September 18, 2016 - 7:01pm EST by
2016 2017
Price: 6.04 EPS 0 0
Shares Out. (in M): 21 P/E 0 0
Market Cap (in $M): 126 P/FCF 0 0
Net Debt (in $M): -35 EBIT 0 0
TEV ($): 91 TEV/EBIT 0 0

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Intevac’s (IVAC) assets consist of two disparate businesses that historically have been unable to operate in sync, which has masked the intrinsic value of both industry leading businesses.  The two businesses have also been unable to leverage the recent strides because of the bloated cost structure that comes with the territory operating such a company, however real value will be realized for patient investors.  2016 will be a pivotal year as orders for capacity additions are realized in the new Thin-film Equipment growth initiatives and the successful execution of the next generation night-vision sensor which will expand the Photonics business opportunity pipeline.


IVAC’s business consists of two reportable segments, which each have $1B revenue opportunity.


  • Thin-film Equipment: IVAC is a leader in the design and development of high productivity, thin-film processing systems. The production proven platforms are designed for high-volume manufacturing of substrates with precise thin-film properties, such as the hard drive media, display cover panel (DCP)and solar photovoltaic markets, which are IVAC’s current markets.

    • It is no secret that the HDD business has been negatively impacted by declining PC units, caused by the proliferation of tablets and the transition to centralized storage and overall demand for PCs from consumers and corporations. However, IVAC believes that long-term demand for hard disks required for high capacity HDDs will increase, driven by growth in demand for digital storage, declining growth in areal density improvements and overall increase in IT spending to support the transition to cloud storage. Storage needs by 2020 will be ~2x 2015’s needs. IVAC estimates this to be a +$300MM revenue opportunity over the next 5 years.

    • IVAC’s display cover panel (DCP) products are found in products including smartphones, tablet, wearable devices, gaming systems and the trends in these products clearly favor IVAC’s DCP addressable market. The DCP products are a potential “wild-card” with biotech type returns in the event of a 25% adoption rate, which could possibly equate to a ~$500MM revenue opportunity through 2020. The specific DCP product with the most potential upside is Optical Diamond-like-Carbon “oDLC” this coating provides a hard protective layer which significantly improves the DCP’s resistance to scratches and breakage. Optical-grade DLC is the lowest cost anti scratch solution, 20x scratch resistance, 20% increased breakage resistance and 10x haze reduction. It is currently under evaluation with multiple top-tier manufacturers.

    • A solar cell (also called a PV cell) is a solid state device that converts the energy of sunlight directly into electricity. Assemblies of cells are used to make solar modules, also known as solar panels. Solar panels have broad-based end market applications for utility-scale solar farms; integrated building PV arrays for commercial, retail, and offices; residential rooftop; and for portable devices. Intevac offers products for wafer-based crystalline silicon (“c-Si”) solar cell manufacturing processes, the prevailing manufacturing process in the PV industry. Intevac’s products for the solar industry are specifically focused on cell designs with the highest energy conversion efficiency, which are based within the n-type monocrystalline portion of the market. IVAC currently has orders in backlog for the Matrix PVD and Matrix Implant with tier 1 customers. IVAC estimates this to be a $175MM revenue opportunity through 2020.


  • Photonics: IVAC is a leading developer of advanced high-sensitivity digital sensors, cameras and systems that primarily serve the defense industry. IVAC is the provider of integrated digital night vision imaging systems for the military. The photonics segment is subject to multi-year development cycles and extremely lumpy in nature and not to mention the dependence on funding of defense programs by the U.S government, which is erratic at best.

    • Photonics products primarily address the high performance military night vision market. IVAC’s products provide digital imagery in extremely low-light level conditions.

    • IVAC’s progress in photonics is +500 Apache cameras sold, +780 LIVAR (laser illuminated viewing and ranging) cameras sold. IVAC also has a high resolution camera in evaluation ISIE-4000 and the “digital night vision gold standard” ISIE-11

    • The program opportunity pipeline for night vision cameras is +$250MM, this includes drone and UAV opportunities.

    • The program opportunity pipeline for integrated night vision is +$325MM, this includes F-35 to full rate production of ~2700 baseline aircraft and high-resolution digital goggle.

    • The largest program opportunity pipeline for ground force photonics is +$400MM, this includes over 100K digital night vision monoculars and family of weapon sights applications. Also, the next-gen sensor upgrades expand the program opportunity pipeline to >$500MM up from $350MM.

IVAC’s 2015 Progress


  • In 2015 IVAC exceeded expectations for revenue, operating profitability and achieved a number of key milestones, demonstrating progress in their strategic growth objectives.

    • Revenue of $75.2MM was +15% over 2014; reflecting strong performance in the Thin-film Equipment business in a challenging environment for hard drive media equipment

    • Increased gross margins and lowered operating expenses, shrinking IVAC’s loss by more than half, limiting cash usage to $3.5MM for the year, net of cash used for share repurchase; completed a $18.5MM stock repurchase during the year, bringing the cumulative total to $28.5MM out of a $30MM plan

    • Cash flow from operations was positive for the first time since 2010

    • Exited 2015 ahead of plan to the return IVAC to sustainable profitability


IVAC’s Bloated Cost Structure


  • The VP’s of the two business units have the unenviable responsibility of absorbing, in our opinion an unnecessary cost structure. There are 10 listed executives for a company with a $91MM EV and FY 2015 revenue of $75.2MM.

    • CEO $1,070,818

    • CFO $452,580

    • Executive VP and GM: Photonics $492,430

    • Executive VP and GM: Thin Film $439,693

    • VP of Business Development $400,097

  • Hopefully, all of this overhead is needed for near term revenue wins or a serious restructuring needs to take place, starting with the CEO.

Insider ownership


  • Activist investor Matt Drapkin has been on the board for 2.7 years and owns 993K shares or 4.75% of the shares outstanding and has added to the position in recent months. Drapkin has built a resume of solid outcomes with another companies and disparate businesses.

    • EMKR:  12/2014 divested Space Photovoltaics (sound familiar?) for $150MM; 5/2015 $45MM tender and 8/2016 $1.50 dividend

    • TSYS: 2/2016 acquired by CMTL for $400MM

  • Chairman Norman Pond with a tenure of almost 26 years at IVAC owns 753K shares or 3.6% of the shares outstanding




  • To be a shareholder of IVAC it takes a great degree of confidence in their future.  However, we feel IVAC is now at a crossroads since reporting a six year high backlog of $50MM last quarter, which shows new product program progress. On a segment basis Photonics and Thin-film equipment each rose 9%, so strength is finally starting to balance.  A solid balance sheet of $35.4MM and a steady buyback mitigates downside risk why we wait for the future fruition.



I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


IVAC is now at a crossroads since reporting a six year high backlog of $50MM last quarter, which shows new product program progress. On a segment basis Photonics and Thin-film equipment each rose 9%, so strength is finally starting to balance.  A solid balance sheet of $35.4MM and a steady buyback mitigates downside risk why we wait for the future fruition.

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