| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ☐ | 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 | ||||
Non-accelerated filer | Smaller reporting company | ☒ | ||||
| Emerging growth company | ☐ |
INTEVAC, Inc.
Index to the Form 10-K
For the Fiscal Year Ended December 31, 2022
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information in this Annual Report on
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.
PART I
Item 1. | Business |
Information 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:
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
3
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.
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 Corporation and its wholly-owned subsidiary HGST, Fuji Electric and Showa Denko.
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 (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 began 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.
DCP Market
Intevac develops equipment to deposit optically transparent thin films onto DCPs typically found on consumer and automotive electronic products.
4
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.
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
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.
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.
In March 2022, as part of wireless chargingIntevac’s restructuring program and realignment effort, the 5G standard of wireless communication, smartphone manufacturers are significantly expanding use of DCPs on the backside of devices. This transition is essentialCompany ceased pursuing several DCP projects and instead started a focused effort to ensure that the backside cover, which previously was metallic, does not interfere with the wireless signals. NCVM coatings aredevelop a new, typemodular platform that can be configured to handle a variety of color film coating, applied for decorative purposes, to the backside DCP. When applied to the exterior, the NCVM coating providesform 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 pleasing aesthetic and gives manufacturers flexibility with color customization. Decorative NCVM coatings haveflexible, horizontal deposition tool platform that evolved from single colorIntevac’s decades of experience in delivering high-performance, cost-effective equipment for both the HDD and solar markets. TRIO leverages Intevac’s materials science and coating equipment technology to multiple colorsdeposit SP and AR coatings with complex transitions. Intevac has developedenhanced durability for all types of mobile 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 proprietary technology that enablesjoint development agreement with a major provider of glass and glass ceramic materials, which provides the creationglass manufacturer with exclusive access to TRIO for consumer device applications for a period of uniquely patterned NCVM coatings forfive years, provided it meets the phone back cover. Several leading handset manufacturers are currently evaluating this technology for potential incorporation into their upcoming phone models.
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.
5
The following table presents a representative list of theour TFE products that we offered during fiscal 2020 and fiscal 2019.
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. • Enables low-temperature processing. | |
INTEVAC VERTEX ® Spectra System | • 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 ® Marathon System | • Versatile platform for high volume manufacturing of multi-step, multi-layer optical coatings. • Enables diverse coatings | |
Solar PV Market | ||
ENERGi® | ||
• Supports both phosphorus and boron dopant technologies. • Extendable to new advanced solar cell structures. | ||
6
TFE Products | Applications and Features |
ASP Market | ||||
INTEVAC MATRIX PVD System | • Deposits barrier/seed layers for fan-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 for fan-out packaging. | |||
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. | |||
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 20202022 and 2019.
2020 | 2019 | |||||||
Seagate Technology | 42 | % | 49 | % | ||||
U.S. Government | 29 | % | 20 | % | ||||
Elbit Systems of America | 12 | % | * | |||||
Jolywood (Hongkong) Industrial Holdings Co., Limited | * | 14 | % | |||||
| 2022 | 2021 | |||||||
Seagate Technology | 80 | % | 60 | % | ||||
Western Digital Corporation | 18 | % | 25 | % | ||||
Amkor Technology, Inc. | * | 10 | % | |||||
* Less than 10%
Our 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.
Foreign sales accounted for 47%87% of revenue in fiscal 20202022 and 67%90% of revenue in fiscal 2019.2021. 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, 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, 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, Kingstone, Von Ardenne and Belight Technology. Intevac faces competition in the DCP market from optical coating equipment manufacturers such as Optorun, Shincron and 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 the
7
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.
Prior to the implementation of integration, reliability, spectral band, reputationits restructuring program in March 2022, Intevac also faced competition from large established global competitors in the PV equipment market including Centrotherm Photovoltaics, Jusung, Kingstone, Von Ardenne and customer supportBelight Technology and service. Intevac faces substantial competitioncompetitors for Photonics products,PVD processes in the fan-out packaging market such as SPTS Technologies (a KLA company), Evatec AG, ULVAC Technologies, Inc., Tango Systems, Inc. (an Applied Materials company) and many competitors have substantially greater resources and brand recognition. In the military market for soldier and helicopter night vision goggles, Elbit Systems and L3Harris Technologies are large and well-established defense contractors and are the primary U.S. manufacturers of analog image intensifier tubes used in
Marketing and Sales
Sales 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,
Warranties for Intevac’s TFE products typically range between 12 and 24 months from customer acceptance. During the warranty period any necessary
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,
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.
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.
8
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.
Government Regulations
We are subject to various 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; recycling and
Human Capital Resources
General Information About Our Human Capital Resources
As of January 2, 2021,December 31, 2022, we had 269166 employees, including 312 contract employees. Approximately 71%52% of our employees are located in the United States and 29%48% are located in Asia. Of our total workforce, 8643 employees are involved in research and development; 11581 employees are involved in operations, manufacturing, service and quality assurance; and 6842 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, HumanHumane Society, Make a Wish,Make-a-Wish Foundation, and Salvation Army.
9
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
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 9.810.0 years in the United States and 9.59.1 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
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 and business unit leaders average approximatelyhas more than 25 years of industry experience. They areHe 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%.
10
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
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 (“RSUs”) and performance-based restricted stock units (“PRSUs”) 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 34 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 17, 202116, 2023 is listed below:
Name | Age | Position | ||||
Executive Officers: | ||||||
Nigel D. Hunton | President and Chief Executive Officer | |||||
James Moniz | Executive Vice President, Finance and Administration, Chief Financial Officer, Secretary and Treasurer | |||||
John Dickinson | Vice President | |||||
Other Key Officers: | ||||||
Samuel Harkness | Vice President of Product Development and Technology | |||||
Mark Popovich | Vice President of Business Development | |||||
Eva Valencia | Vice President | |||||
Mr.
Mr.
11
Mr.
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.
Mr.
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.
Available Information
Intevac’s website is
Trademarks
Intevac’s trademarks include the following: “200 Lean
12
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.
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 four systems. Salesfewer or no (in the case of systems2021 and upgrades for magnetic disk production in 2020 were down from the levels in 2019 as this customer took delivery of only two2022) systems. Intevac expects sales of systems and upgrades for magnetic disk production in 20212023 will be at levels lower thansimilar to the levels in 2020.
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.
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.
13
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 theoutbreak, pandemic, or similar global health concerns, has negatively impacted and could continue to negatively impact our operations, supply chain and customer base.
The
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
Our results of operations could be materially harmed if we are unable to accurately 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
14
shortage of product to long sales cycles because many of itsdeliver 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 complex
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.
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, Kingstone, Von Ardenne and Belight Technology. In the market for our military imaging products we experience competition from companies such as Elbit Systems, L3Harris Technologies and Photonis. 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.
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
15
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.
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
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.
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 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 to
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 other PVD systems, our TRIO coating systemsplatform for DCP, our solar systems for PV applications, our digital night-vision products and our
16
expand into new or related markets, including the PV and display cover glass markets.market. Our expansion into the PV and cover glass marketsmarket 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,market, to successfully develop cost effective products to address the
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.
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, 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.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. 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 and
We are subject to risks of
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.
17
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 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.
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
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.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
18
communications infrastructure due to power loss, telecommunications failure, human error, physical or electronic security 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,
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 Form
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, California | 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. |
19
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.
Item 4. | Mine Safety Disclosures |
Not applicable.
20
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 17, 2021,16, 2023, there were 73 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 January 2, 2021, $10.4 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 January 2, 2021.
Item 6. | [Reserved] |
21
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 this
| • | 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 Policies and Estimates: a discussion of estimates that that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. |
Discontinued Operations
On December 30, 2021, the Company completed the sale of its Photonics business to EOTECH. As a summaryresult of Intevac’s business, measurementsthe 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 opportunities.
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.
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 the
Fiscal Year | 2020 | 2019 | Change 2020 vs. 2019 | |||||||||
(in thousands, except percentages and per share amounts) | ||||||||||||
Net revenues | $ | 97,824 | $ | 108,885 | $ | (11,061 | ) | |||||
Gross profit | $ | 40,545 | $ | 40,868 | $ | (323 | ) | |||||
Gross margin percent | 41.4 | % | 37.5 | % | 3.9 points | |||||||
Operating income | $ | 2,555 | $ | 3,925 | $ | (1,370 | ) | |||||
Net income | $ | 1,056 | $ | 1,148 | $ | (92 | ) | |||||
Net income per diluted share | $ | 0.04 | $ | 0.05 | $ | (0.01 | ) | |||||
In March 2022, the Company resumedapproved 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 growth trajectory. Intevac recognized revenue on four 200 Lean HDD systems. In 2019, Intevac recognized revenue on nine solar implant ENERG
| 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 | ) | ||||
22
Fiscal 20202021 financial results reflected a challenging environment, partially as a result of the
Fiscal 2022 financial results reflected a continued challenging environment as HDD equipment sales were at similar levels to fiscal 2021, and we did not recognize revenue on any 200 Lean HDD systems. Higher gross margin in fiscal 2022 reflects the higher-margin contribution from HDD upgrades, offset in part by $755,000 in charges for excess and obsolete inventory as part of the Company’s realignment effort. R&D expenses for fiscal 2022 include $1.5 million in expenditures related to the disposal 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 employees affected by the reduction in workforce. TSA and shared service fees were $989,000 for fiscal 2022, of which $23,000 was reported as a reduction of cost of net revenues and $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 did not receive any government assistance related to COVID-19 from the government of Singapore in fiscal 2022. During fiscal 2022, we did not recognize an income tax benefit on our U.S. net operating loss.
