UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM10-Q

(MARK ONE)

For the quarterly period ended September 30, 2017March 28, 2020

OR

For the transition period fromto

Commission file number0-26946

INTEVAC, INC.

(Exact name of registrant as specified in its charter)

3560 Bassett Street

Santa Clara, California 95054

(Address of principal executive office, including Zip Code)

Registrant’s telephone number, including area code: (408)986-9888

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging“emerging growth companycompany” inRule 12b-2 of the Exchange Act. (Check one):Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act).    ☐  Yes    ☒  No

On October 31, 2017, 21,789,007April 28, 2020, 23,489,111 shares of the Registrant’s Common Stock, $0.001 par value, were outstanding.

INTEVAC, INC.

INDEX

PART I. FINANCIAL INFORMATION

INTEVAC, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Note: Amounts as of December 31, 201628, 2019 are derived from the December 31, 201628, 2019 audited consolidated financial statements.

See accompanying notes to the condensed consolidated financial statements.notes.

INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to the condensed consolidated financial statements.notes.

INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS

See accompanying notes to the condensed consolidated financial statements.notes.

INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to the condensed consolidated financial statements.notes.

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Intevac, Inc. (together with its subsidiaries “Intevac,” the “Company” or “we”) 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. The Company leverages its core capabilities in high-volume manufacturing of small substrates to provide process manufacturing equipment solutions to the hard disk drive (“HDD”), display cover panel (“DCP”), and photovoltaic (“PV”) solar cell industries. Intevac also provides sensors, cameras and systems for government applications such as night vision. 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. Intevac reports two segments: Thin-film Equipment (“TFE”) and Photonics.

In the opinion of management, the unaudited interim condensed consolidated financial statements of Intevac Inc. and its subsidiaries (“Intevac” or the “Company”) included herein have been prepared on a basis consistent with the December 31, 201628, 2019 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments, necessary to fairly present the information set forth therein. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Intevac’s Annual Report on Form10-K for the fiscal year ended December 31, 2016 (“2016 Form10-K”). Intevac’s results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of future operating results.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.

In March 2020, the World Health Organization characterized the coronavirus(“COVID-19”) a pandemic, and the President of the United States declared theCOVID-19 outbreak a national emergency. The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy. In view of the rapidly changing business environment, unprecedented market volatility and heightened degree of uncertainty resulting fromCOVID-19, we are currently unable to fully determine its future impact on our business. However, we are monitoring the progression of the pandemic and its potential effect on our financial position, results of operations, and cash flows. On April 27, 2020, the Singapore government directed us to suspend all on-site activities at our factory in Singapore until further notice. For further discussion, please see below under “Note 16. Subsequent Events.”

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2017-09,Compensation—Stock Compensation: ScopeThe following tables represent a disaggregation of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity will accountrevenue from contracts with customers for the effects of a modification unlessthree months ended March 28, 2020 and March 30, 2019 along with the fair value of the modified award is the same as the original award, the vesting conditions of the modified award are the same as the original awardreportable segment for each category.

Major Products and the classification of the modified award as an equity instrument or liability instrument is the same as the original award. This update becomes effective and will be adopted by Intevac in the first quarter of fiscal 2019. The update is to be adopted prospectively to an award modified on or after the adoption date. Early adoption is permitted. Intevac does not expect the adoption of this update to have a material impact on its consolidated financial statements.Service Lines

In March 2017, the FASB issued ASU2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20): Premium Amortization on Purchased Callable Debt Securities. ASU2017-08 amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. This update becomes effective and will be adopted by Intevac in the first quarter of fiscal 2019. Intevac does not expect the adoption of this update to have a material impact on its consolidated financial statements.

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Primary Geographical Markets

InTiming of Revenue Recognition

The following table reflects the changes in our contract assets, which we classify as accounts receivable, unbilled or retainage, and our contract liabilities, which we classify as deferred revenue and customer advances, for the three months ended March 2016, the FASB issued ASU2016-09Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. We have adopted these amendments beginning28 2020.

Accounts receivable, unbilled in the first quarter of 2017. Starting in the first quarter of fiscal 2017, stock-based compensation excess tax benefits or deficiencies are reflected in the Condensed Consolidated Statements of Operations asour TFE segment represents a component of the provisioncontract asset for income taxes, whereas they previously wererevenue that has been recognized in equity. Additionally, our Condensed Consolidated Statementsadvance of Cash Flows now presents excess tax benefits as an operating activity. Finally, we have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The net cumulative effect of this change was recognized as a $1.1 million charge to the accumulated deficit as of January 1, 2017.

