Intevac
Oct 27, 2008

Intevac Announces Results for the Third Quarter of 2008

SANTA CLARA, Calif.--(BUSINESS WIRE)--Oct. 27, 2008--Intevac, Inc. (Nasdaq:IVAC) today reported financial results for the quarter and nine months ended September 27, 2008.

The net loss for the quarter was $3.4 million, or $0.15 per diluted share, on 21.8 million weighted-average shares outstanding. The net loss included $1.8 million of equity-based compensation expense, equivalent to $0.05 per diluted share. For the third quarter of 2007, net income was $8.4 million, or $0.38 per diluted share, on 22.1 million weighted average shares outstanding, which included $1.8 million of equity-based compensation expense, equivalent to $0.07 per diluted share.

Revenues for the quarter were $28.6 million, including $22.9 million of Equipment revenues and Intevac Photonics revenues of $5.7 million. Equipment revenues consisted of four 200 Lean® systems, as well as upgrades, spares and service. Intevac Photonics revenues consisted of $3.3 million of research and development contracts and $2.4 million of product sales. For the third quarter of 2007, revenues were $50.6 million, including $44.9 million of Equipment revenues and $5.7 million of Intevac Photonics revenues, which included $1.2 million of product sales.

Equipment and Intevac Photonics gross margins for the third quarter of 2008 were 31.8% and 31.9%, respectively, compared to 48.9% and 44.5% in the third quarter of 2007. The decrease in Equipment gross margin reflected lower revenues, changes in product mix and lower factory utilization. The decrease in gross margin for Intevac Photonics reflected lower research and development contract revenues. Consolidated gross margins were 31.8%, compared to 48.6% in the third quarter of 2007.

Operating expenses for the quarter totaled $16.0 million, or 55.9% of revenues, compared to $16.5 million, or 32.6% of revenues, in the third quarter of 2007. Operating expenses declined compared to the third quarter of 2007 as a result of lower R&D expenditures and legal costs as well as overall cost-reduction initiatives.

The net loss for the first nine months of 2008 was $2.7 million, or $0.13 per diluted share, on 21.7 million weighted-average shares outstanding. The net loss included $5.0 million of equity-based compensation expense, equivalent to $0.14 per diluted share. For the first nine months of 2007, net income was $29.8 million, or $1.34 per diluted share, on 22.2 million weighted average shares outstanding, which included $4.6 million of equity-based compensation expense, equivalent to $0.16 per diluted share.

Revenues for the first nine months of 2008 were $93.9 million, including $75.6 million of Equipment revenues and $18.3 million of Intevac Photonics revenues. Equipment revenues consisted of ten 200 Lean® systems as well as disk lubrication systems, equipment upgrades, spares, consumables and service. Intevac Photonics revenues consisted of $11.5 million of research and development contracts and $6.8 million of product sales. In the first nine months of 2007, revenues were $199.1 million, including $185.9 million of Equipment revenues and $13.2 million of Intevac Photonics revenues, which included $3.4 million of product sales.

Equipment and Intevac Photonics gross margins for the first nine months of 2008 were 40.9% and 36.4%, respectively, compared to 44.6% and 40.8% in the first nine months of 2007. Lower Equipment margins reflect lower revenues and unabsorbed factory costs. Intevac Photonics margins decreased primarily as a result of lower factory absorption and product mix. Consolidated gross margins were 40.0%, compared to 44.3% in first nine months of 2007.

Operating expenses for the first nine months of 2008 totaled $48.2 million, or 51.4% of revenues, compared to $53.7 million, or 27.0% of revenues, in the first nine months of 2007. Operating expenses declined primarily as the result of decreased spending on development of new Equipment products and decreased legal expenses associated with patent litigation, partially offset by acquisition integration costs and higher equity-based compensation expense.

Order backlog totaled $18.5 million on September 27, 2008, compared to $27.7 million on June 28, 2008 and $31.2 million on September 29, 2007. Backlog as of September 27, 2008 includes one 200 Lean® system, compared to four on June 28, 2008 and one on September 29, 2007.