We believe fiscal 20212023 will continue to be a challenging year, and Intevac does not expect be profitable in fiscal 2021, unless new orders are received sooner than anticipated.2023. Intevac expects that 20212023 HDD equipment sales will be lower than 2020 levels as although we expect higher 200 Leansimilar to 2022 levels. We believe there will be improvements to our HDD systems revenue, upgrade revenue is expected to be lower. In 2021, Intevac expects higherequipment sales of new TFE productsin the future as we expect to: (i) converta 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 DCPs. In 2021, we expect product revenueproducts and services and our cost to provide products and services.
The Impact of COVID-19
The impact of COVID-19, including changes in Photonicsconsumer 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 decline slightly as we continue to deliver product shipmentsreduced economic activity. Although COVID-19 vaccines are now broadly distributed and administered, there remains significant uncertainty concerning the magnitude of the night-vision camera modules forimpact and the F35 Joint Strike Fighter program. Shipments forduration of the Apache camera underCOVID-19 pandemic. As new strains of COVID-19 develop, the current contract with the U.S. government concluded in the third quarter of 2020. In 2021, we expect decreased contract R&D revenue as development work on the multi-year IVAS contract award for the development and production of digital night-vision camerascontinued impacts to support the U.S. Army’s IVAS program comes to a conclusion in early 2021. During fiscal 2021, the Company expects to receive $108,000 in government assistance related to
In Singapore, Intevac receivesreceived government assistance under the Job Support Scheme (“JSS”). The purpose of the JSS iswas to provide wage support to employers to help them retain their local employees. Under the JSS, Intevac received $567,000 in JSS grants in fiscal 2020. Intevac expects to receive an additional $108,000$83,000 in JSS grants in fiscal 2021. As previously mentioned,
During both fiscal 2020,2022 and fiscal 2021, the Company’s expenses included approximately $67,000 and $159,000, respectively, due to costs related to actions taken in response
23
Results of Operations
Net revenues
2020 | 2019 | Change 2020 vs. 2019 | ||||||||||
(in thousands) | ||||||||||||
TFE | $ | 52,128 | $ | 73,678 | $ | (21,550 | ) | |||||
Photonics | ||||||||||||
Contract R&D | 22,945 | 19,657 | 3,288 | |||||||||
Products | 22,751 | 15,550 | 7,201 | |||||||||
| 45,696 | 35,207 | 10,489 | ||||||||||
Total net revenues | $ | 97,824 | $ | 108,885 | $ | (11,061 | ) | |||||
| Fiscal Year | Change 2022 vs. 2021 | |||||||||||
| 2022 | 2021 | |||||||||||
| (in thousands) | ||||||||||||
Total net revenues | $ | 35,761 | $ | 38,524 | $ | (2,763 | ) | |||||
|
|
|
|
|
| |||||||
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 of
The decrease in TFE revenues in fiscal 20202022 versus fiscal 20192021 was due primarily to lower systems sales as TFE recognized revenue on two 200 Lean HDD systems,and lower service and spare parts sales, offset in part by increases inhigher technology upgrade sales. In fiscal 2022, we recognized revenue recognized on technology upgrades, service and spare parts. In fiscal 2019, TFE2021, we recognized revenue recognized four 200 Lean HDD systems and nine solar implant ENERG
Backlog
January 2, 2021 | December 28, 2019 | |||||||
(in thousands) | ||||||||
TFE | $ | 5,623 | $ | 21,391 | ||||
Photonics | 41,317 | 71,015 | ||||||
Total backlog | $ | 46,940 | $ | 92,406 | ||||
| December 31, 2022 | January 1, 2022 | |||||||
| (in thousands) | ||||||||
Total backlog | $ | 121,743 | $ | 24,725 | ||||
|
|
|
| |||||
Backlog at January 2, 2021 did not include anyDecember 31, 2022 included eleven 200 Lean HDD systems. TFE backlogBacklog at December 28, 2019January 1, 2022 included twoone 200 Lean HDD systems.
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 20202022 and 2019.
2020 | 2019 | |||||||
Seagate Technology | 42 | % | 49 | % | ||||
U.S. Government | 29 | % | 20 | % | ||||
Elbit Systems of America | 12 | % | * | |||||
Jolywood (Hongkong) Industrial Holdings Co., Limited | * | 14 | % | |||||
| 2022 | 2021 | |||||||
Seagate Technology | 80 | % | 60 | % | ||||
Western Digital Corporation | 18 | % | 25 | % | ||||
Amkor Technology, Inc. | * | 10 | % | |||||
| * | Less than 10% |
Revenue by geographic region
2020 | 2019 | |||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
TFE | Photonics | Total | TFE | Photonics | Total | |||||||||||||||||||
United States | $ | 6,450 | $ | 45,363 | $ | 51,813 | $ | 1,306 | $ | 34,664 | $ | 35,970 | ||||||||||||
Asia | 45,611 | — | 45,611 | 72,372 | — | 72,372 | ||||||||||||||||||
Europe | 67 | 333 | 400 | — | 543 | 543 | ||||||||||||||||||
Total net revenues | $ | 52,128 | $ | 45,696 | $ | 97,824 | $ | 73,678 | $ | 35,207 | $ | 108,885 | ||||||||||||
| Fiscal Year | ||||||||
| 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 | ||||
|
|
|
| |||||
International sales include products shipped to overseas operations of U.S. companies. The increase in sales to the U.S. region in 2020fiscal 2022 versus 2019fiscal 2021, reflected higher Photonics product sales, higher Photonics contract R&D work and higher HDD upgrade, sales to U.S. customers. There were no TFE systems sold to factories in the U.S. in 2020 or 2019.
24
Asia region in 2020fiscal 2022 versus 2019fiscal 2021, reflected lower systemhigher HDD upgrade sales offset in part by higher technology upgrade, service andlower spare parts and service sales. Sales to the Asia region in 2020 included two 200 Lean HDDall periods presented did not include any systems. Sales to the Asia region in 2019 included four 200 Lean HDD systems and nine solar implant ENERG
Gross margin
Fiscal Year | Change 2020 vs. 2019 | |||||||||||
2020 | 2019 | |||||||||||
(in thousands, except percentages) | ||||||||||||
TFE gross profit | $ | 22,417 | $ | 27,377 | $ | (4,960 | ) | |||||
% of TFE net revenues | 43.0 | % | 37.2 | % | ||||||||
Photonics gross profit | $ | 18,128 | $ | 13,491 | $ | 4,637 | ||||||
% of Photonics net revenues | 39.7 | % | 38.3 | % | ||||||||
Total gross profit | $ | 40,545 | $ | 40,868 | $ | (323 | ) | |||||
% of net revenues | 41.4 | % | 37.5 | % | ||||||||
| 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.
Gross margin was 43.0%42.2% in fiscal 20202022 compared to 37.2%18.3% in fiscal 2019.2021. Fiscal 20202022 gross margins improved over fiscal 20192021 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, 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 result of higher margins on upgrades. Fiscal 2019 gross margins reflected lower marginsmargin on the salefirst MATRIX PVD system for ASP. As part of nine solar implant ENERG
Research and development
Fiscal Year | Change 2020 vs. 2019 | |||||||||||
2020 | 2019 | |||||||||||
(in thousands) | ||||||||||||
Research and development expense | $ | 14,093 | $ | 14,309 | $ | (216 | ) | |||||
| 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, semiconductor
Research and development spending in fiscal 2020 was flat2022 increased compared to fiscal 20192021 due to higher spending on DCP development, offset in part by lower spending on HDD, semiconductor
Selling, general and administrative
Fiscal Year | Change 2020 vs. 2019 | |||||||||||
2020 | 2019 | |||||||||||
(in thousands) | ||||||||||||
Selling, general and administrative expense | $ | 23,897 | $ | 22,634 | $ | 1,263 | ||||||
| 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.
Selling, general and administrative expenses increased in 2020fiscal 2022 over the amount spent in 2019 primarilyfiscal 2021 due to higher variable compensation expenses, incrementalhigher stock compensation expenses, higher consulting expenses, increased travel expenses
25
and higher bid and proposal costs in our Photonics segment,by one-time severance charges associated with the realignment effort, offset in part due toby lower spending to supportlegal expenses, cost savings as a customer evaluation.
