Q3 2021 Intevac Inc Earnings Call
Our guidance ranges across the board with upside in revenue and gross margin that resulted in a smaller net loss than forecast.
Our revenue upside was primarily in our HDD business as our customers once again accelerated theyre up.
Great programs pulling in expected revenue from Q4.
This benefited our thin film equipment or <unk> gross margin profile for the quarter with photonics gross margin also surpassing our expectations.
These results combined with lower operating expenses reduced our net loss per share was <unk> 17 compared to guidance of around 25.
Included in our Q3 numbers was a $300000 restructuring charge in our <unk> business, which reduced expenses. During this period of limited new system sales, while continuing to maintain our ability to support the expected growth in our HDD business and technology development efforts and our.
<unk> growth initiatives.
To date in 2021, we are closely manage cash and maintained the strength of our balance sheet, achieving a net increase in total cash restricted cash and investments since year end 2020.
While 2021 has been an immensely challenging year in Q3, we continued to achieve momentum in each of our businesses and have confidence in a return to revenue growth in 2022.
[noise] into back for a small technology company has many moving pieces in our revenue stream <unk>.
Significant portions of our business are derived from new growth initiatives and development programs, each of which contained technical adoption timing and competitive risks.
In addition, our core HDD business has consolidated to essentially two large customers and their plans and timing had been historically fluid.
We strive to deliver to our stakeholders accurate and transparent information that best represents the current status of our business.
As of the day of our conference call.
As we have seen and will continue to see things change over the course of the quarter and the following is the state of our business as of today.
This afternoon I'll keep my prepared remarks relatively brief.
Dressing the questions or concerns that we believe are foremost in our stakeholders minds.
Namely the status of our strategic process with Greenhill.
The role of <unk> photonics in the Ipass program.
The growth trajectory of our HDD business and our expectations for achieving success in our tier three growth initiatives.
So I would begin with the review of these primary questions.
[noise] discuss expectations for a return to revenue growth in 2022, and provide an overview of our longer range forecast over the next three years.
Our strategic work to realize improved shareholder value with our advisor Greenhill has and continues to be active and progressing well.
While today, we are not in a position to provide a formal update I want to emphasize that we are working diligently in advancing this initiative and will provide a detailed update when it's appropriate to do so.
Yes.
Next moving to Ipass.
The key message I want to convey today is that we continue to be actively and strategically engaged on this program.
After being one of two suppliers down selected for production later in 2020.
Our last on our last call we shared the news that the initial deliveries of low light level Cmos image sensors for the program would be minimal and that these initial units would not be supplied by us.
As we addressed on our last call with respect to discussions around our Cmos cameras and supplier selection.
It was communicated to us that program uncertainty low committed volumes and cost of dual sourcing were the deciding factors not camera performance.
We addressed all the open technical issues and required new functionality and the cameras were shipped accepted and revenues.
Also on our last call we conveyed our concerns that there may be challenges and hurdles facing the overall program, which now have been substantiated and publicly communicated.
After soldier touch point for and the user Gerry activity in July to determine if the <unk> system was ready to go to operational testing there was little public information of the results and the outcomes.
In mid October the Army program Executive office of PEO soldier issued a press release regarding the status and timing of the <unk> program, which has been officially shifted right to allow for continued performance enhancement of the Ipass technology platform.
First unit equip timing has been reported to be rescheduled from the end of calendar 2021 to the end of the army fiscal 2022.
In parallel with the system testing there are a total of three programs underway targeted at enhancing the night vision performance of the Ipass headset and <unk> is the only digital night vision technology provider that has been awarded all three of the phase one development contracts.
The focus on improving the night vision camera performance of the <unk> system would indicate that the existing low light level Cmos technology may be inadequate to achieve the army is ultimate objective of ensuring our ground soldiers achieve overmatch in multi domain operations.
We believe that the camera development efforts underway with indicate that a more advanced higher performance solution is desired for the program and then <unk> proprietary and proven <unk> night vision technology is uniquely positioned to meet the night vision performance needs for the <unk> system.