In May 2014, the FASB issued ASU2014-09(Topic 606) Revenue from Contracts with Customers. Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, “Revenue Recognition”, and requires entities to recognize revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We expect revenue recognition for our equipment sales arrangements, which includes systems, technology upgrades, service and spare parts, to remain materially consistent with our historical practice.

We expect to 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. Our contracts with customers may include multiple performance obligations. For such arrangements, we expect to allocate revenue 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 using expected cost plus margin. The expected costs associated with our base warranties will continue to be recognized as expense when the equipment is sold.

We expect to recognize revenue for cost plus fixed fee and firm fixed priced government contracts over time under thecost-to-cost method for the majority of our government contracts, which is consistent with our current revenue recognition model. Revenue on the majority of our government contracts will continue to be recognized over time because of the continuous transfer of control tobilling the customer. For U.S. government contracts, this continuous transferour system and certain upgrade sales, our TFE customers generally pay in three installments, with a portion of control to the customer is supported by clauses insystem price billed upon receipt of an order, a portion of the contract that allowprice billed upon shipment, and the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. Similarly, fornon-U.S. government contracts, the customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment for work performed to date to deliver products or services that do not have an alternative use to the company. Under the new standard, thecost-to-cost measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as we incur costs.

The new standard must be adopted by Intevac in our fiscal year beginning December 31, 2017. We intend to adopt the new standard as of December 31, 2017, using the modified retrospective transition method applied to those contracts which were not completed as of that date. Upon adoption, we will recognize the cumulative effect of adopting this guidance as an adjustment to our opening balance of the accumulated deficit. Prior periods will not be retrospectively adjusted. Based on our preliminary assessment, we expectprice due upon completion of installation and acceptance of the adoption of Topic 606 will not have a material impact to our consolidated financial statements, includingsystem at the presentation of revenuescustomer’s factory. Accounts receivable, unbilled in our Consolidated StatementsTFE segment generally represents the balance of Operations. We also do not expect the standard to have a material impact on our Consolidated Balance Sheet. The immaterial impact primarily relates to reclassifications among financial statement accounts to align withsystem price that is due upon completion of installation and acceptance less, the new standard. Most notably, contracts in process, net will be reclassifiedamount that has been deferred as receivables orrevenue for the performance of the installation tasks. During the three months ended March 28, 2020, contract assets based on amounts billed or unbilled, respectively. Advance paymentsin our TFE segment decreased by $760,000 primarily due to the recognition of revenue for the installation portion of revenue for two systems that completed installation and billings in excess of costs incurred and deferred revenue will be combined and reclassified as contract liabilities. Our contract balances will be reported in a net contract asset or liability position on acontract-by-contract basis atacceptance during the end of each reporting period.quarter.

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Customer advances in our TFE segment generally represent a contract liability for amounts billed to the customer prior to transferring goods. The Company has elected to use the practical expedient to disregard the effect of the time value of money in a significant financing component when its payment terms are less than one year. These contract advances are liquidated when revenue is recognized. Deferred revenue in our TFE segment generally represents a contract liability for amounts billed to a customer for completed systems at the customer site that are undergoing installation and acceptance testing where transfer of control has not yet occurred as Intevac does not yet have a demonstrated history of meeting the acceptance criteria upon the customer’s receipt of product. During the three months ended March 28, 2020, we recognized revenue in our TFE segment of $155,000 and $21,000 that was included in customer advances and deferred revenue, respectively, at the beginning of the period.

Accounts receivable, unbilled in our Photonics segment represents a contract asset for revenue that has been recognized in advance of billing the customer, which is common for contracts in the defense industry. In our Photonics segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly) or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. Our contracts with the U.S. government may also contain retainage provisions. Retainage represents a contract asset for the portion of the contract price earned by us for work performed, but held for payment by the U.S. government as a form of security until satisfactory completion of the contract. The retainage is billable upon completion of the contract performance and approval of final indirect expense rates by the government. During the three months ended March 28, 2020, contract assets in our Photonics segment increased by $3.0 million primarily due to the accrual of revenue for incurred costs under FFP and CPFF contracts.

On March 28, 2020 we had $87.2 million of remaining performance obligations, which we also refer to as total backlog. Backlog at March 28, 2020 consisted of $22.4 million of TFE backlog and $64.8 million of Photonics backlog. We expect to recognize approximately 59% of our remaining performance obligations as revenue in 2020, 21% in 2021, 13% in 2022 and 7% in 2023.

Inventories are stated at the lower of average cost or marketnet realizable value and consist of the following:

Finished goods inventory consists primarily of completed systems that are undergoing installationat March 28, 2020 and acceptance testing.at December 28, 2019 included one VERTEX SPECTRA system for DCP under evaluation at a customer’s factory and one MATRIX PVD system for advanced semiconductor packaging under evaluation at a customer’s factory.