Cost reduction planplans
During the first quarter of 2022, the Company implemented a restructuring program (the “2020“2022 Cost Reduction Plan”), which 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 2022 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 in 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 16 percent. The total cost of implementing the 20202022 Cost Reduction Plan was $103,000, of which $16,000 was reported under cost of net revenues and $87,000 was reported under operating expenses.expenses in the consolidated statements of operations. Substantially all cash outlays in connection with the 20202022 Cost Reduction Plan were completed in the fourth quarter of fiscal 2020.2022. Implementation of the 20202022 Cost Reduction Plan reducedis expected to reduce salary, wages and other employee-related expenses by approximately $864,000$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 2020 vs. 2019 | |||||||||||
2020 | 2019 | |||||||||||
(in thousands) | ||||||||||||
Interest income and other income (expense), net | $ | 212 | $ | 582 | $ | (370 | ) | |||||
| 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 20202022 included $284,000$1.2 million of interest income on investments, and $56,000 from the saleother income of scrap materials$31,000 offset in part by $139,000$186,000 of foreign currency losses. Interest income and other income (expense), net in fiscal 20192021 included $574,000$29,000 of interest income on investments, and $20,000 in earnoutother income from a divestiture,of $30,000 offset in part by $85,000$65,000 of foreign currency losses. The decreaseincrease in interest income in 20202022 over 20192021 reflected lowerhigher invested balances and higher interest rates on Intevac’s investments and lower invested balances.
Provision for income taxes
Fiscal Year | Change 2020 vs. 2019 | |||||||||||
2020 | 2019 | |||||||||||
(in thousands) | ||||||||||||
Provision for income taxes | $ | 1,711 | $ | 3,359 | $ | (1,648 | ) | |||||
| Fiscal Year | Change 2022 vs. 2021 | |||||||||||
| 2022 | 2021 | |||||||||||
| (in thousands) | ||||||||||||
Provision for income taxes | $ | 1,327 | $ | 575 | $ | 752 | ||||||
Intevac’s effective tax rate from continuing operations was 61.8%(8.6%) for fiscal 20202022 and 74.5%(2.6%) for fiscal 20192021 and we recorded income tax expense of $1.7 million and $3.4$1.3 million in 2020fiscal 2022 and 2019, respectively.$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 for
26
In fiscal 2021, we did not recognize income tax expense on the gain from the sale of Photonics. The gain for 2020federal purposes was largelyoffset by net operating losses. In California, we used tax credits to offset the result of foreign withholding taxes and income taxes in foreign jurisdictions. The income tax expense for 2019 was largelydue on the result of foreign withholding taxes, income taxes in foreign jurisdictions, and fully reserving a contested tax deposit related to a tax audit in Singapore.
We assess the likelihood that our deferred tax assets will be recovered based upon our consideration of many factors, including the current economic climate, our expectations of future taxable income, and 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 results 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 2, 2021.
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 transaction and (iii) $3.2 million in transaction-related costs.
Liquidity and Capital Resources
At January 2, 2021,December 31, 2022, Intevac had $50.4$112.8 million in cash, cash equivalents, restricted cash and investments compared to $42.8$121.2 million at December 28, 2019.January 1, 2022. During fiscal 2020,2022, cash, cash equivalents, restricted cash and investments increaseddecreased by $7.5$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.
Cash, cash equivalents, restricted cash and investments consist of the following:
January 2, 2021 | December 28, 2019 | |||||||
(in thousands) | ||||||||
Cash and cash equivalents | $ | 29,341 | $ | 19,767 | ||||
Restricted cash | 787 | 787 | ||||||
Short-term investments | 14,839 | 16,720 | ||||||
Long-term investments | 5,388 | 5,537 | ||||||
Total cash, cash-equivalents, restricted cash and investments | $ | 50,355 | $ | 42,811 | ||||
| December 31, 2022 | January 1, 2022 | |||||||
| (in thousands) | ||||||||
Cash and cash equivalents | $ | 68,904 | $ | 102,728 | ||||
Restricted cash | 786 | 786 | ||||||
Short-term investments | 25,541 | 10,221 | ||||||
Long-term investments | 17,585 | 7,427 | ||||||
|
|
|
| |||||
Total cash, cash-equivalents, restricted cash and investments | $ | 112,816 | $ | 121,162 | ||||
|
|
|
| |||||
Cash used by operating activities totaled $7.4 million in fiscal 2022 compared to cash generated by operating activities totaled $8.9 millionof $278,000 in 2020 compared to $4.9 million in 2019. Improvedfiscal 2021. Lower operating cash flow in 2020fiscal 2021 was a result of net income and improved working capital management.a larger loss recognized from continuing operations.
27
Accounts receivable totaled $28.6$15.8 million at bothDecember 31, 2022 and $14.3 million at January 2, 2021 and December 28, 2019. Customer advances for products that had not been shipped to customers and included in accounts receivable were $201,000 at December 28, 2019.1, 2022. The number of days outstanding for Intevac’s accounts receivable was 123 at December 31, 2022 compared to 90 at January 2, 2021 compared to 72 at December 28, 2019.1, 2022. Net inventories totaled $21.7$30.0 million at December 31, 2022 compared to $5.8 million at January 2, 2021 compared to $24.9 million at December 28, 2019. Net inventories at January 2, 2021 and December 28, 2019 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 in a customer’s factory. Net inventories at January 2, 2021 also included one VERTEX SPECTRA system for DCP at Intevac’s factory.1, 2022. Inventory turns were 1.61.1 in fiscal 20202022 and were 2.50.8 in fiscal 2019.2021. Accounts payable increased to $4.3$11.6 million at December 31, 2022 compared $5.3 million at January 2, 2021 compared1, 2022 primarily related to $4.2increased purchases of inventory. Accounts payable at January 1, 2022 included a payable of $2.0 million at December 28, 2019.as a commission to the investment banker for the Photonics sale. Other accrued liabilities were $3.6$5.4 million at bothDecember 31, 2022 and $3.7 million at January 2, 20211, 2022. Other accrued liabilities at December 31, 2022 and December 28, 2019.January 1, 2022 included a $1.0 million accrual for the settlement of the PAGA lawsuit which was paid on January 20, 2023. Accrued payroll and related liabilities increaseddecreased to $7.7$3.1 million at December 31, 2022 compared to $5.5 million at January 2, 2021 compared to $6.5 million at December 28, 20191, 2022 as a result of higherlower variable compensation accruals and the deferral of payroll tax liabilities under the CARES Act.accruals. Customer advances decreasedincreased from $4.0$2.1 million at January 1, 2022 to $24.7 million at December 28, 2019 to $33,000 at January 2, 202131, 2022 as a result of recognition of revenue. Othernew orders. Customer advances for orders with deliveries beyond one year are included in long term liabilities increased to $457,000 at January 2, 2021 compared to $186,000 at December 28, 2019 as a result of the deferral of payroll tax liabilities under the CARES Act.
Investing activities used cash of $599,000 in 2020 and $5.8$28.4 million in 2019.fiscal 2022 and generated cash of $71.2 million in 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 $25.7 million in fiscal 2022. Proceeds from sales and maturities of investments, net of purchases of investments, totaled $2.0$2.4 million in 2020. Purchases of investments net of proceeds from sales and maturities of investments, totaled $1.7 million in 2019.fiscal 2021. Capital expenditures were $2.6$1.9 million in 2020fiscal 2022, and $4.1$1.2 million in 2019.
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 $1.1$2.4 million in 2020fiscal 2022 and $1.5$1.9 million in 2019.fiscal 2021. The sale of Intevac common stock to Intevac’s employees through Intevac’s employee benefit plans provided $1.9$3.1 million in 2020fiscal 2022 and $2.3$2.6 million in 2019.fiscal 2021. Tax payments related to the net share settlement of restricted stock units were $402,000$724,000 in 2020fiscal 2022 and $404,000$734,000 in 2019.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 $393,000 in 2020fiscal 2022 and $111,000 in 2019.
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 January 2, 2021,December 31, 2022, approximately $19.3$39.9 million of cash and cash equivalents and $3.4$3.2 million of investments were domiciled in foreign tax jurisdictions. Intevac expects a significant portion of these funds to remain offshore 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.
We 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 between approximately $6.0 million to $8.0 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.
Off-Balance
Off-balance
28
maintain any other
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
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.
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 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
Management believes that the following are critical accounting policies:
Revenue Recognition
A majority of our equipment sales revenue, which includes systems, technology upgrades, service and spare parts is recognized when products are shipped from our manufacturing facilities. 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. Under the 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 revenue standard, theThe expected costs associated with our base warranties continue to beare recognized as expense when the equipment is sold.
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
29
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,
The effective tax rate is highly dependent upon the geographic composition of worldwide earnings, tax regulations governing each region,
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.
Equity-Based Compensation
Restricted 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.
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable for smaller reporting companies.
