INTEVAC, INC. This
Quarterly
Report on Form 10-Q contains forward-looking statements, which involve risks and uncertainties. Words such as "believes," "expects," "anticipates" and the like indicate forward-looking statements. These forward-looking statements include comments related toIntevac's expected shipments, revenue recognition, product costs, gross margin, operating expenses, interest income, income taxes, cash balances and financial results in 2020 and beyond; projected customer requirements forIntevac's new and existing products, and when, and if,Intevac's customers will place orders for these products;Intevac's ability to proliferate its Photonics technology into major military programs and to develop and introduce commercial imaging products; the timing of delivery and/or acceptance of the systems and products that compriseIntevac's backlog for revenue and the Company's ability to achieve cost savings.Intevac's actual results may differ materially from the results discussed in the forward-looking statements for a variety of reasons, including those set forth under "Risk Factors" and in other documents we file from time to time with theSecurities and Exchange Commission , including our Annual Report on Form 10-K filed onFebruary 12, 2020 , and our periodic reports on Form 10-Q and current reports on Form 8-K.Intevac's trademarks include the following: "200 Lean ® ," "DiamondClad ® ," "DIAMOND DOG ® ," "EBAPS ® ," "ENERG i ® ," "LIVAR ® ," "INTEVAC LSMA ® ," "INTEVAC MATRIX ® ," "MicroVista ® ," "NightVista ® ," "oDLC ® ," "INTEVAC VERTEX ® ," "VERTEX Marathon ® ," and "VERTEX SPECTRA ® ." OverviewIntevac 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 theU.S. government and its agencies, allies and contractors.Intevac reports two segments: Thin-film Equipment ("TFE") and Photonics. Product development and manufacturing activities occur inNorth America andAsia .Intevac has field offices inAsia to support its TFE customers.Intevac's products are highly technical and are sold primarily throughIntevac's direct sales force.Intevac also sells its products through distributors inJapan andChina .Intevac's results are driven by a number of factors including success in its equipment growth initiatives in the DCP and solar markets and by worldwide demand for HDDs. Demand for HDDs depends on the growth in digital data creation and storage, the rate of areal density improvements, and the end-user demand for PCs, enterprise data storage, nearline "cloud" applications, video players and video game consoles that include such drives.Intevac continues to execute its strategy of equipment diversification into new markets by introducing new products, such as for a thin-film physical vapor deposition ("PVD") application for protective coating for DCP manufacturing and a thin-film PVD application for PV solar cell manufacturing.Intevac believes that expansion into these markets will result in incremental equipment revenues forIntevac and decreaseIntevac's dependence on the HDD industry.Intevac's equipment business is subject to cyclical industry conditions, as demand for manufacturing equipment and services can change depending on supply and demand for HDDs, cell phones and PV cells, as well as other factors such as global economic conditions and technological advances in fabrication processes. The following table presents certain significant measurements for the three and nine months endedSeptember 26, 2020 andSeptember 28, 2019 : Three months ended Nine months ended Change over September 26, September 28, September 26, September 28, Change over 2020 2019 prior period 2020 2019 prior period (In thousands, except percentages and per share amounts) Net revenues$ 21,565 $ 26,299 $ (4,734 ) $ 69,248 $ 73,441 $ (4,193 ) Gross profit $ 9,300 $ 8,778 $ 522$ 28,876 $ 24,375 $ 4,501 Gross margin percent 43.1 % 33.4 % 9.7 points 41.7 % 33.2 % 8.5 points Income (loss) from operations $ (148 ) $ (433 ) $ 285 $ 856$ (3,358 ) $ 4,214 Net loss $ (357 ) $ (480 ) $ 123 $ (57 )$ (4,054 ) $ 3,997 Net loss per diluted share $ (0.02 ) $ (0.02 )$ 0.00 $ (0.00 ) $ (0.18 )$ 0.18 25
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Net revenues for the third quarter of fiscal 2020 decreased compared to the same
period in the prior year primarily due to lower equipment sales to PV
manufacturers, offset in part by higher equipment sales to HDD manufacturers,
higher Photonics product sales and higher Photonics contract research and
development ("R&D"). TFE did not recognize revenue on any systems in the third
quarter of fiscal 2020. TFE recognized revenue on five ENERG
i
solar ion implant systems in the third quarter of fiscal 2019. During the third
quarter of fiscal 2020, the Company received $124,000 in government assistance
related to
COVID-19
from the government of Singapore of which $72,000 was reported as a reduction of
cost of net revenues, $20,000 was reported as a reduction of R&D expenses and
$32,000 was reported as a reduction of selling, general and administrative
expenses. The Company reported a smaller net loss for the third quarter of
fiscal 2020 compared to the third quarter of 2019 due to higher gross profit,
offset in part by lower revenues and higher spending on R&D and selling, general
and administrative expenses.