"I am pleased to report third-quarter results that exceeded our guidance, demonstrating that we are continuing to control the company's expenses in light of current market conditions," commented Kevin Fairbairn, president and chief executive officer of Intevac. "During the quarter we entered into an alliance with TES Co., Ltd. that covers product development, manufacturing and sales of Intevac's Lean Etch in Korea and China and TES' CVD semiconductor equipment products in the rest of the world. This alliance is a groundbreaking business model for the semiconductor industry that enables both companies to offer a wider portfolio of products to our customers while leveraging our respective product development and manufacturing capabilities."

Conference Call Information

The company will discuss its financial results and outlook in a conference call today at 1:30 p.m. PT (4:30 p.m. ET). To participate in the teleconference, please call toll-free (800) 291-8929 prior to the start time. For international callers, the dial-in number is (706) 634-0478. You may also listen live via the Internet at the company's website, www.Intevac.com, under the Investors link, or at www.earnings.com. For those unable to attend, these web sites will host an archive of the call. Additionally, a telephone replay of the call will be available for 48 hours beginning today at 7:30 p.m. ET. You may access the playback by calling (800) 642-1687, or for international callers (706) 645-9291, and providing conference ID 67502800.

About Intevac

Intevac was founded in 1991 and has two businesses: Equipment and Intevac Photonics.

Equipment Business: We are a leader in the design, manufacture and marketing of high-productivity lean manufacturing systems and have been producing Lean Thinking platforms since 1994. We are the leading supplier of magnetic media sputtering equipment to the hard disk drive industry and offer advanced etch technology systems to the semiconductor industry.

Intevac Photonics: We are a leader in the development of leading edge, high-sensitivity imaging products, vision systems and miniature Raman instruments. Markets addressed include military, industrial, physical science and life science.

For more information call 408-986-9888, or visit the company's website at www.intevac.com.

200 Lean® is a registered trademark, and Lean Etch is a trademark, of Intevac, Inc.

Safe Harbor Statement

This press release includes statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Intevac claims the protection of the safe-harbor for forward-looking statements contained in the Reform Act. These forward-looking statements are often characterized by the terms "may," "believes," "projects," "expects," or "anticipates," and do not reflect historical facts. Specific forward-looking statements contained in this press release include, but are not limited to; expected success of the company's alliance with TES Co., Ltd. and management of the company's operating expenses. The forward-looking statements contained herein involve risks and uncertainties that could cause actual results to differ materially from the company's expectations. These risks include, but are not limited to: failure to manage operating expenses or introduce new products, each of which could have a material impact on our business, our financial results, and the company's stock price. These risks and other factors are detailed in the company's regular filings with the U.S. Securities and Exchange Commission.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
                               Three months ended   Nine months ended
                               ---------------------------------------
                               September September September September
                                  27,       29,       27,       29,
                                 2008      2007      2008      2007
                               ------------------- -------------------
Net revenues
  Equipment                      $22,855   $44,920   $75,558  $185,885
  Intevac Photonics                5,705     5,684    18,309    13,198
                               ------------------- -------------------
    Total net revenues            28,560    50,604    93,867   199,083

Gross profit                       9,085    24,615    37,529    88,224
Gross margin
  Equipment                        31.8%     48.9%     40.9%     44.6%
  Intevac Photonics                31.9%     44.5%     36.4%     40.8%
                               ------------------- -------------------
    Consolidated                   31.8%     48.6%     40.0%     44.3%

Operating expenses
  Research and development         8,620     9,437    26,426    31,277
  Selling, general and
   administrative                  7,341     7,062    21,818    22,414
                               ---------------------------------------
    Total operating expenses      15,961    16,499    48,244    53,691

Operating income (loss)
  Equipment                      (4,357)     8,477   (4,494)    39,308
  Intevac Photonics              (1,824)        35   (3,715)   (3,080)
  Corporate                        (695)     (396)   (2,506)   (1,695)
                               ------------------- -------------------
    Total operating profit
     (loss)                      (6,876)     8,116  (10,715)    34,533

Interest and other income            884     1,797     3,101     4,655
                               ------------------- -------------------
Profit (loss) before income
 taxes                           (5,992)     9,913   (7,614)    39,188
  Provision (benefit) for
   income taxes                  (2,639)     1,549   (4,887)     9,427
                               ------------------- -------------------
Net income (loss)               $(3,353)    $8,364  $(2,727)   $29,761
                               ========= ========= ========= =========

Income (loss) per share
  Basic                          $(0.15)     $0.39   $(0.13)     $1.39
  Diluted                        $(0.15)     $0.38   $(0.13)     $1.34
Weighted average common shares
 outstanding
  Basic                           21,761    21,519    21,700    21,403
  Diluted                         21,761    22,130    21,700    22,155
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

                                            September 27, December 31,
                                                2008          2007
                                            --------------------------
                                             (Unaudited)   (see Note)
ASSETS

Current assets
  Cash, cash equivalents and short-term
   investments                                    $41,806     $138,658
  Accounts receivable, net                         19,352       14,142
  Inventories                                      15,455       22,133
  Deferred tax assets                               5,821        3,609
  Prepaid expenses and other current assets         3,901        4,162
                                            --------------------------
    Total current assets                           86,335      182,704

Long-term investments                              73,108        2,009
Property, plant and equipment, net                 15,013       15,402
Deferred tax assets                                 6,042        3,740
Goodwill                                           17,607        7,905
Other intangible assets, net                        5,181        1,782
Other long-term assets                              1,457        1,871
                                            --------------------------
    Total assets                                 $204,743     $215,413
                                            ==========================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Note payable                                     $1,976       $1,992
  Accounts payable                                  5,045        7,678
  Accrued payroll and related liabilities           3,967        8,610
  Other accrued liabilities                         4,036        4,163
  Customer advances                                 1,707        5,631
                                            --------------------------
    Total current liabilities                      16,731       28,074

Other long-term liabilities                           407        2,176
Stockholders' equity
  Common stock ($0.001 par value)                      22           22
  Paid in Capital                                 126,794      120,056
  Accumulated other comprehensive income
   (loss)                                           (998)          571
  Retained earnings                                61,787       64,514
                                            --------------------------
    Total stockholders' equity                    187,605      185,163
                                            --------------------------
    Total liabilities and stockholders'
     equity                                      $204,743     $215,413
                                            ==========================

Note: Amounts as of December 31, 2007 are derived from the December
 31, 2007 audited consolidated financial statements.
 SUPPLEMENTAL INFORMATION REGARDING EQUITY-BASED COMPENSATION EXPENSE
               (In thousands, except per share amounts)
                             (Unaudited)

The effects of recording equity-based compensation for the three- and
 nine-month periods ended September 27, 2008, and September 29, 2007
 were as follows:

                               Three Months Ended   Nine Months Ended
                               ------------------- -------------------
                               September September September September
                                  27,       29,       27,       29,
                                 2008      2007      2008      2007
Equity-based compensation by
 type of award:
   Stock options                  $1,311    $1,677    $3,960    $3,991
   Employee Stock Purchase
    Plan                             478       191       978       619
Amounts (capitalized as
 inventory) released to cost
 of sales                           (23)      (27)        66      (31)
                               --------- --------- --------- ---------
Total equity-based
 compensation                      1,766     1,841     5,004     4,579
Tax effect on equity-based
 compensation                      (689)     (286)   (1,952)   (1,098)
                               --------- --------- --------- ---------
Net effect on net income          $1,077    $1,555    $3,052    $3,481
                               ========= ========= ========= =========

Effect on earnings per share:
  Basic                            $0.05     $0.07     $0.14     $0.16
  Diluted                          $0.05     $0.07     $0.14     $0.16

CONTACT:
Intevac, Inc.
Jeff Andreson, 408-986-9888
Chief Financial Officer
or
Headgate Partners LLC
Claire McAdams, 530-274-0551

SOURCE: Intevac, Inc.