30
Item 8. | Financial Statements and Supplementary Data |
Page | ||||
/s/ BPM LLP |
We have served as the Company’s auditor since 2015. |
San Jose, California |
February |
January 2, 2021 | December 28, 2019 | |||||||
(In thousands, except par | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 29,341 | $ | 19,767 | ||||
Short-term investments | 14,839 | 16,720 | ||||||
Trade and other accounts receivable, net of allowances of $0 at both January 2, 2021 and December 28, 2019 | 28,646 | 28,619 | ||||||
Inventories | 21,689 | 24,907 | ||||||
Prepaid expenses and other current assets | 1,893 | 1,504 | ||||||
Total current assets | 96,408 | 91,517 | ||||||
Property, plant and equipment, net | 11,004 | 11,598 | ||||||
Operating lease right-of-use-assets | 8,165 | 10,279 | ||||||
Long-term investments | 5,388 | 5,537 | ||||||
Restricted cash | 787 | 787 | ||||||
Deferred income taxes and other long-term assets | 5,486 | 6,604 | ||||||
Total assets | $ | 127,238 | $ | 126,322 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current operating lease liabilities | $ | 2,853 | $ | 2,524 | ||||
Accounts payable | 4,259 | 4,199 | ||||||
Accrued payroll and related liabilities | 7,679 | 6,488 | ||||||
Other accrued liabilities | 3,598 | 3,593 | ||||||
Customer advances | 33 | 4,007 | ||||||
Total current liabilities | 18,422 | 20,811 | ||||||
Noncurrent liabilities: | ||||||||
Noncurrent operating lease liabilities | 6,803 | 9,532 | ||||||
Other long-term liabilities | 457 | 186 | ||||||
Total noncurrent liabilities | 7,260 | 9,718 | ||||||
Commitments and contingencies | 0 | 0 | ||||||
Stockholders’ equity: | ||||||||
Undesignated preferred stock, $0.001 par value, 10,000 shares authorized, 0 shares issued and outstanding | 0— | 0— | ||||||
Common stock, $0.001 par value : | ||||||||
Authorized shares — 50,000 issued and outstanding shares — 23,874 and 23,346 at January 2, 2021 and December 28, 2019, respectively | 24 | 23 | ||||||
Additional paid-in capital | 193,173 | 188,290 | ||||||
Treasury stock, 5,087 shares at January 2, 2021 and 4,989 shares at December 28, 2019 | (29,551 | ) | (29,158 | ) | ||||
Accumulated other comprehensive income | 640 | 424 | ||||||
Accumulated deficit | (62,730 | ) | (63,786 | ) | ||||
Total stockholders’ equity | 101,556 | 95,793 | ||||||
Total liabilities and stockholders’ equity | $ | 127,238 | $ | 126,322 | ||||
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 | ||||
Year Ended, | ||||||||
January 2, 2021 | December 28, 2019 | |||||||
(In thousands, except per share amounts) | ||||||||
Net revenues: | ||||||||
Systems and components | $ | 74,879 | $ | 89,228 | ||||
Technology development | 22,945 | 19,657 | ||||||
Total net revenues | 97,824 | 108,885 | ||||||
Cost of net revenues: | ||||||||
Systems and components | 42,231 | 55,678 | ||||||
Technology development | 15,048 | 12,339 | ||||||
Total cost of net revenues | 57,279 | 68,017 | ||||||
Gross profit | 40,545 | 40,868 | ||||||
Operating expenses: | ||||||||
Research and development | 14,093 | 14,309 | ||||||
Selling, general and administrative | 23,897 | 22,634 | ||||||
Total operating expenses | 37,990 | 36,943 | ||||||
Operating income | 2,555 | 3,925 | ||||||
Interest income | 284 | 574 | ||||||
Other income (expense), net | (72 | ) | 8 | |||||
Income before provision for income taxes | 2,767 | 4,507 | ||||||
Provision for income taxes | 1,711 | 3,359 | ||||||
Net income | $ | 1,056 | $ | 1,148 | ||||
Net income per share: | ||||||||
Basic | $ | 0.04 | $ | 0.05 | ||||
Diluted | $ | 0.04 | $ | 0.05 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 23,669 | 23,063 | ||||||
Diluted | 24,151 | 23,340 | ||||||
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 | ||||||
Year Ended, | ||||||||
January 2, 2021 | December 28, 2019 | |||||||
(In thousands) | ||||||||
Net income | $ | 1,056 | $ | 1,148 | ||||
Other comprehensive income (loss), before tax | ||||||||
Change in unrealized net gain on available-for-sale | (5 | ) | 70 | |||||
Foreign currency translation gains and (losses) | 221 | (24 | ) | |||||
Other comprehensive income, before tax | 216 | 46 | ||||||
Income tax expense related to items in other comprehensive income | 0 | — | ||||||
Other comprehensive income, net of tax | 216 | 46 | ||||||
Comprehensive income | $ | 1,272 | $ | 1,194 | ||||
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 | |||
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 | |||||||||||||||
Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
Balance at December 28, 2019 | 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 | ||||||||||||||||
Shares issued in connection with: | ||||||||||||||||||||||||||||||||
Exercise of stock options | 67 | — | 326 | — | — | — | — | 326 | ||||||||||||||||||||||||
Settlement of RSUs | 244 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Employee stock purchase plan | 392 | 1 | 1,570 | — | — | — | — | 1,571 | ||||||||||||||||||||||||
Shares withheld in connection with net share settlement of RSUs | (77 | ) | — | (402 | ) | — | — | — | — | (402 | ) | |||||||||||||||||||||
Equity-based compensation expense | — | — | 3,389 | — | — | — | — | 3,389 | ||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 1,056 | 1,056 | ||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 216 | — | 216 | ||||||||||||||||||||||||
Common stock repurchases | (98 | ) | — | — | 98 | (393 | ) | — | — | (393 | ) | |||||||||||||||||||||
Balance at January 2, 2021 | 23,874 | $ | 24 | $ | 193,173 | 5,087 | $ | (29,551 | ) | $ | 640 | $ | (62,730 | ) | $ | 101,556 | ||||||||||||||||
Year Ended | ||||||||
January 2, 2021 | December 28, 2019 | |||||||
(In thousands) | ||||||||
Operating activities | ||||||||
Net income | $ | 1,056 | $ | 1,148 | ||||
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: | ||||||||
Depreciation and amortization | 3,206 | 2,976 | ||||||
Net amortization (accretion) of investment premiums and discounts | 12 | (75 | ) | |||||
Amortization of intangible assets | 274 | 615 | ||||||
Equity-based compensation | 3,389 | 3,225 | ||||||
Straight-line rent adjustment and amortization of lease incentives | (286 | ) | (289 | ) | ||||
Deferred income taxes | 917 | 1,661 | ||||||
Change in the fair value of acquisition-related contingent consideration | — | 7 | ||||||
Loss on disposal of equipment | — | 120 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (27 | ) | (902 | ) | ||||
Inventories | 3,218 | 6,301 | ||||||
Prepaid expenses and other assets | (462 | ) | 1,621 | |||||
Accounts payable | 60 | (1,850 | ) | |||||
Accrued payroll and other accrued liabilities | 1,467 | 694 | ||||||
Customer advances | (3,974 | ) | (10,307 | ) | ||||
Total adjustments | 7,794 | 3,797 | ||||||
Net cash and cash equivalents provided by operating activities | 8,850 | 4,945 | ||||||
Investing activities | ||||||||
Purchase of investments | (23,342 | ) | (23,306 | ) | ||||
Proceeds from sales and maturities of investments | 25,355 | 21,642 | ||||||
Purchase of leasehold improvements and equipment | (2,612 | ) | (4,107 | ) | ||||
Net cash and cash equivalents used in investing activities | (599 | ) | (5,771 | ) | ||||
Financing activities | ||||||||
Proceeds from issuance of common stock | 1,897 | 2,265 | ||||||
Common stock repurchases | (393 | ) | (111 | ) | ||||
Taxes paid related to net share settlement | (402 | ) | (404 | ) | ||||
Payment of acquisition-related contingent consideration | — | (230 | ) | |||||
Net cash and cash equivalents provided by financing activities | 1,102 | 1,520 | ||||||
Effect of exchange rate changes on cash | 221 | (24 | ) | |||||
Net increase in cash, cash equivalents and restricted cash | 9,574 | 670 | ||||||
Cash, cash equivalents and restricted cash at beginning of period | 20,554 | 19,884 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 30,128 | $ | 20,554 | ||||