Net revenues for the first nine months of fiscal 2020 decreased compared to the
same period in the prior year primarily due to lower equipment sales to PV
manufacturers and lower equipment sales to HDD manufacturers, offset in part by
higher Photonics product sales and higher Photonics contract R&D. TFE recognized
revenue in the first nine months of fiscal 2020 on two 200 Lean
HDD systems compared to two 200 Lean
HDD systems and nine ENERG
i
solar ion implant systems in the first nine months of fiscal 2019. During the
nine months of fiscal 2020, the Company received $434,000 in government
assistance related to
COVID-19
from the government of Singapore of which $252,000 was reported as a reduction
of cost of net revenues, $68,000 was reported as a reduction of R&D expenses and
$114,000 was reported as a reduction of selling, general and administrative
expenses. The Company reported a smaller net loss for first nine months of
fiscal 2020 compared to first nine months of fiscal 2019 due to higher gross
profit and lower spending on R&D, offset in part by lower revenues and higher
selling, general and administrative expenses.
Intevac expects that HDD equipment sales for 2020 will be down from 2019 levels
as an HDD manufacturer took delivery of the two remaining 200 Lean HDD systems
in backlog. In 2020, Intevac expects lower sales of new TFE products as we
expect delays in orders and revenue recognition for both our VERTEX system and
solar ion implant ENERGi system. We expect these delays in orders and revenue
recognition for our TFE products will continue into 2021. Both evaluation
systems at customer factories are expected to be recognized as revenue in 2021.
In 2020, we expect increased product revenue in Photonics as we continue to
deliver product shipments of the Apache camera and the night-vision camera
modules for the F35 Joint Strike Fighter ("JSF") program. In 2020, we expect
increased contract R&D revenue as development work continues on the multi-year
IVAS contract award for the development and production of digital night-vision
cameras to support the U.S. Army's IVAS program. For fiscal 2020, Intevac
expects that Photonics profits will be higher than for fiscal 2019 as Photonics
results will reflect higher revenue levels.
The Impact of
COVID-19
We are unable to accurately predict the possible future effect of the
COVID-19
outbreak on the Company, which could be material to our 2020 results. Our
customers may delay or cancel orders due to reduced demand, supply chain
disruptions and/or travel restrictions and border closures. As the economic
impact of the
COVID-19
pandemic becomes more clear as the year progresses, we could see significant
changes to our operations. Our factories in California and Singapore remain open
as both TFE and Photonics businesses are within the critical infrastructure
sectors. We have experienced pandemic-related delays in our TFE evaluation and
development work. In response to
COVID-19,
we have implemented initiatives to safeguard our employees in this time of
crisis. We have implemented work-from-home protocols and all employees that can
do so are working remotely and will continue to do so until restrictions are
lifted by the applicable authorities in the United States , Singapore and China .
The Company has been providing a
bi-weekly
update to its Board of Directors highlighting the impacts of
COVID-19
on its employees, business and financial condition. The following discussion
highlights how we are responding and the expected impacts of
COVID-19
on our business.
Essential Business
The Company's priorities during the
COVID-19
pandemic have been to protect the health and safety of employees while keeping
its manufacturing facilities open due to the essential nature of our products.
Our factories in California and Singapore remain open as both TFE and Photonics
businesses are within critical infrastructure sectors that are exempt from
government-mandated closures.
On March 16, 2020 , multiple counties in the San Francisco Bay Area of California
issued a
"shelter-in-place"
order (the "State Order") requiring businesses to temporarily cease operations,
effective March 17, 2020 . The State Order provides that Californians working
within 16 identified critical infrastructure sectors may continue with their
work because of the importance of these sectors to Californians' health and
well-being. Among the identified critical infrastructure sectors listed are
Communications and Information Technology ("IT") and the Defense Industrial Base
("DIB"). On March 20, 2020 , Intevac received a communication from the Department
of Defense stating that the DIB is identified as a Critical Infrastructure
Sector by the Department of Homeland Security , and that the Essential Critical
Infrastructure Workforce for the DIB includes workers who support the essential
products and services required to meet national security commitments to the
Federal Government and the U.S. Military.