We continue to be deeply engaged in the <unk> initiative and we expect the majority of our photonics contract R&D revenue in 2022 will be generated through programs focused on the enhancement and improvement of the Ipass headsets night vision performance.
Overall, we're forecasting revenue growth for our photonics business in 2022 with continued sequential growth in the years to follow <unk>.
Contributing to that growth forecast is our recently announced $16 million.
IQ contract for the Apache helicopter program.
And our longer range forecast for the Photonics business. Our current revenue outlook for the next three years is at least 40% higher than the revenue achieved in the prior three year period and includes an initial production ramp of night vision cameras from the <unk> program.
Turning now to our hard drive equipment business.
Conditions in the HDD industry remains strong.
Q3 industry demand was in line to slightly better than earlier expectations with flat to higher near line drive unit shipments and likely a new record in near line Exabyte shipments.
Importantly, our discussions with our HDD customers regarding their media capacity expansion plans have solidified in the third quarter after delaying for approximately a year.
At this time, we expect the order cycle and supportive of this multi year expansion to initiate towards the end of the current quarter.
Current planning to add capacity over the next three years has enabled us to update our HDD revenue forecast for the 2022 through 2024 timeframe.
Over the next three years, we expect our total HDD revenues to increase at least 40% over the three year period, we are now concluding.
Now turning to our <unk> growth initiatives.
Our vertex platform continued to undergo testing and evaluations in the third quarter.
Last quarter, we discussed the potential of announcing vertex orders before year end year end <unk>.
The current pace of our customers' evaluations coupled with the continued challenges in operating in China make decision timing more likely to push into 2022.
Success in our efforts here will enable us to establish expectations for the next three year time period and solidify our plans for this initiative.
And panel level fan out packaging applications within the semiconductor industry we.
We have witnessed increased customer activity in the initial planning of new manufacturing lines with the discussions now underway with multiple <unk> companies.
While we have always positioned this initiative as a longer term opportunity. We're encouraged to see this activity build in the back half of 2021.
When we look at the next three years, we continue to expect combined contributions of the vertex and matrix high productivity platforms and industries, including display cover panel solar photovoltaic and semiconductor packaging will add incremental revenue growth beyond the strong growth expected in HDD.
In photonics.
As we expect a number of questions regarding customer adoption will be answered in the near future. We plan to provide more details as to our forecast for these initiatives next quarter.
To sum up our key takeaways from this call first our strategic activity with Greenhill is active and progressing.
Second we are firmly engaged in the <unk> program and in total we expect photonics revenues to be up year over year in 2022 and for the next three years to be up at least 40% over the prior three years.
Further upside to this growth would be driven by the speed of and Ipass production rate.
Next we are encouraged by the resumption and solidification of media capacity expansion plans of our HDD customers, which we expect will result in strong growth in our HDD business in 2022 and for the next three years, we forecast our HDD revenues to also be up at least 40% over the prior three years.
And finally, we continue to make progress in our <unk> growth initiatives and expect traction expect traction in other industries will drive incremental growth above and beyond the strong growth trajectories for photonics in HDD.
And with that I'll now turn the call over to Jim.
Thank you Wendell turning to the third quarter results.
Consolidated third quarter revenues totaled $14 $8 million.
Our guidance of 12% to $13 million thin film equipment revenues totaled $8 million and included upgrades spares and service photonics revenue of $6 $8 million included $3 $7 million of product revenues and $3 $1 million of contract research and development revenues.
Q3, consolidated gross margin was 37% above our guidance of 35% as a result of favorable mix and higher revenue volume.
Q3, operating expenses were $9 5 million.
Floor guidance due to tight control of development spending.
This resulted in a net loss of $4 2 million or <unk> 17 per share above our guidance of <unk> 45 per diluted share our non-GAAP net loss, excluding restructuring charges was <unk> 16 per share.
Our backlog was $44 9 million at quarter end.
Thin film equipment backlog of $16 $9 million consisted of non systems HDD backlog.
