10-Q: Intevac Reports First Quarter 2024 Results, Impacted by Lower HDD Upgrade Sales

Intevac's first quarter 2024 results show a net loss of $1.6 million, impacted by lower HDD upgrade sales, but offset by a $2.4 million Employee Retention Credit.

Summary

• Intevac reported a net loss of $1.6 million for the first quarter of 2024, compared to a net loss of $3.9 million in the same period last year.
• Net revenues decreased to $9.6 million from $11.5 million year-over-year, primarily due to lower HDD upgrade sales.
• Gross profit was $4.2 million, with a gross margin of 43.7%, an increase from 40.9% in the prior year due to higher margin HDD upgrade sales.
• The company received a $2.4 million Employee Retention Credit (ERC), which was recorded as $1.5 million in other income and $0.9 million in discontinued operations.
• Operating expenses totaled $8.7 million, a decrease from $9.2 million in the prior year.
• Backlog increased to $53.1 million at the end of the quarter, with 55.4% expected to be recognized as revenue in 2024 and 44.6% in 2025.
• The company expects 2024 to be a challenging year and does not anticipate profitability for the full year.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the reported net loss, decreased revenues, and the expectation of a challenging year. However, the positive impact of the ERC and the increase in backlog provide some offsetting factors.

Positives

• Gross margin improved to 43.7% due to higher margin HDD upgrade sales.
• The company received a $2.4 million Employee Retention Credit (ERC) refund, which positively impacted the bottom line.
• Operating expenses decreased compared to the same period last year.
• Backlog increased to $53.1 million, indicating future revenue potential.
• The company expects to start recognizing revenue from the TRIO platform in 2024.

Negatives

• Net revenues decreased year-over-year due to lower HDD upgrade sales.
• The company reported a net loss of $1.6 million for the quarter.
• The company does not expect to be profitable in fiscal year 2024.
• HDD equipment sales and upgrades are expected to be lower than 2023 levels.

Risks

• The company's business is subject to cyclical industry conditions and is dependent on demand for HDDs and cell phones.
• The company is exposed to risks associated with a highly concentrated customer base.
• The company's sales are dependent on customer upgrade and capacity expansion plans.
• The company's results of operations could be impacted by macroeconomic conditions such as a global economic slowdown, inflation, and high interest rates.
• The company is dependent on certain suppliers for parts used in its products.
• The company operates in an intensely competitive marketplace.
• The company's operating results fluctuate significantly from quarter to quarter.
• The company's success depends on international sales and the management of global operations.
• The company's success is dependent on recruiting and retaining a highly talented workforce.
• The company's growth depends on the development of technically advanced new products and processes.
• The company's business depends on the integrity of its intellectual property rights.
• The company is subject to risks of non-compliance with environmental and other governmental regulations.
• The company could be negatively impacted by cyber and other security threats or disruptions.
• The company could be involved in litigation.
• Business interruptions could adversely affect the company's operations.
• The company could be negatively affected as a result of a proxy contest and the actions of activist stockholders.

Future Outlook

Intevac expects 2024 to be a challenging year and does not anticipate profitability for the full year. The company expects to begin recognizing revenue from its TRIO platform in 2024 as it completes qualifications. However, HDD equipment sales and upgrades are expected to be lower than 2023 levels.

Management Comments

• We believe fiscal 2024 will continue to be a challenging year, and we do not expect to be profitable in fiscal 2024.
• In fiscal 2024, we expect to begin recognizing revenue from our TRIO platform as the product completes qualifications.
• However, we expect that HDD equipment sales and upgrades for magnetic disk production in fiscal 2024 will be lower than fiscal 2023 levels.

Industry Context

The report highlights the cyclical nature of the HDD industry and Intevac's efforts to diversify into the ADVC market with its TRIO platform. The company's performance is tied to the demand for storage technologies and the adoption of new manufacturing processes.

Comparison to Industry Standards

• The report does not provide specific comparisons to industry standards or competitors.
• However, it notes that Intevac competes with companies like Canon Anelva in the disk sputtering systems market.
• The company's reliance on a few large customers is a common risk in the capital equipment industry.
• The company's efforts to diversify into the ADVC market are in line with industry trends to reduce dependence on the HDD market.

Related Party Transactions

• Intevac and EOTECH entered into a Shared Services Agreement to share certain building maintenance costs.
• Accounts receivable from EOTECH of $10,000 and $62,000 were included in trade and other accounts receivable in the Companys condensed consolidated balance sheets as of March 30, 2024 and December 30, 2023, respectively.

Stakeholder Impact

• Shareholders may be concerned about the net loss and the company's expectation of a challenging year.
• Employees may be affected by the company's cost-cutting measures and the uncertainty of the business outlook.
• Customers may be impacted by potential delays in product deliveries due to supply chain disruptions.
• Suppliers may be affected by the company's reduced demand for parts and components.

Next Steps

• The company expects to continue to develop additional customer relationships for TRIO for other glass coating applications.
• The company expects to invoice a customer in the second quarter of fiscal 2024 for the cancellation fee associated with a cancelled order.
• The company expects to recognize approximately 55.4% of its remaining performance obligations as revenue in 2024 and 44.6% in 2025.

Key Dates

Keywords

Thin-film Equipment, Hard Disk Drive, Advanced Coatings, TRIO platform, Employee Retention Credit, HDD upgrades, Backlog, Net loss, Gross margin, Revenue