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Our factory in Singapore was given notice by the Singapore government to suspend
all
on-site
activities on April 27, 2020 . We appealed this notice and were provided an
exemption on May 14, 2020 . We were temporarily required to limit the number of
employees on site at our Singapore factory, but these restrictions were lifted
on June 2, 2020 .
Employee Considerations
Our goal has been to support our employees during the present uncertainty while
remaining focused on meeting the needs of our customers and business continuity.
Early in the crisis, we provided employees with information about best practices
to prevent the spread of
COVID-19
and other viruses and illnesses. We instituted practices including symptom
checks and
non-contact
monitoring of body temperatures of those on site twice daily; requiring social
distancing and face coverings; streamlining onsite personnel to only those
required for production; strongly encouraging and, where mandated, requiring
remote work for all those who can work from home; and increasing hygiene through
disinfecting facilities. In addition, we have limited
in-person
meetings and
non-employee
visits to our locations, reduced room occupancies and eliminated
non-essential
business travel. In the United States , the Company has educated employees on
COVID-19-related
benefits (including leave benefits) under the Families First Coronavirus
Response Act ("FFCRA") and the CARES Act.
To further protect the health and welfare of our employees, we have also
required employees who potentially have been exposed to
COVID-19
to self-quarantine for 14 days and have committed to paying these employees
their normal wages during that quarantine period. To ease access to medical
assistance, we are waiving
co-payments
for
COVID-19
testing and telemedicine for those employees enrolled in our health insurance
plans.
Business Continuity Team
We have robust pandemic and business continuity plans that include our business
units and technology environments. When
COVID-19
was declared a pandemic, we activated our business continuity plan (the
"Continuity Plan"). As an element of the Continuity Plan, we activated our
Business Continuity Team ("BCT"), a group of senior corporate managers, who
directed a series of activities to address the health and safety of our
workforce, assist employees, sustain business operations, coordinate
communication and address our management concerning other ongoing pandemic
activities. The BCT monitors guidelines published by the Centers for Disease
Control and Prevention ("CDC"), the National Institutes of Health ("NIH"), the
Occupational Safety and Health Administration ("OSHA"), the World Health
Organization ("WHO") and other state and local authorities, makes assessments of
these guidelines and implements the appropriate protocols. The BCT established a
COVID-19 Policy and continually updates this policy based on the latest
guidance. All employees continuing to work on site were required to complete
training on the Company's COVID-19 policy and any employees returning to work at
our facilities are provided additional training prior to returning to work. The
BCT also updated and revised policies related to visitors and travel to include
COVID-19-related
health and safety measures related to the pandemic and updated the Continuity
Plan to include a pandemic response appendix.
Productivity
There has been a modest decline in productivity for certain departments as our
people adjust to this significant change in work environment. We currently
believe our technology infrastructure is sufficient to maintain a remote-working
environment for the vast majority of our workforce for the foreseeable future
and that productivity should improve as our people adjust to this significant
change in work environment. The productivity level and ability of our employees
to continue working from home could change, however, as conditions surrounding
COVID-19
evolve and infections increase, if there are interruptions in the internet
infrastructure where our employees live or if internet service providers are
otherwise adversely affected.
Community
We understand that the communities in which our employees live, work, and serve
are also suffering distress as a result of
COVID-19.
Intevac is committed to help source supplies for local healthcare providers
fighting
COVID-19,
and has donated all of its surplus N95 industrial masks and gloves to local
hospitals and emergency responders.
Economic Relief
In Singapore , Intevac receives government assistance under the Job Support
Scheme ("JSS"). The purpose of the JSS is to provide wage support to employers
to help them retain their local employees. Under the JSS, Intevac expects to
receive approximately $554,000 in JSS grants in fiscal 2020. During the three
and nine months ended September 26, 2020 , the Company received $124,000 and
$434,000 , respectively in JSS grants. As previously mentioned, under the CARES
Act we have elected to defer the payment of the employer portion of payroll
taxes and will receive tax benefits from the
employee-retention-tax
credit.
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For the three and nine months ended September 26, 2020 , the Company's expenses
included approximately $32,000 and $101,000 respectively due to costs related to
actions taken in response to
COVID-19.
Results of Operations
Net revenues
Three months ended Nine months ended
Change over Change over
September 26, September 28, September 26, September 28,
2020 2019 prior period 2020 2019 prior period
(In thousands)
TFE $ 9,367 $ 17,116 $ (7,749 ) $ 33,925 $ 49,325 $ (15,400 )
Photonics:
Contract R&D 6,538 5,209 1,329 17,659 13,476 4,183
Products 5,660 3,974 1,686 17,664 10,640 7,024
12,198 9,183 3,015 35,323 24,116 11,207
Total net revenues $ 21,565 $ 26,299 $ (4,734 ) $ 69,248 $ 73,441 $ (4,193 )
TFE revenue for the three months ended September 26, 2020 decreased compared to
the same period in the prior year as a result of lower sales of systems, offset
in part by higher sales of technology upgrades, service and spare parts. TFE
revenue for the three months ended September 26, 2020 did not include any
systems. TFE revenue for the three months ended September 28, 2019 included five
ENERG
i
solar ion implant systems. TFE revenue for the nine months ended September 26,
2020 decreased compared to the same period in the prior year as a result of
lower sales of systems and technology upgrades, offset in part by higher sales
of service and spare parts. TFE recognized revenue in the first nine months of
fiscal 2020 on two 200 Lean
HDD systems. TFE recognized revenue in the first nine months of fiscal 2019 on
two 200 Lean
HDD systems and nine ENERG
i
solar ion implant systems.
Photonics revenue for the three and nine months ended September 26, 2020
increased compared to the same periods in the prior year as a result of higher
product sales revenues and higher contract R&D work.
Backlog
September 26, December 28, September 28,
2020 2019 2019
(In thousands)
TFE $ 18,092 $ 21,391 $ 39,310
Photonics 45,159 71,015 76,123
Total backlog $ 63,251 $ 92,406 $ 115,433
TFE backlog at September 26, 2020 did not include any systems. TFE backlog at
December 28, 2019 included two 200 Lean HDD systems. TFE backlog at
September 28, 2019 included four 200 Lean HDD systems.
Revenue by geographic region
Three Months Ended Three Months Ended
September 26, 2020 September 28, 2019
(In thousands)
TFE Photonics Total TFE Photonics Total
United States $ 1,764 $ 12,079 $ 13,843 $ 478 $ 9,050 $ 9,528
Asia 7,536 - 7,536 16,638 - 16,638
Europe 67 119 186 - 133 133
Total net revenues $ 9,367 $ 12,198 $ 21,565 $ 17,116 $ 9,183 $ 26,299
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Nine Months Ended Nine Months Ended
September 26, 2020 September 28, 2019
(In thousands)
TFE Photonics Total TFE Photonics Total
United States $ 2,596 $ 35,060 $ 37,656 $ 995 $ 23,578 $ 24,573
Asia 31,262 - 31,262 48,330 - 48,330
Europe 67 263 330 - 538 538
Total net revenues
International sales include products shipped to overseas operations ofU.S. companies. The increase in sales to theU.S. region in the first nine months of fiscal 2020 versus the first nine months of fiscal 2019 reflected higher Photonics product sales and higher Photonics contract R&D work. The decrease in sales to theAsia region in the first nine months of fiscal 2020 versus the first nine months of fiscal 2019 reflected lower equipment sales to PV manufacturers and HDD manufacturers. Sales to theAsia region in the first nine months of fiscal 2020 included two 200 Lean HDD systems versus two 200 Lean HDD systems and nine ENERG i solar ion implant systems in the first nine months of fiscal 2019. Sales to theEurope region in the first nine months of fiscal 2020 and the first nine months of fiscal 2019 were not significant. Gross profit Three months ended Nine months ended Change over Change over September 26, September 28, September 26, September 28, 2020 2019 prior period 2020 2019 prior period (In thousands, except percentages) TFE gross profit $ 4,075 $ 4,825$ (750 ) $ 13,622 $ 15,958 $ (2,336 ) % of TFE net revenues 43.5 % 28.2 % 40.2 % 32.4 % Photonics gross profit $ 5,225 $ 3,953$ 1,272 $ 15,254 $ 8,417$ 6,837 % of Photonics net revenues 42.8 % 43.1 % 43.2 % 34.9 % Total gross profit $ 9,300 $ 8,778 $ 522$ 28,876 $ 24,375 $ 4,501 % of net revenues 43.1 % 33.4 % 41.7 % 33.2 % Cost of net revenues consists primarily of purchased materials and costs attributable to contract research and development, and also includes fabrication, assembly, test and installation labor and overhead, customer-specific engineering costs, warranty costs, royalties, provisions for inventory reserves and scrap. TFE gross margin was 43.5% in the three months endedSeptember 26, 2020 compared to 28.2% in the three months endedSeptember 28, 2019 and was 40.2% in the nine months endedSeptember 26, 2020 compared to 32.4% in the nine months endedSeptember 28, 2019 . Gross margin for the three and nine months endedSeptember 28, 2019 reflected the sale of lower margin ENERG i solar ion implant systems. Gross margins in the TFE business will vary depending on a number of factors, including product mix, product cost, system configuration and pricing, factory utilization, and provisions for excess and obsolete inventory. Photonics gross margin was 42.8% in the three months endedSeptember 26, 2020 compared to 43.1% in the three months endedSeptember 28, 2019 and was 43.2% in the nine months endedSeptember 26, 2020 compared to 34.9% in the nine months endedSeptember 28, 2019 . Gross margin for the three months endedSeptember 26, 2020 was flat versus the same period in the prior year. The improvement in gross margin for the nine months endedSeptember 26, 2020 was due to higher revenue levels and improved margins on both products and contract R&D work. Gross margins in the Photonics business will vary depending on a number of factors, including sensor yield, product mix, product cost, pricing, factory utilization, provisions for warranty and inventory reserves. 29 --------------------------------------------------------------------------------