The backlog in our photonics business was $27 9 million.
Turning to the balance sheet, we ended the quarter with cash and investments, including restricted cash of $51 4 million.
Equivalent to approximately $2 <unk> per share based on $24 6 million shares at quarter end.
Cash flow used by operations was $3 4 million during Q3.
And three capital expenditures were $408000.
And depreciation and amortization was $882000 for the quarter.
Turning to guidance for Q4, we.
We've seen revenue in the range of $20 million to $21 million.
Within this range, we would forecast gross margins to be around 45%.
Opex should come in around $10 million interest income should be about $25000 for the quarter and income tax expense of around $900000.
We therefore forecasting a loss in the quarter of around <unk>, two eight per share using $24 6 million shares outstanding.
For the full year at the midpoint of our Q4 revenue guidance would get us to about $66 million.
Little bit below our forecast last quarter as a result of the timing of source photonics bookings shifting into 2022.
This completes the formal part of our presentation, John we are ready for questions.
Thank you.
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One moment, please when we poll for questions.
Our first question comes from the line of Peter Wright with Intro Act you May proceed with your question.
Yes. Thank you guys for taking my call and congratulations on the nice beat Mike.
My first question is trying to understand the guidance.
The 40% guidance over the next three relative to the last three.
My math is suggesting my first question is.
Is this only on product sales that this guidance is or can we apply those to kind of total sales across the two.
Reported reported line segments.
Cross across the entire business.
Fantastic so.
My math is suggesting kind of normalize over the next three years Youre looking for kind of bought it in 2720 $8 million kind of on an annualized run rate basis, which means better quarterly revenue that <unk> seen.
The best Best fourth quarter quarters in <unk>.
2019.
And so.
My question is in light of that.
How linear do you think that looks over the next three years and I guess, what I'm getting at is you've got.
Big Big.
HDD ramp that you've got pretty good visibility too.
And bypass kick.
Kicking in if you were to look at the linearity over the next three years do you think that.
'twenty two is kind of a build there in the bigger years in the next couple of years or do you think youre almost at kind of that debt.
Average number that youre guiding to over the next three years.
Early into 2022.
I think it's going to build a little slower in 2022, and the majority of that growth I think will be.
After 2022, but again, 40% is what we're seeing in the next three years.
<unk> 2022 through 2024 over 19, 2000, and 2021, but it won't be it won't be completely linear Peter.
Mhm.
And so if I if I look at that then I'll.
I'll come back my my last question and I'll leave you with this time is on the HDD side can you can you help me understand how many units that is and kind of on a cycle the cycle compare put that in perspective.
I'm, sorry ask that again plenty HDD unit.
On the HDD units, yes.
I think.
We really don't aren't able to say, but I want to say that we will be.
Looking at our manufacturing capacity.
Think that.
The bulk of the beginning of the actually installs will be late 'twenty two early 'twenty three.
<unk>.
Yes.
In net.
Well over a dozen of systems that were looking at.
Well that's wonderful.
Little more color on that as the.
Different announcements are made as we move through the end of the year and into Q1.
If I could sneak in one very last one if you look at the Ibs program.
And kind of some of the information you shared with us.
Need for more of a technology upgrade and some performance upgrades.
And the push out do you think that you are in a better position on forward business wins than you were.
18 months ago looking at the initial.
Sure expectations of the two producers.
Yeah.
Well I think we would have to let this whole program program play out.
I think that the.
The development programs the phase ones. We're on right now are clearly.
All focused at getting better performance out of the night vision.
I think most of the discussion around the delay in <unk> at least.
General parts had said during an interview was around the display of the unit.
But.
Given the fact that we're in parallel we've been driving these programs I think that there was definitely a need for improvement and I think the.
<unk> more.
<unk>.
Higher performance, that's going to be required out of the Ipass for night vision, certainly real lines it with <unk> technology.
Only one is providing that type of performance.
But we deal with the Apache and joint strike fighters operating.
Older Casino Marine environment.
Wonderful. Thank you guys, Hey, Peter Let me, let me clarify something I think I said the 2022, you talked about the linearity I think I said that 2022 should be less than the 40%, it's going to be greater than 40%.
Just wanted to clarify that if you look year over year.
Fantastic greater than but not linear and kind of the average of the three years of building year over year, but building better than 40% in 2022 that is correct, yes, sorry I misspoke.
Very clear thank you.
Yeah.
Yeah.
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One moment, please while we pull for more questions.
Our next question comes from Mark Miller with the Benchmark Company. You May proceed with your question. Thank you for the question you indicated last call that.
Whereas some final stages quarles for wearable application and you also indicated that.
In terms of protective cover you were undergoing area. We're completing our first performance test I was wondering if you can give us a little more color on what's going on there.
Yes.
That all of that work is still ongoing.
On the cover panel initiative, we talked about last quarter being able to clear some of these breakage hurdles. So that is <unk>.
Active and ongoing.
On Wearables.
<unk> gotten to a point on the Wearables where were looking at when did the right things and time would be whether that's on a 2022 and 2023 product.
So I think.
That is put at that one particular programs is pretty much completed as follows the qualification I think we have one more hurdle, which is some of the transmission of the light through the film but.
Again.
I mentioned in our comments that doing operating in China has become quite difficult because not only can we not get in there.
To install and qualified.
Qualified the equipment.
Our customers have the same problem getting into China as well to qualify new features and equipment. So now we're still moving forward.
We actually last call thought we may be able to get this these units ordered this quarter I think mentioned I think they are pushing into 2022 at this point and that's really based on when they're going to be required.
We up and running for.
Product launch that they would beyond this year that is.
Okay. So it's more just a product timing issue that pushed those orders into 2022.
Correct, Yes, what we're looking at right now.
Right.
There's been a lot of talk about impacts of supply chain issues have you had any impact either.
Back or with your customers in terms of supply chain issues, you mentioned, China I know, yes.
Yeah I think.
A couple of areas, certainly everywhere, where we share components with the semi guys.
Those those lead times have extended quite a bit I think Jay was telling me. This morning vacuum pumps are up 36 weeks something like that.
It's all rolled up in our lead times, but our lead times have extended out almost 10 months at this point.
And then we have seen at least on the photonics side.
Issues with Microcontrollers that we had.
Microcontrollers that pushed out a year.
So Fortunately we have inventory.
And we're managing through that but yes, we definitely see.
The stress on our supply chain at this point.
In terms of I think we can manage through it.
Okay.
The HD upgrade Poland is that basically being driven by new.
Types of media in terms of the prescription.
Yes, it's a lot of the upgrades that we're doing right now are based on.
Change in the processing to support the higher density.
Media.
Do you see anything down the road say in six months or a year that there'll be even more changes coming in that will allow more upgrade cycle for you.
Yeah.
Yes.
Number of different programs that are that we're working on.
Not completed at this point, but we plan on being right at the edge of our customers' technology Roadmaps.
<unk>.
Right now in enhancing perpendicular media and then ultimately the transition to tier one.
Just wanted to confirm you did say there was an opportunity next year for 12 lean systems is that correct.
Was that for next year.
No I think kind of in total when we look at the ramp and again it'll be.
It will be less than that certainly for the 2023 timeframe it will.
Given the lead times right now we do have some inventory. So we can get some systems out this year.
The lead times on the equipment or show are putting that into.
The end of 2022 23 cycle for shipments. So there's 12 systems is over two or three years.
Couple of years yet.
Thank you.
Thanks Mark.
At this time there are no further questions I'll now turn the call back over to Mr. <unk>.
Thank you.
I want to walk you again, thank the dedicated employees of <unk> all around the world for their continued resilience and dedication in a challenging operating environment I also want to thank our customers and suppliers for their business and appreciated partnerships and finally I would like to thank our stockholders for their continued support to get it back.
I. Thank all of you for joining us today, and we look forward to updating you again during our Q4 call in February.
This concludes today's teleconference. You may now disconnect your lines.
[music].