Cash paid (received) for: | ||||||||
Income taxes | $ | 850 | $ | 1,016 | ||||
Income tax refund | $ | (157 | ) | $ | (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 | ) | |||
Foreign currency | Unrealized holding gains (losses) on available-for-sale investments | Total | Foreign currency | Unrealized holding gains (losses) on available-for-sale investments | Total | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Balance at December 29, 2018 | $ | 405 | $ | (27 | ) | $ | 378 | |||||||||||||||||
Balance at January 2, 2021 | $ | 602 | $ | 38 | $ | 640 | ||||||||||||||||||
Other comprehensive income (loss) before reclassification | (24 | ) | 70 | 46 | 6 | (68 | ) | (62 | ) | |||||||||||||||
Amounts reclassified from other comprehensive income (loss) | — | — | — | — | — | — | ||||||||||||||||||
Net current-period other comprehensive income (loss) | (24 | ) | 70 | 46 | 6 | (68 | ) | (62 | ) | |||||||||||||||
Balance at December 28, 2019 | $ | 381 | $ | 43 | $ | 424 | ||||||||||||||||||
Balance at January 1, 2022 | 608 | (30 | ) | 578 | ||||||||||||||||||||
Other comprehensive income (loss) before reclassification | 221 | (5 | ) | 216 | ||||||||||||||||||||
Other comprehensive loss before reclassification | (331 | ) | (454 | ) | (785 | ) | ||||||||||||||||||
Amounts reclassified from other comprehensive income (loss) | — | — | — | 14 | — | 14 | ||||||||||||||||||
Net current-period other comprehensive income (loss) | 221 | (5 | ) | 216 | ||||||||||||||||||||
Net current-period other comprehensive loss | (317 | ) | (454 | ) | (771 | ) | ||||||||||||||||||
Balance at January 2, 2021 | $ | 602 | $ | 38 | $ | 640 | ||||||||||||||||||
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 | ||||
TFE | 2020 | 2019 | ||||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
HDD | DCP | PV | Total | HDD | DCP | PV | Total | |||||||||||||||||||||||||
Systems, upgrades and spare parts | $ | 45,620 | $ | — | $ | 426 | $ | 46,046 | $ | 52,759 | $ | 0 | $ | 15,653 | $ | 68,412 | ||||||||||||||||
Field service | 6,080 | 0 | 2 | 6,082 | 5,210 | 2 | 54 | 5,266 | ||||||||||||||||||||||||
Total TFE net revenues | $ | 51,700 | $ | 0— | $ | 428 | $ | 52,128 | $ | 57,969 | $ | 02 | $ | 15,707 | $ | 73,678 | ||||||||||||||||
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 | ||||||||||||||||||||
Photonics | 2020 | 2019 | ||||||
(in thousands) | ||||||||
Products: | ||||||||
Military products | $ | 20,409 | $ | 12,480 | ||||
Commercial products | 395 | 640 | ||||||
Repair and other services | 1,947 | 2,430 | ||||||
Total Photonics product net revenues | 22,751 | 15,550 | ||||||
Technology development: | ||||||||
FFP | 19,648 | 12,521 | ||||||
CPFF | 3,297 | 7,134 | ||||||
Time and materials | 0 | 2 | ||||||
Total technology development net revenues | 22,945 | 19,657 | ||||||
Total Photonics net revenues | $ | 45,696 | $ | 35,207 | ||||
2020 | 2019 | |||||||||||||||||||||||||||||||
(in thousands) | 2022 | 2021 | ||||||||||||||||||||||||||||||
TFE | Photonics | Total | TFE | Photonics | Total | (in thousands) | ||||||||||||||||||||||||||
United States | $ | 6,450 | $ | 45,363 | $ | 51,813 | $ | 1,306 | $ | 34,664 | $ | 35,970 | $ | 4,558 | $ | 3,670 | ||||||||||||||||
Asia | 45,611 | 0— | 45,611 | 72,372 | — | 72,372 | 31,103 | 31,004 | ||||||||||||||||||||||||
Europe | 67 | 333 | 400 | — | 543 | 543 | 100 | 3,850 | ||||||||||||||||||||||||
Total net revenues | $ | 52,128 | $ | 45,696 | $ | 97,824 | $ | 73,678 | $ | 35,207 | $ | 108,885 | $ | 35,761 | $ | 38,524 | ||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||||||||||
(in thousands) | 2022 | 2021 | ||||||||||||||||||||||||||||||
TFE | Photonics | Total | TFE | Photonics | Total | (in thousands) | ||||||||||||||||||||||||||
Products transferred at a point in time | $ | 52,128 | $ | 1,947 | $ | 54,075 | $ | 73,678 | $ | 2,430 | $ | 76,108 | $ | 35,761 | $ | 38,524 | ||||||||||||||||
Products and services transferred over time | — | 43,749 | 43,749 | — | 32,777 | 32,777 | — | — | ||||||||||||||||||||||||
Total net revenues | $52,128 | $ | 45,696 | $ | 97,824 | $ | 73,678 | $ | 35,207 | $ | 108,885 | $ | 35,761 | $ | 38,524 | |||||||||||||||||
January 2, 2021 | December 28, 2019 | Change | December 31, 2022 | January 1, 2022 | Change | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
TFE: | ||||||||||||||||||||||||
Contract assets: | ||||||||||||||||||||||||
Accounts receivable, unbilled | $ | 369 | $ | 760 | $ | (391 | ) | $ | 424 | $ | 99 | $ | 325 | |||||||||||
Contract liabilities: | ||||||||||||||||||||||||
Deferred revenue | $ | 482 | $ | 320 | $ | 162 | $ | 2,446 | $ | 65 | $ | 2,381 | ||||||||||||
Customer advances | 33 | 4,007 | (3,974 | ) | 24,659 | 2,107 | 22,552 | |||||||||||||||||
| $ | 515 | $ | 4,327 | $ | (3,812 | ) | $ | 27,105 | $ | 2,172 | $ | 24,933 | ||||||||||||
Photonics: | ||||||||||||||||||||||||
Contract assets: | ||||||||||||||||||||||||
Accounts receivable, unbilled | $ | 5,439 | $ | 3,210 | $ | 2,229 | ||||||||||||||||||
Retainage | 126 | 99 | 27 | |||||||||||||||||||||
| $ | 5,565 | $ | 3,309 | $ | 2,256 | |||||||||||||||||||
Contract liabilities: | ||||||||||||||||||||||||
Deferred revenue | $ | 779 | $ | — | $ | 779 | ||||||||||||||||||
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 | ||||
2020 | 2019 | |||||||
Equity-based compensation by type of award: | ||||||||
Stock options | $504 | $819 | ||||||
RSUs | 1,936 | 1,657 | ||||||
Employee stock purchase plan | 949 | 749 | ||||||
Total equity-based compensation | $ | 3,389 | $ | 3,225 | ||||
| (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.) |
2020 | 2019 | |||||||
Stock Options: | ||||||||
Weighted-average fair value of grants per share | $ | 1.82 | $ | 2.06 | ||||
Expected volatility | 46.06 | % | 43.23 | % | ||||
Risk free interest rate | 0.44% | 1.86% | ||||||
Expected term of options (in years) | 4.39 | 4.60 | ||||||
Dividend yield | NaN | NaN | ||||||
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 | NaN | |||
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
Options outstanding at December 28, 2019 | 2,096,610 | $ | 6.63 | 3.75 | $ | 2,048,964 | ||||||||||
Options granted | 6,000 | $ | 4.88 | |||||||||||||
Options cancelled and forfeited | (220,971 | ) | $ | 6.88 | ||||||||||||
Options exercised | (67,172 | ) | $ | 4.85 | ||||||||||||
Options outstanding at January 2, 2021 | 1,814,467 | $ | 6.66 | 3.08 | $ | 2,520,722 | ||||||||||
Options exercisable at January 2, 2021 | 1,372,871 | $ | 6.77 | 2.52 | $ | 1,798,938 | ||||||||||
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 | Shares | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||||||||||||||
Non-vested RSUs at December 28, 2019 | 553,355 | $ | 6.15 | 1.30 | $ | 3,713,012 | ||||||||||||||||||||||||||
Non-vested RSUs at January 1, 2022 | 843,578 | $ | 5.51 | 1.39 | $ | 3,973,252 | ||||||||||||||||||||||||||
Granted | 668,413 | $ | 4.87 | 1,128,649 | $ | 5.06 | ||||||||||||||||||||||||||
Vested | (243,312 | ) | $ | 6.38 | (248,355 | ) | $ | 5.55 | ||||||||||||||||||||||||
Cancelled | (76,822 | ) | $ | 4.26 | (414,080 | ) | $ | 5.46 | ||||||||||||||||||||||||
Non-vested RSUs at January 2, 2021 | 901,634 | $ | 5.30 | 1.50 | $ | 6,500,781 | ||||||||||||||||||||||||||
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 | |||
2020 | ||||
Weighted-average fair value of grants per share | $ | 3.16 | ||
Expected volatility | 46.7 | % | ||
Risk-free interest rate | 0.25 | % | ||
Dividend yield | NaN | |||
2021 | ||||
Weighted-average fair value of grants per share | $ | 7.65 | ||
Expected volatility | 56.26 | % | ||
Risk-free interest rate | 0.15 | % | ||
Dividend yield | None | |||
2020 | 2019 | 2022 | 2021 | |||||||||||||
Stock Purchase Rights: | ||||||||||||||||
Weighted-average fair value of grants per share | $ | 2.20 | $ | 1.73 | $ | 1.26 | $ | 2.59 | ||||||||
