Intevac, Inc.
Q2 2021 Earnings Call Transcript

Published: 2 Aug 2021

[Operator:]

Good day. And welcome to Intevac’s Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference call is being recorded today, August 2, 2021. At this time, I would like to turn the call over to Claire McAdams, Investor Relations for Intevac. Please go ahead.

[Claire McAdams:]

Thank you, and good afternoon, everyone. Thank you for joining us today to discuss Intevac’s financial results for the second quarter of 2021, which ended on July 3. In addition to discussing our company’s recent results, we will discuss our outlook looking forward.

[Wendell Blonigan:]

Thanks, Claire, and good afternoon. Today, we reported second quarter revenue that exceeded our guidance, primarily as a result of an acceleration of technology upgrades by our hard disk drive or HDD customers. In June, we announced a record HDD upgrade order of $10 million, which we began shipping against before the end of June, providing upside to our Q2 revenue. This order also drove the majority of the $15 million increase in backlog in our Thin Film Equipment or TFE business during the quarter. In Photonics we announced two new development awards in June, bringing our new IVAS Phase 1 development award count to three as of today. These latest awards are targeted and improving the night-vision performance of the IVAS headset. During the quarter, IVAS related investments exceeded our forecast by approximately $1 million, which resulted in Q2 gross margins coming in about 450 basis points below guidance. However, we’ve successfully managed our cash and discretionary spending during this challenging period and our net loss per share was a little better than expected.

[Jim Moniz:]

Thank you, Wendell. Turning to the second quarter results, consolidated second quarter revenues totaled $13.8 million, above our guidance of $12.5 million to $13 million. Thin Film Equipment revenues totaled $5.4 million and included upgrades, spares and service. Photonics revenue of $8.4 million included $5.3 million in product revenues and $3.2 million of contract, research and development revenues. Due to consolidated gross margin was 22.5% below our guidance of 27%. Thin Film Equipment gross margin was 18.7%, which was lower than forecast primarily due to lower overall volume which affected factory utilization and product mix due to less high margin upgrade revenue. Photonics gross margin was 24.9%, which was lower than forecast due to higher costs related to completing the integration of our camera into the IVAS platform. Q2 operating expenses were $9.4 million below our guidance due to tight control of development spending. We expect quarterly operating expenses to remain at or below the $10 million level for the remainder of 2021. This resulted in a net loss of $6.1 million or $0.25 per share within our guidance of $0.25 per share loss to $0.27 per share loss. Our backlog was $51.7 million at quarter end. Then Film Equipment backlog of $18.9 million included non-systems HDD backlog. The backlog in our Photonics business was $32.7 million. We ended the quarter with cash and investments including restricted cash of $54.1 million, equivalent to approximately $2.22 per share, based on 24.4 million shares at quarter end. Cash flow generated by operations was $832,000 during Q2. Q2 capital expenditures were $122,000, and depreciation and amortization was $895,000 for the quarter. Guidance for Q3, we see revenue in the range of $12 million to $13 million. At this range, we would forecast gross margins to be around 35%, OpEx should come in around $10 million and income tax expense around $500,000. We therefore are forecasting a loss in the quarter of around $0.25 per share using 24.6 million shares outstanding. Now turning to the current outlook for 2021. Our full year view is Thin Film Equipment revenues of approximately $38 million relatively consistent with our view from last quarter and we now expect Photonics revenues to be at the lower end of the $30 million to $34 million range or combined $68 million plus or minus. At this revenue level and expected mix, we expect full year gross margins between 30% and 31%. As mentioned our OpEx run rate is below $10 million per quarter and thus expected to be around $30 million for the year. We are forecasting interest income of around $100,000 for the year and the income tax expense of around $1 million for the year. Our operational results will be challenged in 2021. We will continue to prudently manage our cash and the retain our strong balance sheet. This completes the formal part of our presentation. Operator, we are ready for questions.

[Operator:]

Your first question comes from Peter Wright with Intro-act. Please proceed with your question.

[Peter Wright:]

Great. Thank you guys for taking my question. My first question is on the Vertex. If wins are to materialize in the second half of this year, when do you think that revenue opportunity will happen/ Is it any different from the Lean systems that you forecast count?

[Wendell Blonigan:]

Yeah. We -- for the wearable project, we would intend to revenue the eval systems that are already out there. So there is some opportunity depending on what that timing is that they could revenue. We have to get them through their final test and acceptance before we can take revenue. But the tools are actually already built. So we have opportunity…

[Peter Wright:]

Yes.

[Wendell Blonigan:]

…turning with those.

[Peter Wright:]

And that’s two systems. Is that correct?