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Research and development
Three months ended Nine months ended
Change over September 26, Change over
September 26, September 28, September 28,
2020 2019 prior period 2020 2019 prior period
(In thousands)
Research and development expense $ 3,603 $ 3,596
$ 7 $ 10,594 $ 11,013 $ (419 )
Research and development spending in TFE during the three months endedSeptember 26, 2020 decreased slightly compared to the same period in the prior year due to lower spending on DCP and HDD development, offset in part by higher spending on semiconductor Fan-out and PV development. Research and development spending in TFE during the nine months endedSeptember 26, 2020 decreased compared to the same period in the prior year due to lower spending on HDD, DCP and PV development, offset in part by higher spending on semiconductor Fan-out development. TFE spending consisted primarily of DCP, semiconductor Fan-out, HDD and PV development. Research and development spending increased in Photonics during the three and nine months endedSeptember 26, 2020 , as compared to the same period in the prior year, primarily related to higher spending on the development of the next generation of our low light level CMOS camera. Research and development spending decreased in Photonics during the nine months endedSeptember 26, 2020 , as compared to the same period in the prior year, primarily related to lower spending on the development of the next generation of our low light level CMOS camera. Research and development expenses do not include costs of$3.9 million and$10.4 million for the three and nine months endedSeptember 26, 2020 respectively, or$3.3 million and$9.3 million for the three and nine months endedSeptember 28, 2019 respectively, which are related to customer-funded Photonics contract R&D programs and therefore included in cost of net revenues. Selling, general and administrative Three months ended Nine months ended Change over September 26, Change over September 26, September 28, September 28, 2020 2019 prior period 2020 2019 prior period (In thousands) Selling, general and administrative expense $ 5,845 $ 5,615 $ 230$ 17,426 $ 16,720 $ 706 Selling, general and administrative expense consists primarily of selling, marketing, customer support, financial and management costs. Selling, general and administrative expenses for the three months endedSeptember 26, 2020 increased compared to the same period in the prior year primarily due to higher variable compensation expenses and incremental costs to launch our Diamond Dog e-commerce website. Selling, general and administrative expenses for the nine months endedSeptember 26, 2020 increased compared to the same period in the prior year primarily due to higher variable compensation expenses and incremental e-commerce costs, offset in part due to lower spending to support a customer evaluation. Cost reduction plan During the third quarter of fiscal 2020,Intevac substantially completed implementation of the 2020 cost reduction plan (the "Cost Reduction Plan"), which was intended to reduce expenses and reduce its workforce by 1.0 percent. The total cost of implementing the Cost Reduction Plan was$103,000 of which$16,000 was reported under cost of net revenues and$87,000 was reported under operating expenses. Substantially all cash outlays in connection with the Cost Reduction Plan were completed in the third quarter of fiscal 2020. Implementation of the Cost Reduction Plan is expected to reduce salary, wages and other employee-related expenses by approximately$864,000 on an annual basis. Interest income and other income (expense), net Three months ended Nine months ended Change over September 28, Change over September 26, September 28, September 26, 2020 2019 prior period 2020 2019 prior period (In thousands) Interest income and other income (expense), net $ 8 $ 126 $ (118 ) $ 212 $ 448 $ (236 ) Interest income and other income (expense), net is comprised of interest income, foreign currency gains and losses, and other income and expense such as gains and losses on sales of fixed assets and earnout income from divestitures. 