Expected volatility | 51.49 | % | 45.81 | % | 52.57 | % | 60.88 | % | ||||||||
Risk free interest rate | 0.14 | % | 2.28 | % | 1.94 | % | 0.08 | % | ||||||||
Expected term of purchase rights (in years) | 1.24 | 0.91 | 1.24 | 0.91 | ||||||||||||
Dividend yield | NaN | NaN | None | None | ||||||||||||
2020 | 2019 | 2022 | 2021 | |||||||||||||
(in thousands, except per share amounts) | (in thousands, except per share amounts) | |||||||||||||||
Shares purchased | 392 | 370 | 279 | 435 | ||||||||||||
Weighted-average purchase price per share | $ | 4.01 | $ | 3.96 | $ | 4.46 | $ | 5.05 | ||||||||
Aggregate intrinsic value of purchase rights exercised | $ | 765 | $ | 513 | $ | 220 | $ | 671 | ||||||||
2020 | 2019 | 2022 | 2021 | |||||||||||||
(in thousands, except per share amounts) | (in thousands, except per share amounts) | |||||||||||||||
Net income | $ | 1,056 | $ | 1,148 | ||||||||||||
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 | 23,669 | 23,063 | 25,192 | 24,348 | ||||||||||||
Effect of dilutive potential common shares | 482 | 277 | — | — | ||||||||||||
| Weighted-average shares – diluted | 24,151 | 23,340 | 25,192 | 24,348 | ||||||||||||
| Net income per share –basic | $ | 0.04 | $ | 0.05 | ||||||||||||
| Net income per share –diluted | $ | 0.04 | $ | 0.05 | ||||||||||||
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 | |||||||||||
2020 | 2019 | |||||||
(in thousands) | ||||||||
Stock options to purchase common stock | 935 | 1,235 | ||||||
RSUs | 5 | 5 | ||||||
Employee stock purchase plan | 103 | 3 | ||||||
2020 | 2019 | |||||||
Seagate Technology | 45 | % | 60 | % | ||||
U.S. Government | 26 | % | 25 | % | ||||
HGST | 14 | % | 0* | |||||
2022 | 2021 | |||||||
Seagate Technology | 88 | % | 47 | % | ||||
Western Digital Corporation | * | 30 | % | |||||
Amkor Technology, Inc. | * | 22 | % | |||||
| * | Less than 10% |
2020 | 2019 | |||||||
Seagate Technology | 42 | % | 49 | % | ||||
U.S. Government | 29 | % | 20 | % | ||||
Elbit Systems of America | 12 | % | 0* | |||||
Jolywood (Hongkong) Industrial Holdings Co., Limited | 0* | 14 | % | |||||
2022 | 2021 | |||||||
Seagate Technology | 80 | % | 60 | % | ||||
Western Digital Corporation | 18 | % | 25 | % | ||||
Amkor Technology, Inc. | * | 10 | % | |||||
| * | Less than 10% |
January 2, | December 28, | |||||||||||||||
2021 | 2019 | December 31, 2022 | January 1, 2022 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Trade receivables and other | $ | 22,712 | $ | 24,472 | $ | 15,399 | $ | 14,162 | ||||||||
Unbilled costs and accrued profits | 5,934 | 4,069 | 424 | 99 | ||||||||||||
Income tax receivable | — | 78 | ||||||||||||||
Less: allowance for doubtful accounts | — | — | — | — | ||||||||||||
| $ | 28,646 | $ | 28,619 | $ | 15,823 | $ | 14,261 | |||||||||
January 2, | December 28, | |||||||||||||||
2021 | 2019 | December 31, 2022 | January 1, 2022 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Raw materials | $ | 9,999 | $ | 15,286 | $ | 19,116 | $ | 5,323 | ||||||||
Work-in-progress | 4,832 | 4,748 | 9,499 | 468 | ||||||||||||
Finished goods | 6,858 | 4,873 | 1,388 | — | ||||||||||||
| $ | 21,689 | $ | 24,907 | $ | 30,003 | $ | 5,791 | |||||||||
January 2, 2021 | December 28, 2019 | December 31, 2022 | January 1, 2022 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Leasehold improvements | $ | 16,323 | $ | 15,037 | $ | 9,567 | $ | 9,847 | ||||||||
Machinery and equipment | 46,846 | 46,674 | 19,016 | 23,818 | ||||||||||||
| 63,169 | 61,711 | 28,583 | 33,665 | |||||||||||||
Less accumulated depreciation and amortization | 52,165 | 50,113 | 24,925 | 28,906 | ||||||||||||
Total property, plant and equipment, net | $ | 11,004 | $ | 11,598 | $ | 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 | ||||
January 2, 2021 | December 28, 2019 | |||||||
(in thousands) | ||||||||
Deferred income taxes | $ | 5,335 | $ | 6,252 | ||||
Prepaid expenses | 151 | — | ||||||
Purchased intangible assets, net | — | 274 | ||||||
Income tax receivable | — | 78 | ||||||
| $ | 5,486 | $ | 6,604 | |||||
December 31, 2022 | January 1, 2022 | |||||||
(in thousands) | ||||||||
Deferred income taxes | $ | 4,356 | $ | 5,310 | ||||
Prepaid expenses | 25 | 139 | ||||||
| $ | 4,381 | $ | 5,449 | |||||
January 2, 2021 | December 28, 2019 | December 31, 2022 | January 1, 2022 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Deferred revenue | $ | 1,261 | $ | 320 | $ | 2,446 | $ | 65 | ||||||||
Litigation settlement | 1,012 | 1,000 | ||||||||||||||
Other taxes payable | 935 | 1,155 | 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 | 405 | 846 | 163 | 301 | ||||||||||||
Income taxes payable | 263 | 403 | ||||||||||||||
Other | 734 | 869 | 216 | 264 | ||||||||||||
Total other accrued liabilities | $ | 3,598 | $ | 3,593 | $ | 5,430 | $ | 3,665 | ||||||||
January 2, 2021 | December 28, 2019 | |||||||
(in thousands) | ||||||||
Employer payroll taxes | $ | 382 | $ | — | ||||
Accrued product warranties | 75 | 176 | ||||||
Accrued income taxes | — | 10 | ||||||
Total other long-term liabilities | $ | 457 | $ | 186 | ||||
December 28, 2019 | ||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
(in thousands) | ||||||||||||
Customer relationships | $ | 560 | $ | 524 | $ | 36 | ||||||
Purchased technology | 4,000 | 3,762 | 238 | |||||||||
Total amortizable intangible assets | $ | 4,560 | $ | 4,286 | $ | 274 | ||||||
December 31, 2022 | January 1, 2022 | |||||||
(in thousands) | ||||||||
Restructuring | $ | — | $ | 318 | ||||
Accrued product warranties | — | 45 | ||||||
Total other long-term liabilities | $ | — | $ | 363 | ||||
2019 | ||||
(in thousands) | ||||
Beginning balance | $ | 223 | ||
Changes in fair value | 7 | |||
Cash payments made | (230 | ) | ||
Ending balance | $ | — | ||
January 2, 2021 | December 31, 2022 | |||||||||||||||||||||||||||||||
Amortized Cost | Unrealized Holding Gains | Unrealized Holding Losses | Fair Value | Amortized Cost | Unrealized Holding Gains | Unrealized Holding Losses | Fair Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||||||||||||||||||
Cash | $ | 24,729 | $ | — | $ | — | $ | 24,729 | $ | 26,465 | $ | — | $ | — | $ | 26,465 | ||||||||||||||||
Money market funds | 3,612 | — | — | 3,612 | 9,589 | — | — | 9,589 | ||||||||||||||||||||||||
Certificates of deposit | 1,000 | — | — | 1,000 | ||||||||||||||||||||||||||||
Commercial paper | 32,856 | — | 6 | 32,850 | ||||||||||||||||||||||||||||
Total cash and cash equivalents | $ | 29,341 | $ | — | $ | — | $ | 29,341 | $ | 68,910 | $ | — | $ | 6 | $ | 68,904 | ||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||||||||
Asset backed securities | $ | 2,012 | $ | — | $ | 13 | $ | 1,999 | ||||||||||||||||||||||||
Certificates of deposit | $ | 6,450 | $ | 2 | $ | — | $ | 6,452 | 3,850 | — | 10 | 3,840 | ||||||||||||||||||||
Commercial paper | 500 | — | — | 500 | 9,443 | — | 28 | 9,415 | ||||||||||||||||||||||||
Corporate bonds and medium-term notes | 2,929 | 6 | — | 2,935 | 4,210 | — | 32 | 4,178 | ||||||||||||||||||||||||
Municipal bonds | 400 | — | — | 400 | 1,486 | — | 25 | 1,461 | ||||||||||||||||||||||||
U.S. treasury securities | 4,527 | 25 | — | 4,552 | 4,771 | — | 123 | 4,648 | ||||||||||||||||||||||||
Total short-term investments | $ | 14,806 | $ | 33 | $ | — | $ | 14,839 | $ | 25,772 | $ | — | $ | 231 | $ | 25,541 | ||||||||||||||||
Long-term investments: | ||||||||||||||||||||||||||||||||
Certificates of deposit | $ | 500 | $ | — | $ | — | $ | 500 | ||||||||||||||||||||||||
Asset backed securities | $ | 6,749 | $ | — | $ | 85 | $ | 6,664 | ||||||||||||||||||||||||
Corporate bonds and medium-term notes | 3,474 | 4 | — | 3,478 | 5,366 | — | 102 | 5,264 | ||||||||||||||||||||||||
U.S. treasury securities | 1,409 | 1 | — | 1,410 | ||||||||||||||||||||||||||||
Municipal bonds | 224 | — | 6 | 218 | ||||||||||||||||||||||||||||