[Wendell Blonigan:]

Those two evals right now are the ones that we’re targeting, correct.

[Peter Wright:]

And if I understood correctly, you’re suggesting orders as well on top of that could materialize in the second half of this year for Vertex on top of that. Did I understand that correctly?

[Wendell Blonigan:]

No. The tools out there are evaluation tools at this point. So once the evaluation terms they accepted, there’s an order for it and then it’s .

[Peter Wright:]

Okay. So they’re not…

[Wendell Blonigan:]

That will generates intimately. Yeah.

[Peter Wright:]

Fantastic. And then a couple housekeeping ones really are quick, the cash projection at the end of the year and if you can clarify, I missed it, the OpEx, I thought you said $30 million something, but I’m assuming, it’s $40 million is the OpEx for the full year. Can you just repeat that number as well?

[Jim Moniz:]

Yeah. I’ll answer that question first. The OpEx for the full year, we still expect to remain around $39 million, which is what we also said last quarter.

[Peter Wright:]

Okay.

[Jim Moniz:]

And then our cash, we came into the year with $5 million, and obviously, we have $54 million, I’m sorry, we came in the year with $50 million, excuse me, and we ended this quarter at $54 million. And we would expect that our tasks will still remain above the $40 million. If we remember we’ve been saying we want to keep it at a minimum of $40 million. And so we will -- we expect cash to remain high. Some of that use will just depend on what happens with regards to any orders in the remainder of the year and any buildup of inventory or some late shipments of receivables still being not collected. But we expect to end the year with a strong amount of cash, Peter.

[Peter Wright:]

Wonderful. I’ll come back if there any questions.

[Operator:]

Your next question comes from Mark Miller with The Benchmark Company. Please proceed with your question.

[Mark Miller:]

Congratulations on your upgrade order. I assume that’s what’s pushing margins up next quarter. Is that coming from the upgrades compared to the June quarter?

[Jim Moniz:]

Yeah. That’ll certainly be a contributor for sure. And then, with the IVAS development deliveries, we would expect Photonics margin to go up again in Q3 as well.

[Mark Miller:]

I think, the fourth quarter looks strong again, is that coming from Vertex or what is the higher anticipated sales coming from?

[Jim Moniz:]

The majority of that’s coming from the strong orders we got in Q2. We will ship some of those in Q3, but we’ll have a stronger upgrade quarter in Q4.

[Mark Miller:]

Those coming from upgrades. Okay. Just wanted to clarify something about interest expense, you said it was going to be $500,000 for this quarter, but a net interest income of $100,000 for this year?

[Jim Moniz:]

No. I’m sorry. If I said that was a mistake. I didn’t give a comment on Q3 interest income. I don’t know did you say interest income or income tax expense?

[Mark Miller:]

Interest, I’m sorry, interest expense or income, sorry.

[Jim Moniz:]

Yeah. Interest expense has only been running about $20,000 to $30,000 a quarter and year-to-date our income tax expense, we’ve actually had a credit in the first few quarters and what we should see an expense based on the profitability on our international subsidiaries about $0.5 million in Q3 and then about $1 million for the year. But you can think of interest income for the year at about $100,000.

[Mark Miller:]

Okay. And then, finally, the Vertex tools have moved into pilot production. Any idea when we -- these will be revenued?

[Wendell Blonigan:]

They haven’t moved into production. Are you talking about the MATRIX tool.

[Mark Miller:]

MATRIX, I’m sorry, the MATRIX tool and power…

[Wendell Blonigan:]

Yeah. What they’re doing is, it qualified their process and now they’re working to qualify their production line. So we’ve already revenued that tool, we revenued it in Q1. So once they get through with all the qualification of their lines, I think, the next step there is to upgrade that entire line for a higher volume operation. Right now, there’s a lot of manual work being done on that. But we are encouraged by the fact that that project continues to move forward and that they’re looking at qualifying their actual production devices. So we think there’s more opportunity there, but it’s probably out there -- probably towards the mid the back half of 2022.

[Mark Miller:]

Thank you.

[Jim Moniz:]

Thank you, Mark.

[Wendell Blonigan:]

Thanks, Mark.

[Operator:]

Our next question is from Peter Wright with Intro-act. Proceed with your question.

[Peter Wright:]

Great. Two quick follow ups actually. So is there any update you can give us on the IVAS program of way to think of market share and is about $0.25 million or so camera units still a fair assumption to have out there on a five-year outlook?

[Wendell Blonigan:]

Well, there’s really not a lot we can say about it, just because of the NDAs that are in place. But what we did say is that these initial units that we’ve looked at that we’ve enabled to verify through public records is at least 5,000 on order and opportunity, almost 10 over the next 12 months. You know that we won’t be delivering cameras on that. It is too costly to scale up two volume production lines with a very small initial volumes forecast and still some uncertainty until you get through the operational testing, which would be in the September -- August and September timeframe is where was currently planned. Before you get to that stage of the program, where there is some risk that it may need more work and move to the pilot. That was the decision that was made.

[Peter Wright:]

Wonderful. That makes sense. So is it fair to assume that if volumes were to ramp, you would be executing on some of that, you’re the one walking away from the business, because the volume isn’t there for you to be able to profitably execute?

[Wendell Blonigan:]

No. We didn’t walk away from the business. It’s just the decisions that are being made by the client on what their manufacturing chains looking like. So I don’t know if that answered the question. But as the volume has come up and the need for more manufacturing capacity, we are one of the two companies that was actually brought from the original development programs and integrated into the IVAS units.

[Peter Wright:]

Thank you. And then my very last question is any update on the strategic review?

[Wendell Blonigan:]

We’re basically not going to talk about that. We announced it last quarter, so people knew what we were doing it. But we won’t be really talking much about that until at such time if the Board has decided that there’s some action that they’re going to take.

[Peter Wright:]

Thank you guys so much.

[Jim Moniz:]

Thank you, Peter.

[Operator:]

Your next question is from Mark Miller with The Benchmark Company. Please proceed with your question.

[Mark Miller:]

Just wondering what is driving the Lean? The Lean times for your Lean tool from six months to eight months is that components supply?

[Wendell Blonigan:]

Yeah. I think the longest hole in the tent is turbo pumps because we use the same kind of pumps that semiconductor guys do. And we’ve seen this, historically, when there’s a surge, the turbo pump guys don’t put in extra capacity. They just pull off the lead time. So we have to manage around that. But that’s one of the fundamental pieces that’s driving lead times.

[Mark Miller:]

Thank you.

[Operator:]

…with your question. And our next question is from Gus Richard from Northland. Please proceed with your question.

[Gus Richard:]

Yes. Thanks for taking the question.

[Wendell Blonigan:]

Hi, Gus.

[Gus Richard:]

Are you seeing any -- hello? Are you seeing any competitive -- competitors in deposition market for media at this point? Is Canon Film again?

[Wendell Blonigan:]

Yes. Canon, and although, they still have offerings. We’re not aware of them selling much equipment over the last several years. But certainly when we’re having discussions with hard drive customers, they’re also looking for business as well. And we feel really good about the way we’re positioned in the back and our equipment is, as we go to these higher density, higher areal density media formats, that we’re in a very leading position there.

[Gus Richard:]

Okay. And then a follow up on the inventory question, I believe you guys built up inventory for the Lean systems earlier in the year. Can you just talk about what the long lead time items were that you pulled in and how turbo pumps fit into that?

[Wendell Blonigan:]

Yeah. We did buy some long lead parts last year. So as we look at that eight-week lead time. There are a couple systems worth of…

[Jim Moniz:]

Eight month.

[Wendell Blonigan:]

What?

[Jim Moniz:]

Eight month.

[Wendell Blonigan:]

Eight months, sorry about that. As we look at that for the first couple of tools, we’ll be able to deliver those inside of that eight-month window, because we’d already procured some inventory in Singapore to be able to react quickly and that was really last year, we were being pushed quite hard to have tools delivered in the middle of this year.

[Gus Richard:]

And what do you think the opportunity for deposition systems in 2022, 2023 is for Lean?

[Wendell Blonigan:]

I think…

[Gus Richard:]

The around numbers of units, sorry.

[Wendell Blonigan:]

I think in 2022 we’re probably just because of timing and lead times and some of those things, probably, single digits. But I think there’s an opportunity in 2023 for double-digit deliveries.

[Gus Richard:]

Got it. That’s it for me. Thanks.

[Jim Moniz:]

Thanks, Gus.

[Wendell Blonigan:]

Thanks, Gus.

[Operator:]

And we have reached -- we have no further questions at this time. We will now turn the call back over to Mr. Blonigan.

[Wendell Blonigan:]

I want to again thank the dedicated employees of Intevac all around the world for continued resilience and dedication in this challenging operating environment. I also want to thank our customers and suppliers for their business and appreciate the partnerships. And finally, I’d like to thank our stockholders for their continued support of Intevac. I thank all you for joining us today and I look forward to updating you again during our Q3 call in November. Until then be well.

[Operator:]

This concludes today’s teleconference. You may now disconnect.