30 -------------------------------------------------------------------------------- Table of Contents Interest income and other income (expense), net in the three months endedSeptember 26, 2020 included$46,000 of interest income on investments and various other income of$3,000 , offset in part by$41,000 of foreign currency losses. Interest income and other income (expense), net in the nine months endedSeptember 26, 2020 included$247,000 of interest income on investments and various other income of$12,000 , offset in part by$47,000 of foreign currency losses. Interest income and other income (expense), net in the three months endedSeptember 28, 2019 included$143,000 of interest income on investments and various other income of$19,000 , offset in part by$36,000 of foreign currency losses. Interest income and other income (expense), net in the nine months endedSeptember 28, 2019 included$445,000 of interest income on investments,$20,000 of earnout income from a divestiture and various other income of$54,000 , offset in part by$71,000 of foreign currency losses. The decrease in interest income in the three and nine months endedSeptember 26, 2020 resulted from lower interest rates and lower invested balances compared to the same period in 2019. Provision for income taxes Three months ended Nine months ended Change over September 28, Change over September 26, September 28, September 26, 2020 2019 prior period 2020 2019 prior period (In thousands) Provision for income taxes $ 217 $ 173 $ 44 $ 1,125 $ 1,144 $ (19 )Intevac recorded income tax provisions of$217,000 and$1.1 million for the three and nine months endedSeptember 26, 2020 , respectively, and$173,000 and$1.1 million for the three and nine months endedSeptember 28, 2019 , respectively. The income tax provisions for these three and nine month periods are based upon estimates of annual income (loss), annual permanent differences and statutory tax rates in the various jurisdictions in whichIntevac operates. For the three and nine month periods endedSeptember 26, 2020 ,Intevac recorded income tax provisions on earnings of its international subsidiaries of$111,000 and$659,000 , respectively, and recorded$98,000 and$471,000 , respectively, for withholding taxes on royalties paid intothe United States fromIntevac's Singapore subsidiary as discrete items. For the three and nine month periods endedSeptember 28, 2019 ,Intevac recorded income tax provisions on earnings of its international subsidiaries of$48,000 and$611,000 respectively, and recorded$130,000 and$534,000 , respectively, for withholding taxes on royalties paid intothe United States fromIntevac's Singapore subsidiary as discrete items. For all periods presented,Intevac utilized net operating loss carry-forwards to offset the impact of the global intangible low-taxed income ("GILTI").Intevac's tax rate differs from the applicable statutory rates due primarily to establishment of a valuation allowance, utilization of deferred and current credits and the effect of permanent differences and adjustments of prior permanent differences.Intevac's future effective income tax rate depends on various factors, including the level ofIntevac's projected earnings, the geographic composition of worldwide earnings, tax regulations governing each region, net operating loss carry-forwards, availability of tax credits and the effectiveness ofIntevac's tax planning strategies. Management carefully monitors these factors and timely adjusts the effective income tax rate. Liquidity and Capital Resources AtSeptember 26, 2020 ,Intevac had$49.4 million in cash, cash equivalents, restricted cash and investments compared to$42.8 million atDecember 28, 2019 . During the first nine months of fiscal 2020, cash, cash equivalents, restricted cash and investments increased by$6.6 million due primarily to cash provided by operating activities and cash received from the sale ofIntevac common stock toIntevac's employees throughIntevac's employee benefit plans, offset in part by purchases of fixed assets, cash used for repurchases of common stock and tax payments for net share settlement. Cash, cash equivalents, restricted cash and investments consist of the following: September 26, December 28, 2020 2019 (In thousands) Cash and cash equivalents$ 27,245 $ 19,767 Restricted cash 787 787 Short-term investments 18,342 16,720 Long-term investments 3,074 5,537 Total cash, cash equivalents, restricted cash and investments$ 49,448 $ 42,811 31
-------------------------------------------------------------------------------- Table of Contents Operating activities generated cash of$7.8 million during the first nine months of fiscal 2020 and used cash of$1.1 million during the first nine months of 2019. Improved operating cash flow in the first nine months of fiscal 2020 was primarily a result of recognition of a smaller net loss and decreased investments in working capital during the first nine months of fiscal 2020. Accounts receivable totaled$23.2 million atSeptember 26, 2020 compared to$28.6 million atDecember 28, 2019 . Net inventories totaled$23.6 million atSeptember 26, 2020 compared to$24.9 million atDecember 28, 2019 . Net inventories atSeptember 26, 2020 andDecember 28, 2019 included one VERTEX SPECTRA system for DCP under evaluation in a customer's factory and one MATRIX PVD system for advance semiconductor packaging under