U.S. treasury and agency securities | 5,493 | — | 54 | 5,439 | ||||||||||||||||||||||||||||
Total long-term investments | $ | 5,383 | $ | 5 | $ | — | $ | 5,388 | $ | 17,832 | $ | — | $ | 247 | $ | 17,585 | ||||||||||||||||
Total cash, cash equivalents, and investments | $ | 49,530 | $ | 38 | $ | — | $ | 49,568 | $ | 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 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 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 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 | ||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Due in one year or less | $ | 19,418 | $ | 19,451 | $ | 68,217 | $ | 67,981 | ||||||||
Due after one through five years | 5,383 | 5,388 | 17,832 | 17,584 | ||||||||||||
| $ | 24,801 | $ | 24,839 | $ | 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 | |||||||||
Fair Value Measurements at January 2, 2021 | Fair Value Measurements at December 31, 2022 | |||||||||||||||||||||||
Total | Level 1 | Level 2 | Total | Level 1 | Level 2 | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Recurring fair value measurements: | ||||||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||
Money market funds | $ | 3,612 | $ | 3,612 | $ | — | $ | 9,589 | $ | 9,589 | $ | — | ||||||||||||
U.S. treasury securities | 5,962 | 5,962 | — | |||||||||||||||||||||
U.S. treasury and agency securities | 10,087 | 6,592 | 3,495 | |||||||||||||||||||||
Asset backed securities | 8,663 | — | 8,663 | |||||||||||||||||||||
Certificates of deposit | 7,952 | — | 7,952 | 3,840 | — | 3,840 | ||||||||||||||||||
Commercial paper | 500 | — | 500 | 42,265 | — | 42,265 | ||||||||||||||||||
Corporate bonds and medium-term notes | 6,413 | — | 6,413 | 9,442 | — | 9,442 | ||||||||||||||||||
Municipal bonds | 400 | — | 400 | 1,679 | — | 1,679 | ||||||||||||||||||
Total recurring fair value measurements | $ | 24,839 | $ | 9,574 | $ | 15,265 | $ | 85,565 | $ | 16,181 | $ | 69,384 | ||||||||||||
Notional Amounts | Derivative Liabilities | Notional Amounts | Derivative Assets | Derivative Assets | ||||||||||||||||||||||||||||||||||||||||||||
Derivative Instrument | January 2, 2021 | December 28, 2019 | January 2, 2021 | December 28, 2019 | December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||||||||||||||||||||
Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | |||||||||||||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
Undesignated Hedges: | ||||||||||||||||||||||||||||||||||||||||||||||||
Forward Foreign Currency Contracts | $ | 983 | 1,035 | * | $ | 3 | * | $ | 4 | $ | 2,240 | 815 | (a | ) | $ | 4 | (a | ) | $ | 14 | ||||||||||||||||||||||||||||
Total Hedges | $ | 983 | 1,035 | $ | 3 | $ | 4 | $ | 2,240 | 815 | $ | 4 | $ | 14 | ||||||||||||||||||||||||||||||||||
Other |
2020 | 2019 | |||||||
(in thousands, except per share amounts) | ||||||||
Shares of common stock repurchased | 98 | 24 | ||||||
Cost of stock repurchased | $ | 393 | $ | 111 | ||||
Average price paid per share | $ | 3.97 | $ | 4.67 | ||||
2020 | 2019 | 2022 | 2021 | |||||||||||||
Federal: | ||||||||||||||||
Current | $ | (915 | ) | $ | — | $ | — | $ | — | |||||||
Deferred | 0 | 0 | (121 | ) | — | |||||||||||
| (915 | ) | — | (121 | ) | — | |||||||||||
State: | ||||||||||||||||
Current | 4 | 4 | 4 | 4 | ||||||||||||
Deferred | 0 | 0 | — | — | ||||||||||||
| 4 | 4 | 4 | 4 | |||||||||||||
Foreign: | ||||||||||||||||
Current | 1,705 | 1,694 | 490 | 546 | ||||||||||||
Deferred | 917 | 1,661 | 954 | 25 | ||||||||||||
| 2,622 | 3,355 | 1,444 | 571 | |||||||||||||
Total | $ | 1,711 | $ | 3,359 | $ | 1,327 | $ | 575 | ||||||||
Income taxes on discontinued operations | $ | — | $ | — | ||||||||||||
Income taxes on continuing operations | $ | 1,327 | $ | 575 | ||||||||||||
2020 | 2019 | 2022 | 2021 | |||||||||||||
U.S | $ | (3,293 | ) | $ | (4,875 | ) | $ | (20,570 | ) | $ | (22,694 | ) | ||||
Foreign | 6,060 | 9,382 | 5,143 | 212 | ||||||||||||
| $ | 2,767 | $ | 4,507 | $ | (15,427 | ) | $ | (22,482 | ) | |||||||
Effective tax rate | 61.8 | % | 74.5 | % | (8.6 | %) | (2.6 | %) | ||||||||
January 2, 2021 | December 28, 2019 | December 31, 2022 | January 1, 2022 | |||||||||||||
Deferred tax assets: | ||||||||||||||||
Vacation, warranty and other accruals | $ | 651 | $ | 635 | $ | 525 | $ | 627 | ||||||||
Intangible amortization | — | 282 | ||||||||||||||
Depreciation and amortization | — | 89 | 229 | — | ||||||||||||
Intangible amortization | 551 | 804 | ||||||||||||||
Purchased technology | 14 | — | 14 | 17 | ||||||||||||
Inventory valuation | 1,101 | 1,288 | 1,116 | 1,653 | ||||||||||||
Equity-based compensation | 1,494 | 1,593 | 841 | 1,343 | ||||||||||||
Lease liability | 898 | 1,659 | ||||||||||||||
Section 174 R&D adjustment | 2,440 | — | ||||||||||||||
Net operating loss, research and other tax credit carryforwards | 55,322 | 54,818 | 56,310 | 53,684 | ||||||||||||
Other | 30 | 43 | 7 | 22 | ||||||||||||
| 59,163 | 59,270 | 62,380 | 59,287 | |||||||||||||
Valuation allowance for deferred tax assets | (52,088 | ) | (52,099 | ) | (57,310 | ) | (52,703 | ) | ||||||||
Total deferred tax assets | 7,075 | 7,171 | 5,070 | 6,584 | ||||||||||||
Deferred tax liabilities: | ||||||||||||||||
Intangible amortization | (160 | ) | — | |||||||||||||
Depreciation and amortization | (341 | ) | — | — | (201 | ) | ||||||||||
Purchased technology | — | (45 | ) | |||||||||||||
Unbilled revenue | (1,399 | ) | (874 | ) | ||||||||||||
ROU asset | (554 | ) | (1,073 | ) | ||||||||||||
Total deferred tax liabilities | (1,740 | ) | (919 | ) | (714 | ) | (1,274 | ) | ||||||||
Net deferred tax assets | $ | 5,335 | $ | 6,252 | $ | 4,356 | $ | 5,310 | ||||||||
As reported on the balance sheet: | ||||||||||||||||
As reported on the consolidated balance sheets: | ||||||||||||||||
Non-current deferred tax assets | $ | 5,335 | $ | 6,252 | $ | 4,356 | $ | 5,310 | ||||||||
2020 | 2019 | 2022 | 2021 | |||||||||||||
Income tax at the federal statutory rate | $ | 581 | $ | 947 | $ | (3,240 | ) | $ | (4,721 | ) | ||||||
State income taxes, net of federal benefit | 4 | 4 | 4 | 4 | ||||||||||||
Change in valuation allowance: | ||||||||||||||||
U.S | (416 | ) | (689 | ) | 3,129 | 94 | ||||||||||
Foreign | 0— | — | — | — | ||||||||||||
Effect of foreign operations taxed at various rates | (235 | ) | (397 | ) | (219 | ) | 48 | |||||||||
Research tax credits | (1,306 | ) | (1,710 | ) | (788 | ) | (1,135 | ) | ||||||||
Effect of tax rate changes, permanent differences and adjustments of prior deferrals | 2,504 | 3,685 | 2,441 | 6,285 | ||||||||||||
Unrecognized tax benefits | 579 | 1,519 | — | — | ||||||||||||
Total | $ | 1,711 | $ | 3,359 | ||||||||||||
Total provision for income taxes on continuing operations | $ | 1,327 | $ | 575 | ||||||||||||
2020 | 2019 | 2022 | 2021 | |||||||||||||
Beginning balance | $ | 7,683 | $ | 6,164 | $ | 718 | $ | 7,327 | ||||||||
Additions based on tax positions related to the current year | 589 | 1,519 | 12 | 24 | ||||||||||||
Settlements | 0— | — | ||||||||||||||
Decreases for tax positions of prior years | — | (6,622 | ) | |||||||||||||
Lapse of statute of limitations | (945 | ) | — | — | (11 | ) | ||||||||||
Ending balance | $ | 7,327 | $ | 7,683 | $ | 730 | $ | 718 | ||||||||
January 2, 2021 | December 28, 2019 | December 31, 2022 | January 1, 2022 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Assets: | ||||||||||||||||
Operating lease right-of-use | $ | 8,165 | $ | 10,279 | ||||||||||||
Operating lease ROU assets | $ | 3,390 | $ | 4,520 | ||||||||||||
Liabilities: | ||||||||||||||||
Current operating lease liabilities | $ | 2,853 | $ | 2,524 | $ | 3,404 | $ | 3,119 | ||||||||
Noncurrent operating lease liabilities | 6,803 | 9,532 | 1,417 | 3,675 | ||||||||||||
| $ | 9,656 | $ | 12,056 | $ | 4,821 | $ | 6,794 | |||||||||
2020 | 2019 | 2022 | 2021 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Operating lease cost | $ | 2,942 | $ | 3,112 | $ | 1,624 | $ | 2,944 | ||||||||
Operating lease cost subleased / assigned property | 974 | — | ||||||||||||||
Short-term lease cost | 93 | 78 | 43 | 98 | ||||||||||||
Less: sublease income | (974 | ) | — | |||||||||||||
Total lease cost | $ | 3,035 | $ | 3,190 | ||||||||||||
Total lease cost, net | $ | 1,667 | $ | 3,042 | ||||||||||||
(In thousands) | ||||||||||||||||
2021 | $ | 3,388 | ||||||||||||||
2022 | 3,474 | |||||||||||||||
Continuing Operations | Discontinued Operations | Total | ||||||||||||||
(in thousands) | ||||||||||||||||
2023 | 3,289 | $ | 1,819 | 1,769 | $ | 3,588 | ||||||||||
2024 | 541 | 655 | 296 | 951 | ||||||||||||
2025 | 408 | — | 408 | |||||||||||||
2026 | 100 | — | 100 | |||||||||||||
Total lease payments | 10,692 | $ | 2,982 | $ | 2,065 | 5,047 | ||||||||||
Less: Interest | (1,036 | ) | (143 | ) | (83 | ) | (226 | ) | ||||||||
Present value of lease liabilities | $ | 9,656 | $ | 2,839 | $ | 1,982 | 4,821 | |||||||||
January 2, 2021 | December 28, 2019 | |||||||
Weighted-average remaining lease term (in years) | 3.09 | 4.08 | ||||||
Weighted-average discount rate | 6.39 | % | 6.37 | % | ||||
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 | % | ||||
2020 | 2019 | 2022 | 2021 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Operating cash outflows from operating leases | $ | 3,332 | $ | 3,484 | $ | 1,757 | $ | 3,382 | ||||||||
Right-of-use | $ | 128 | $ | 934 | ||||||||||||
ROU asset impairment expense (reported in discontinued operations) | $ | — | $ | 1,246 | ||||||||||||
ROU assets obtained in exchange for new operating lease liabilities | $ | 1,122 | $ | — | ||||||||||||
2020 | 2019 | 2022 | 2021 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Beginning balance | $ | 1,022 | $ | 997 | $ | 346 | $ | 480 | ||||||||
Expenditures incurred under warranties | (512 | ) | (625 | ) | (312 | ) | (622 | ) | ||||||||
Expenditures incurred under warranties included in discontinued operations | — | (89 | ) | |||||||||||||
Accruals for product warranties | 280 | 955 | 147 | 502 | ||||||||||||
Accruals for product warranties included in discontinued operations | — | 122 | ||||||||||||||
Adjustments to previously existing warranty accruals | (310 | ) | (305 | ) | (18 | ) | 31 | |||||||||
Adjustments to previously existing warranty accruals included in discontinued operations | — | (31 | ) | |||||||||||||
Sale of Photonics division | — | (47 | ) | |||||||||||||
Ending balance | $ | 480 | $ | 1,022 | $ | 163 | $ | 346 | ||||||||
Net Revenues | 2020 | 2019 | ||||||
(in thousands) | ||||||||
TFE | $ | 52,128 | $ | 73,678 | ||||
Photonics | 45,696 | 35,207 | ||||||
Total segment net revenues | $ | 97,824 | $ | 108,885 | ||||
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 | ||||||
Operating Profit (Loss) | 2020 | 2019 | ||||||
(in thousands) | ||||||||
TFE | $ | (1,978 | ) | $ | 1,747 | |||
Photonics | 10,064 | 6,434 | ||||||
Total segment operating profit | 8,086 | 8,181 | ||||||
Unallocated costs | (5,531 | ) | (4,256 | ) | ||||
Operating income | 2,555 | 3,925 | ||||||
Interest income | 284 | 574 | ||||||
Other income (expense), net | (72 | ) | 8 | |||||
Income before provision for income taxes | $ | 2,767 | $ | 4,507 | ||||
Depreciation and Amortization | 2020 | 2019 | ||||||
(in thousands) | ||||||||
TFE | $ | 1,817 | $ | 1,909 | ||||
Photonics | 1,159 | 1,310 | ||||||
Total segment depreciation and amortization | 2,976 | 3,219 | ||||||
Unallocated costs | 504 | 372 | ||||||
Total consolidated depreciation and amortization | $ | 3,480 | $ | 3,591 | ||||
Capital Additions | 2020 | 2019 | ||||||
(in thousands) | ||||||||
TFE | $ | 1,336 | $ | 2,611 | ||||
Photonics | 636 | 832 | ||||||
Total segment capital additions | 1,972 | 3,443 | ||||||
Unallocated | 640 | 664 | ||||||
Total consolidated capital additions | $ | 2,612 | $ | 4,107 | ||||
Segment Assets | 2020 | 2019 | ||||||
(in thousands) | ||||||||
TFE | $ | 44,335 | $ | 51,153 | ||||
Photonics | 22,923 | 22,071 | ||||||
Total segment assets | 67,258 | 73,224 | ||||||
Cash and investments | 49,568 | 42,024 | ||||||
Restricted cash | 787 | 787 | ||||||
Deferred income taxes | 5,335 | 6,252 | ||||||
Other current assets | 1,093 | 752 | ||||||
Common property, plant and equipment | 1,443 | 1,307 | ||||||
Common operating lease right-of-use | 1,603 | 1,898 | ||||||
Other assets | 151 | 78 | ||||||
Consolidated total assets | $ | 127,238 | $ | 126,322 | ||||
January 2, 2021 | December 28, 2019 | |||||||
(in thousands) | ||||||||
United States | $ | 10,678 | $ | 11,420 | ||||
Asia | 326 | 178 | ||||||
Net property, plant & equipment | $ | 11,004 | $ | 11,598 | ||||
(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 | ||
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 Rule
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 Rule
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 2013
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during our fourth quarter of fiscal 20202023 that has materially affected, or is reasonably likely to materially affect, Intevac’s internal control over financial reporting.
| Item 9B. |
Other Information |
None.
| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
Not applicable.
69
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 20212023 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 Form
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 20212023 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 20212023 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 20212023 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 2020”2022” in the Company’s Proxy Statement for the 20212023 Annual Meeting of Stockholders and is incorporated herein by reference.
70
PART IV
Item 15. | Exhibits and Financial |
(a) The following documents are filed as part of this Annual Report on
1. Financial Statements:
See “Index to Consolidated Financial Statements” in Part II, Item 8 of this
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
| (1) | Previously filed as an exhibit to the Company’s Report on Form 8-K filed July 23, 2007 |
| (2) | Previously filed as an exhibit to the Company’s Report on Form 8-K filed March 15, 2012 |
| (3) | Previously filed as an exhibit to the Registration Statement on Form S-1 (No. 33-97806) |
| (4) | Previously filed as an exhibit to the Company’s Form 10-K filed February 12, 2020 |
| (5) |
Previously filed as an exhibit to the Company’s Definitive Proxy Statement filed April |
Previously filed as an exhibit to the Company’s Definitive Proxy Statement filed April 11, 2018 |
Previously filed as an exhibit to the Company’s Form 10-Q filed May 1, 2012 |
Previously filed as an exhibit to the Company’s Form 10-Q filed July 30, 2019 |
Previously filed as an exhibit to the Company’s Form 10-Q filed April 29, 2014 |
Previously filed as an exhibit to the Registration Statement on Form S-8 filed May 14, 2020 (No.33-238262) |
Previously filed as an exhibit to the Company’s Form |
Previously filed as an exhibit to the Company’s Report on Form 8-K filed |
Previously filed as an exhibit to the Company’s Form |
Previously filed as an exhibit to the Company’s Report on Form 8-K filed |
Previously filed as an exhibit to the Company’s Report on Form 8-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 |
Not applicable.
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
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 lawful
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 | ||
( | Chief Executive Officer and Director (Principal Executive Officer) | |||
/s/ JAMES MONIZ | Executive Vice President, Finance and | February | ||
(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) | ||||
/s/ MICHELE F. KLEIN | Director | February | ||
(Michele F. Klein) | ||||
74