | ) | |||||||
Provision for restructuring charges associated with Photonics sale (a) | 693 | 1,911 | 2,604 | |||||||||
Cash payments made | (96 | ) | — | (96 | ) | |||||||
Non-cash utilization | (239 | )(b) | (1,246 | )(c) | (1,485 | ) | ||||||
Balance at January 1, 2022 | $ | 358 | (d) | $ | 665 | $ | 1,023 | |||||
Provision for restructuring charges under the 2022 Cost Reduction Plan | 1,232 | — | 1,232 | |||||||||
Cash payments made | (1,269 | ) | — | (1,269 | ) | |||||||
Non-cash utilization | 37 | (b) | — | 37 | ||||||||
Provision for restructuring charges associated with Photonics sale (a) | 112 | 15 | 127 | |||||||||
Cash payments made | (395 | ) | (362 | ) | (757 | ) | ||||||
Non-cash utilization | (75 | )(b) | — | (75 | ) | |||||||
Balance at December 31, 2022 | $ | — | $ | 318 | $ | 318 | ||||||
Company, at a rate of $3,125 per week plus expenses commencing May 23, 2022 through October 7, 2022. The changes in restructuring reserves for severance and other employee-related costsCompany incurred charges of approximately $62,500 associated with the cost reduction plan forprofessional services arrangement with Mr. Popovich in fiscal 2018, are as follows.
| ||||
| ||||
| ||||
| ||||
16. Related Party Transaction
A Board member2022.
(In thousands) | ||||
Consideration: | ||||
Cash payment | $ | 702 | ||
Transaction costs | 63 | |||
Less cash acquired | (2 | ) | ||
Total consideration | $ | 763 | ||
Assets acquired: | ||||
Technology intangible assets | $ | 815 | ||
Deferred tax asset | 119 | |||
Total assets acquired | $ | 934 | ||
Liability assumed: | ||||
Deferred tax liability | $ | (171 | ) | |
$ | 763 | |||
(In thousands) | ||||
Initial cost of technology intangible assets recognized on the acquisition date | $ | 815 | ||
Achievement of the first milestone and recognition of contingent consideration payable | 250 | |||
Deferred tax liability associated with the recognition of the first milestone | 67 | |||
Gross carrying amount at December 31, 2022 | 1,132 | |||
Accumulated amortization | (42 | ) | ||
Net carrying amount at December 31, 2022 | $ | 1,090 | ||
64
Item 9. | Changes |
None.
Item 9A. | Controls and Procedures |
Management’s Report on Assessment of Internal Controls Over Financial Reporting
Evaluation of Disclosure Controls and Procedures
Based on Intevac’s management’s evaluation with the participation of the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), as of the end of the period covered by this report,Annual Report, Intevac’s CEO and CFO have concluded that Intevac’s disclosure controls and procedures (as defined in Rule13a-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) are effective to ensure that information required to be disclosed by Intevac in reports that Intevac files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to Intevac’s management, including Intevac’s CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for Intevac. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting (as defined in Rule13a-15(f) ender the Exchange Act) includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management (with the participation of the CEO and CFO) conducted an evaluation of the effectiveness of Intevac’s internal control over financial reporting based on criteria established in the 2013Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that Intevac’s internal control over financial reporting was effective as of December 28, 2019. BPM LLP, the independent registered public accounting firm that has audited the financial statements included in this report, has issued an attestation report on Intevac’s internal control over financial reporting, which is included in their report on the following page.31, 2022.
Changes in Internal Control over Financial Reporting
Beginning December 30, 2018, we implemented ASC 842, Leases. We implemented changes to our processes related to lease recognition and the control activities within them. These included the development of new policies, ongoing lease review requirements, and gathering of information provided for disclosures.
There was no change in our internal control over financial reporting during our fourth quarter of fiscal 20192023 that has materially affected, or is reasonably likely to materially affect, Intevac’s internal control over financial reporting.
Item 9B. | Other Information |
65
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Intevac, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Intevac, Inc. (a Delaware corporation) and its subsidiaries (the “Company”) as of December 28, 2019, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 28, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of December 28, 2019 and December 29, 2018 and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December 28, 2019, and the related notes (collectively referred to as the “consolidated financial statements”) of the Company, and our report dated February 12, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Assessment of Internal Controls Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.None.
Item 9C. |
|
|
|
Not applicable.
66
69
|
None.
PART III
Item 10. | Directors, Executive Officers and Corporate Governance |
The information required by this item relating to the Company’s directors and nominees, disclosure relating to compliance with Section 16(a) of the Securities Exchange Act of 1934, and information regarding Intevac’s code of ethics, audit committee and stockholder recommendations for director nominees is included under the captions “Election of Directors,” “Nominees,” “Business Experience of Nominees for Election as Directors,” “Board Meetings and Committees,” “Corporate Governance Matters,” “Section“Delinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports ” and “Code of Business Conduct and Ethics” in the Company’s Proxy Statement for the 20202023 Annual Meeting of Stockholders and is incorporated herein by reference. The information required by this item relating to the Company’s executive officers and key employees is included under the caption “Executive Officers of the Registrant” under Item 1 in Part I of this Annual Report on Form10-K.
Item 11. | Executive Compensation |
The information required by this item is included under the caption “Executive Compensation and Related Information” in the Company’s Proxy Statement for the 20202023 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this item is included under the caption “Ownership of Securities” in the Company’s Proxy Statement for the 20202023 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by this item is included under the captions “Certain Transactions” and “Corporate Governance Matters” in the Company’s Proxy Statement for the 20202023 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 14. | Principal Accountant Fees and Services |
The information required by this item is included under the caption “Fees Paid To Accountants For Services Rendered During 2019”2022” in the Company’s Proxy Statement for the 20202023 Annual Meeting of Stockholders and is incorporated herein by reference.
6770
PART IV
Item 15. | Exhibits and Financial |
(a) The following documents are filed as part of this Annual Report onForm 10-K:
1. Financial Statements:
See “Index to Consolidated Financial Statements” in Part II, Item 8 of thisForm 10-K.
All other schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements or notes thereto.
2. Exhibits
71
68
|
| |
32.1 | Certifications Pursuant to U.S.C. 1350, adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
The following financial statements from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL | ||
Cover Page Interactive Data File (formatted as inline XBRL | ||
(1) | Previously filed as an exhibit to the Company’s Report on Form8-K filed July 23, 2007 |
(2) | Previously filed as an exhibit to the Company’s Report on Form8-K filed March 15, 2012 |
(3) | Previously filed as an exhibit to the Registration Statement on FormS-1 (No.33-97806) |
(4) | Previously filed as an exhibit to the Company’s Form |
(5) | Previously filed as an exhibit to the Company’s Definitive Proxy Statement filed April |
(6) | Previously filed as an exhibit to the Company’s Definitive Proxy Statement filed April 11, 2018 |
(7) | Previously filed as an exhibit to the Company’s Form10-Q filed May 1, 2012 |
(8) | Previously filed as an exhibit to the Company’s Form10-Q filed July 30, 2019 |
(9) | Previously filed as an exhibit to the Company’s Form10-Q filed April 29, 2014 |
(10) | Previously filed as an exhibit to the |
(11) | Previously filed as an exhibit to the Company’s |
(12) | Previously filed as an exhibit to the Company’s Report on Form |
(13) | Previously filed as an exhibit to the Company’s |
(14) | Previously filed as an exhibit to the Company’s Report on Form |
(15) | Previously filed as an exhibit to the Company’s Report on Form8-K filed |
(16) | Previously filed as an exhibit to the Company’s Form 10-Q filed May 1, 2018 |
(17) | Previously filed as an exhibit to the Company’s Report on Form 8-K filed January 3, 2022 |
(18) | Previously filed as an exhibit to the Company’s Definitive Proxy Statement filed April 14, 2021 |
(19) | Previously filed as an exhibit to the Company’s Report on Form 8-K filed May 19, 2022 |
(20) | Previously filed as an exhibit to the Company’s Form 10-Q filed August 4, 2022 |
(21) | Previously filed as an exhibit to the Company’s Report on Form 8-K filed October 12, 2022 |
(22) | Previously filed as an exhibit to the Company’s Form 10-K filed February 17, 2022 |
72
(23) | Previously filed as an exhibit to the Company’s Form 10-Q filed May 10, 2022 |
(P) | Paper exhibit. |
+ | Management compensatory plan or arrangement |
Item 16. | Form 10-K Summary |
69Not applicable.
73
Pursuant to the requirements of Section 13 or 15(d) 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, on February 12, 2020.16, 2023.
INTEVAC, INC. |
/s/ JAMES MONIZ |
James Moniz |
Executive Vice President, Finance and Administration |
Chief Financial Officer, Secretary and Treasurer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Wendell T. BloniganNigel D. Hunton and James Moniz and each of them, as his true and lawfulattorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Report onForm 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto saidattorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that saidattorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/
| President, | February 16, 2023 | ||
(Nigel D. Hunton) | Chief Executive Officer and Director (Principal Executive Officer) | |||
/s/ JAMES MONIZ
| Executive Vice President, Finance and | February 16, 2023 | ||
(James Moniz) | Administration, Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) | |||
/s/ DAVID S. DURY | Chairman of Board | February | ||
(David S. Dury) | ||||
/s/ KEVIN D. BARBER | Director | February | ||
(Kevin D. Barber) | ||||
/s/ DOROTHY D. HAYES | Director | February | ||
(Dorothy D. Hayes) | ||||
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/s/ MICHELE F. KLEIN | Director | February | ||
(Michele F. Klein) | ||||
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70
74