At September 30, 2017,March 28, 2020, Intevac had equity-based awards outstanding under the 2012 Equity Incentive Plan and the 2004 Equity Incentive Plan (together, the “Plans”) and the 2003 Employee Stock Purchase Plan (the “ESPP”). Intevac’s stockholders approved all of these plans. The Plans permit the grant of incentive ornon-statutory stock options, restricted stock, stock appreciation rights, restricted stock units (“RSUs”) and performance shares.

The ESPP provides that eligible employees may purchase Intevac’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value at the entry date of the applicable offering period or at the end of each applicable purchase interval. Offering periods are generally two years in length, and consist of a series ofsix-month purchase intervals. Eligible employees may join the ESPP at the beginning of anysix-month purchase interval. Under the terms of the ESPP, employees can choose to have up to 15% of their base earnings withheld to purchase Intevac common stock.

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Compensation Expense

The effect of recording equity-based compensation for the threethree-month periods ended March 28, 2020 and nine months ended SeptemberMarch 30, 2017 and October 1, 20162019 was as follows:

Equity-based compensation expense is based on awards ultimately expected to vest and such amount has been historically reduced for estimated forfeitures. Beginning January 1, 2017, Intevac accounts for forfeitures as they occur, rather than estimating expected forfeitures. The net cumulative effect of this change was recognized as a $1.1 million increase to the accumulated deficit as of January 1, 2017.

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Stock Options and ESPP

The fair value of stock options and ESPP awards is estimated at the grant date using the Black-Scholes option valuation model. The determination of fair value of stock options and ESPP awards on the date of grant using an option-pricing model is affected by Intevac’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual employee stock option exercise behavior.

Option activity as of September 30, 2017March 28, 2020 and changes during the ninethree months ended September 30, 2017March 28, 2020 were as follows:

Intevac issued 405,659189,833 shares of common stock under the ESPP during the ninethree months ended September 30, 2017.March 28, 2020.

Intevac estimated the weighted-average fair value of stock options and employee stockESPP purchase rights using the following weighted-average assumptions:

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The computation of the expected volatility assumptions used in the Black-Scholes calculations for new stock option grants and employee stockESPP purchase rights is based on the historical volatility of Intevac’s stock price, measured over a period equal to the expected term of the stock option grant or purchase right. The risk-free interest rate is based on the yield available on U.S. Treasury Strips with an equivalent remaining term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the equity-based awards and vesting schedules. The expected term of purchase rights represents the period of time remaining in the current offering period. The dividend yield assumption is based on Intevac’s history of not paying dividends and the assumption of not paying dividends in the future. Intevac accounts for forfeitures as they occur, rather than by estimating expected forfeitures.

RSUs

A summary of the RSU activity is as follows:

Time-based RSUs are converted into shares of Intevac common stock upon vesting on aone-for-one basis. Time-based RSUs typically are scheduled to vest over three or four years. Vesting of time-based RSUs is subject to the grantee’s continued service with Intevac. The compensation expense related to these awards is determined using the fair market value of Intevac common stock on the date of the grant, and the compensation expense is recognized over the vesting period.

Market condition-based RSUs vest upon

Details of finite-lived intangible assets by segment as of March 28, 2020, are as follows:

Total amortization expense of finite-lived intangibles for the achievementthree months ended March 28, 2020 was $154,000.

As of certain market conditions (our stock performance) during a set performance period (typically five years) subject to the grantee’s continued service with Intevac through the date the applicable market condition is achieved. The fair value is based on the values calculated under the Monte Carlo simulation model on the grant date. Compensation cost is not adjusted inMarch 28, 2020, future periods for subsequent changes in the expected outcome of market related conditions. The compensationamortization expense is recognized over the derived service period. We granted 125,000 of such awardsexpected to certain executive officers in the nine months ended October 1, 2016. These awards have a derived service period of 2.8 years.

Intevac estimated the weighted-average fair value of market condition-based RSUs using the following weighted-average assumptions:be as follows:

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

In fiscal 2016, the annual bonus for certain participants in the Company’s annual incentive plan was settled with RSUs with one year vesting. The Company accrued for the payment of bonuses at the expected company-wide payout percentage amount at October 1, 2016, which amounts were less than the target bonus amounts for each participant. The bonus accrual was classified as a liability until the number of shares was determined on the date the awards were granted, at which time the Company classified the awards into equity. In February 2017, the annual 2016 bonus for certain participants was settled with RSUs withone-year vesting. 33 participants were granted stock awards to receive an aggregate of 134,000 shares of common stock with a weighted average grant date fair value of $9.63 per share. In February 2016, the annual 2015 bonus for certain participants was settled with RSUs with one year vesting. 34 participants were granted stock awards to receive an aggregate of 266,000 shares of common stock with a weighted average grant date fair value of $4.40 per share. The Company recorded equity-based compensation expense related to the annual incentive plans of $102,000 for the nine months ended September 30, 2017. The Company recorded equity-based compensation expense related to the annual incentive plan of $120,000 and $364,000, respectively, for the three and nine months ended October 1, 2016.