evaluation in a customer's factory. Net inventories atSeptember 26, 2020 also included one VERTEX SPECTRA system for DCP atIntevac's factory. Accounts payable increased to$4.5 million atSeptember 26, 2020 from$4.2 million atDecember 28, 2019 due to increased manufacturing activities. Accrued payroll and related liabilities was$6.5 million at bothSeptember 26, 2020 andDecember 28, 2019 . Other accrued liabilities decreased to$2.3 million atSeptember 26, 2020 compared to$3.6 million atDecember 28, 2019 . Customer advances decreased from$4.0 million atDecember 28, 2019 to$1.1 million atSeptember 26, 2020 , primarily due the recognition of revenue offset in part by the recognition of new orders. Investing activities used cash of$1.5 million during the first nine months of fiscal 2020. Proceeds from sales net of purchases of investments totaled$879,000 . Capital expenditures for the nine months endedSeptember 26, 2020 were$2.3 million . Financing activities generated cash of$1.1 million in the first nine months of fiscal 2020. The sale ofIntevac common stock toIntevac's employees throughIntevac's employee benefit plans generated cash of$1.9 million . Tax payments related to the net share settlement of restricted stock units were$364,000 . Cash used to repurchase shares of common stock under the Company's stock repurchase program totaled$393,000 for the nine months endedSeptember 26, 2020 .Intevac's investment portfolio consists principally of investment grade money market mutual funds,U.S. Treasury and agency securities, certificates of deposit, commercial paper and corporate bonds.Intevac regularly monitors the credit risk in its investment portfolio and takes measures, which may include the sale of certain securities, to manage such risks in accordance with its investment policies. As ofSeptember 26, 2020 , approximately$14.3 million of cash and cash equivalents and$3.4 million of short term investments were domiciled in foreign tax jurisdictions.Intevac expects a significant portion of these funds to remain offshore in the short term. If the Company chose to repatriate these funds tothe United States , it would be required to accrue and pay additional taxes on any portion of the repatriation subject to foreign withholding taxes.Intevac believes that its existing cash, cash equivalents and investments will be sufficient to meet its cash requirements for the foreseeable future.Intevac intends to undertake approximately$1.0 million to$1.6 million in capital expenditures during the remainder of 2020. Off-Balance Sheet Arrangements Off-balance sheet firm commitments relating to outstanding letters of credit amounted to approximately$787,000 as ofSeptember 26, 2020 . These letters of credit and bank guarantees are collateralized by$787,000 of restricted cash. We do not maintain any other off-balance sheet arrangements, transactions, obligations, or other relationships that would be expected to have a material current or future effect on the consolidated financial statements. Critical Accounting Policies and Estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted inthe United States of America ("US GAAP") requires management to make judgments, assumptions and estimates that affect the amounts reported.Intevac's significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 ofIntevac's Annual Report on Form 10-K filed onFebruary 12, 2020 . Certain of these significant accounting policies are considered to be critical accounting policies, as defined below. A critical accounting policy is defined as one that is both material to the presentation ofIntevac's financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect onIntevac's financial conditions and results of operations. Specifically, critical accounting estimates have the following attributes: 1)Intevac is required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimatesIntevac could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect onIntevac's financial condition or results of operations. 32
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Table of Contents Estimates and assumptions about future events and their effects cannot be determined with certainty.Intevac bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and asIntevac's operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they become known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. Many of these uncertainties are discussed in the section below entitled "Risk Factors." Based on a critical assessment ofIntevac's accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes thatIntevac's consolidated financial statements are fairly stated in accordance with US GAAP, and provide a meaningful presentation ofIntevac's financial condition and results of operation. For a description of critical accounting policies that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year endedDecember 28, 2019 filed with theSEC onFebruary 12, 2020 . There have been no material changes to our critical accounting policies during the nine months endedSeptember 26, 2020 .
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