Intevac
Nov 1, 2007

Intevac Announces Results for the Third Quarter of 2007

Net Income Significantly Exceeds Expectations

SANTA CLARA, Calif.--(BUSINESS WIRE)--Nov. 1, 2007--Intevac, Inc. (Nasdaq: IVAC) today reported financial results for the quarter and nine months ended September 29, 2007.

Net income for the quarter was $8.4 million, or $0.38 per diluted share, on 22.1 million weighted-average shares outstanding. Net income included $1.8 million of stock-based compensation expense, equivalent to $0.07 per diluted share. Third quarter earnings include the effect of adjusting the Company's 2007 year-to-date income tax provision to an effective tax rate of 24.0%, from the 26.9% tax rate provided for in the second quarter of 2007. For the third quarter of 2006, net income was $9.0 million, or $0.41 per diluted share, on 21.9 million weighted average shares outstanding, which included $878,000 of stock-based compensation expense, equivalent to $0.04 per diluted share.

Revenues for the quarter were $50.6 million, including $44.9 million of Equipment revenues and Imaging revenues of $5.7 million. Equipment revenues consisted of four 200 Lean® systems as well as disk lubrication systems, equipment upgrades, spares, consumables and service. Imaging revenues consisted of $4.5 million of research and development contracts and $1.2 million of product sales. In the third quarter of 2006, revenues were $54.8 million, including $51.6 million of Equipment revenues and $3.2 million of Imaging revenues, which included $465,000 of product sales.

Equipment and Imaging gross margins for the third quarter of 2007 rose to 48.9% and 44.5%, respectively, from 42.5% and 41.1% in the third quarter of 2006. Equipment margins improved significantly due to a record high level of technology upgrades and spares business relative to systems business. Imaging margins improved primarily as the result of securing higher-margin development contracts. Consolidated gross margins improved to 48.6%, from 42.5% in the third quarter of 2006.

Operating expenses for the quarter totaled $16.5 million, or 32.6% of revenues, versus $14.1 million, or 25.8% of revenues, in the third quarter of 2006 and $17.5 million, or 24.3% of revenues, in the second quarter of 2007. Operating expenses declined sequentially but grew as a percentage of revenue in the third quarter, as overall spending on operating expenses was reduced while revenue declined 30% from the second quarter of 2007. Total operating expenses increased versus the third quarter of 2006 primarily because of increased spending on development of new Equipment products, increased business development expense and higher stock-based compensation expense.

Net income for the first nine months of 2007 was $29.8 million, or $1.34 per diluted share, on 22.2 million weighted-average shares outstanding. Net income included $4.5 million of stock-based compensation expense, equivalent to $0.15 per diluted share. For the first nine months of 2006, net income was $25.4 million, or $1.16 per diluted share, on 21.9 million weighted average shares outstanding, which included $2.0 million of stock-based compensation expense, equivalent to $0.08 per diluted share.

Revenues for the first nine months were $199.1 million, including $185.9 million of Equipment revenues and $13.2 million of Imaging revenues. Equipment revenues consisted of twenty-nine 200 Lean® systems as well as disk lubrication systems, equipment upgrades, spares, consumables and service. Imaging revenues consisted of $9.8 million of research and development contracts and $3.4 million of product sales. In the first nine months of 2006, revenues were $164.0 million, including $155.7 million of Equipment revenues and $8.3 million of Imaging revenues, which included $1.3 million of product sales.

Equipment and Imaging gross margins for the first nine months of 2007 increased to 44.6% and 40.8%, respectively, from 38.0% and 31.6% in the first nine months of 2006. Equipment margins improved primarily due to record high sales of technology upgrades and spares as well as reduced manufacturing costs. Imaging margins increased primarily as the result of securing higher-margin development contracts, higher factory utilization and an increased percentage of revenue derived from higher-margin product shipments. Consolidated gross margins improved to 44.3%, from 37.7% in first nine months of 2006.

Operating expenses for the first nine months of 2007 totaled $53.7 million, or 27.0% of revenues, versus $36.1 million, or 22.0% of revenues, in the first nine months of 2006. Operating expenses grew primarily as the result of increased spending on development of new Equipment products, increased business development expense, legal expenses associated with patent litigation and higher stock-based compensation expense.

Order backlog totaled $31.2 million on September 29, 2007, compared to $57.5 million on June 30, 2007, and $129.7 million on September 30, 2006. Backlog as of September 29, 2007 includes one 200 Lean® system, compared to four on June 30, 2007 and twenty-four on September 30, 2006.

"I am pleased to report third-quarter profits that exceeded our expectations, demonstrating that we have continued to control our operating expenses in accordance with the cyclical nature of the data storage industry," commented Kevin Fairbairn, president and chief executive officer of Intevac. "We also achieved a significant milestone in the third quarter, in that our Imaging Instrumentation business generated its first operating profit. Our Imaging business continues to represent a significant growth driver for Intevac, and we are excited about the new market opportunities presented by our recently-announced acquisition of Creative Display Systems. Finally, we continue to make good progress towards meeting the demanding specifications of leading-edge semiconductor customers in order to achieve qualification of our Lean Etch tool in 2008."

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 17957836.

About Intevac

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

Equipment Business: Intevac is a leader in the design, manufacture and marketing of high-productivity "lean" manufacturing systems and has 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 leading-edge, high-productivity etch systems to the semiconductor industry.

Imaging Instrumentation Business: Intevac is a leader in the development of leading-edge, high-sensitivity imaging products and miniature Raman instruments. We provide sensors, cameras and systems for government applications such as night vision and long-range target identification and we provide cameras and Raman systems to the industrial, physical science and life science markets.

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

Lean Etch is a trademark, and 200 Lean® is a registered 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 growth of its Imaging Instrumentation business and success of the CDS acquisition, expected shipment of Lean Etch evaluation tools 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 increase Imaging Instrumentation revenues, manage operating expenses or ship Lean Etch systems, 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)

                           3 months ended          9 months ended
                       ----------------------- -----------------------
                       Sept. 29,   Sept. 30,    Sept 29,   Sept. 30,
                           2007        2006        2007        2006
                       ----------- ----------- ----------- -----------
                       (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net revenues
  Equipment               $44,920     $51,625    $185,885    $155,663
  Imaging                   5,684       3,204      13,198       8,328
                       ----------- ----------- ----------- -----------
    Total net revenues    $50,604     $54,829    $199,083    $163,991

Gross profit               24,615      23,280      88,224      61,848
Gross margin
  Equipment                  48.9%       42.5%       44.6%       38.0%
  Imaging                    44.5%       41.1%       40.8%       31.6%
                       ----------- ----------- ----------- -----------
    Consolidated             48.6%       42.5%       44.3%       37.7%

Operating expenses
  Research and
   development              9,437       8,571      31,277      20,422
  Selling, general and
   administrative           7,062       5,565      22,414      15,683
                       ----------- ----------------------- -----------
    Total operating
     expenses              16,499      14,136      53,691      36,105

Operating
 income/(loss)
  Equipment Products        8,477       9,833      39,308      29,287
  Imaging                      35        (673)     (3,080)     (3,701)
  Corporate                  (396)        (16)     (1,695)        157
                       ----------- ----------- ----------- -----------
    Total operating
     profit                 8,116       9,144      34,533      25,743

Other income                1,797       1,113       4,655       2,440
                       ----------- ----------- ----------- -----------
Profit before
 provision for income
 taxes                      9,913      10,257      39,188      28,183
  Provision for income
   taxes                    1,549       1,244       9,427       2,826
                       ----------- ----------- ----------- -----------
Net income                $ 8,364     $ 9,013    $ 29,761    $ 25,357
                       =========== =========== =========== ===========

Income per share
 Basic                    $  0.39     $  0.43    $   1.39    $   1.21
 Diluted                  $  0.38     $  0.41    $   1.34    $   1.16
Weighted average
 common shares
 outstanding
  Basic                    21,519      21,082      21,403      20,967
  Diluted                  22,130      21,889      22,155      21,888
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

ASSETS                                         Sept. 29,    Dec. 31,
                                                   2007        2006
                                               ----------- -----------
                                               (Unaudited)
Current assets
  Cash, cash equivalents and short term
   investments                                    $132,902    $ 95,035
  Accounts receivable, net                          18,553      39,927
  Inventories                                       16,394      37,942
  Deferred tax assets                                4,100       3,269
  Prepaid expenses and other current assets          2,099       2,506
                                               ----------- -----------
    Total current assets                           174,048     178,679

Long term investments                               14,000       8,000
Property, plant and equipment, net                  14,929      13,546
Investment in 601 California Avenue LLC              2,431       2,431
Deferred tax assets                                  1,312       1,312
Goodwill                                             5,434           -
Other long-term assets                               2,243       2,035
                                               ----------- -----------
    Total assets                                  $214,397    $206,003
                                               =========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
  Notes payable                                   $  1,968           -
  Accounts payable                                   5,468    $ 15,994
  Accrued payroll and related liabilities            9,238      11,769
  Other accrued liabilities                          5,868       6,612
  Customer advances                                  6,017      26,243
                                               ----------- -----------
    Total current liabilities                       28,559      60,618

Other long-term liabilities                          2,497       1,075
Shareholders' equity
  Common stock                                     103,085      99,468
  Paid in Capital                                   12,880       7,319
  Accumulated other comprehensive income               446         354
  Retained earnings                                 66,930      37,169
                                               ----------- -----------
    Total shareholders' equity                     183,341     144,310
                                               ----------- -----------
    Total liabilities and shareholders' equity    $214,397    $206,003
                                               =========== ===========
  SUPPLEMENTAL INFORMATION REGARDING IMPACT OF THE ADOPTION OF SFAS
                                123(R)
               (In Thousands, except per share amounts)
                             (Unaudited)

The effect of recording stock-based compensation for the three- and
 none-month periods ended September 29, 2007 and September 30, 2006
 were as follows:


                               Three Months Ended   Nine Months Ended
                               ------------------- -------------------
                               Sept. 29, Sept. 30, Sept. 29, Sept. 30,
                                 2007       2006     2007      2006
Stock-based compensation by
 type of award:
   Stock options                 $1,677     $ 791    $3,991    $1,687
   Employee Stock Purchase
    Plan                            191       148       619       432
Amounts capitalized as
 inventory                          (32)      (61)     (105)      (85)
                               --------- --------- --------- ---------
Total stock-based compensation    1,836       878     4,505     2,034
Tax effect on stock-based
 compensation                       285       106     1,081       203
                               --------- --------- --------- ---------
Net effect on net income         $1,551     $ 772    $3,424    $1,831
                               ========= ========= ========= =========

Effect on earnings per share:
  Basic                          $ 0.07     $0.04    $ 0.16    $ 0.09
  Diluted                        $ 0.07     $0.04    $ 0.15    $ 0.08

Approximately $105,000 and $85,000 of stock-based compensation was
 capitalized in inventory at September 29, 2007 and September 30,
 2006, respectively.

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

SOURCE: Intevac, Inc.