Details of finite-lived intangible assets by segment as of September 30, 2017 are as follows.

Total amortization expense of finite-lived intangibles for the three and nine months ended September 30, 2017 was $169,000 and $596,000, respectively.

As of September 30, 2017, future amortization expense is expected to be as follows.

In connection with the acquisition of Solar Implant Technologies, Inc. (“SIT”), Intevac agreed to pay to the selling shareholders in cash a revenue earnout on Intevac’s net revenuerevenues from commercial sales of certain products over a specified period up to an aggregate of $9.0 million. Intevac estimated the fair value of thisThe earnout period terminated on June 30, 2019. There is no remaining contingent consideration on September 30, 2017 based on probability-based forecasted revenues reflecting Intevac’s own assumptions concerning future revenue from such products.

The fair value measurement of contingent consideration is based on significant inputs not observed inobligation associated with the market and thus represents a Level 3 measurement. Any change in fair value of the contingent consideration subsequent to the acquisition date is recognized in income (loss) from operations within the condensed consolidated statement of operations.earnout agreement at March 28, 2020. The following table represents a reconciliation of the change in the fair value measurement of the contingent consideration liability for the three and nine month periodsthree-month period ended SeptemberMarch 30, 2017 and October 1, 2016:

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The following table displays the balance sheet classification of the contingent consideration liability account at September 30, 2017 and at December 31, 2016:

The following table represents the quantitative range of the significant unobservable inputs used in the calculation of fair value of the continent consideration liability as of September 30, 2017. Significant increases or decreases in any of these inputs in isolation would result in a significantly lower or higher fair value measurement.

Intevac provides for the estimated cost of warranty when revenue is recognized. Intevac’s warranty is persubject to contract terms and, for its diskHDD manufacturing, solar photovoltaic (“PV”)DCP manufacturing and display cover panel (“DCP”)solar cell manufacturing systems, the warranty typically ranges between 12 and 24 months from customer acceptance. During this warranty period any defectivenon-consumable parts are replaced and installed at no charge to the customer. Intevac uses estimated repair or replacement costs along with its historical warranty experience to determine its warranty obligation. Intevac generally provides a twelve month warranty on its Photonics products. The provision for the estimated future costs of warranty is based upon historical cost and product performance experience. Intevac exercises judgment in determining the underlying estimates.

On the condensed consolidated balance sheets, the short-term portion of the warranty provision is included in other accrued liabilities, while the long-term portion is included in other long-term liabilities. The expense associated with product warranties issued or adjusted is included in cost of net revenues on the condensed consolidated statements of operations.

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The following table displays the activity in the warranty provision account for the threethree-month periods ended March 28, 2020 and nine months ended SeptemberMarch 30, 2017 and October 1, 2016:2019.

The following table displays the balance sheet classification of the warranty provision account at September 30, 2017March 28, 2020 and at December 31, 2016:28, 2019.

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Officer and Director Indemnifications

As permitted or required under Delaware law and to the maximum extent allowable under that law, Intevac has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was, serving at Intevac’s request in such capacity. These indemnification obligations are valid as long as the director or officer acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The maximum potential amount of future payments Intevac could be required to make under these indemnification obligations is unlimited; however, Intevac has a director and officer insurance policy that mitigates Intevac’s exposure and enables Intevac to recover a portion of any future amounts paid. As a result of Intevac’s insurance policy coverage, Intevac believes the estimated fair value of these indemnification obligations is not material.

Other Indemnifications

As is customary in Intevac’s industry, many of Intevac’s contracts provide remedies to certain third parties such as defense, settlement, or payment of judgments for intellectual property claims related to the use of its products. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been immaterial.

Letters of Credit

As of September 30, 2017,March 28, 2020, we had letters of credit and bank guarantees outstanding totaling $1.4 million,$787,000, including athe standby letter of credit outstanding under the Santa Clara, California facility lease and various other guarantees with our bank. These letters of credit and bank guarantees are collateralized by $1.4 million$787,000 of restricted cash.

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Cash and cash equivalents, short-term investments and long-term investments consist of: