Q4 2022 Intevac Inc Earnings Call
Hello, and welcome to the into the fourth quarter and fiscal year 2022 financial results conference call. If anyone should require operator assistance. Please press star zero on your telephone keypad.
Short answer session will follow the formal presentation. As a reminder, this conference is being recorded today February one 2023.
Now my pleasure to turn the call over to Claire Mcadams Investor Relations for <unk>. Please go ahead Claire.
Thank you and good afternoon, everyone. Thank you for joining us today to discuss <unk> financial results for the fourth quarter and full year 2022, which ended on December 31st and.
In addition to discussing the company's recent results, we will provide financial guidance for the first quarter of 2023 and our outlook looking forward. Joining me on today's call are Nigel Hunton, President and Chief Executive Officer, and Jim Monies Chief Financial Officer.
Like to remind everyone that todays conference call contains certain forward looking statements, including but not limited to statements regarding financial results for the company's most recently completed fiscal quarter and year, which remains subject to adjustment in connection with the preparation of our Form 10-K.
As well as comments regarding future events and projections about the future financial performance of into back.
These forward looking statements are based upon our current expectations and actual results could differ materially as a result of various risks and uncertainties relating to these comments.
Other risk factors discussed in documents filed by US with the Securities and Exchange Commission, including our annual report on Form 10-K, and quarterly reports on Form 10-Q.
The contents of this February 1st call include time sensitive forward looking statements that represent our projections as of today, we undertake no obligation to update the forward looking statements made during this conference call.
I will now turn the call over to Nigel.
Thanks, Glenn and good afternoon.
I'm excited to share with all of you today, our latest earnings results and to highlight the momentum we built and the achievements we had in 2022.
2022 was quantity yeah paying today.
Set out with a bold ambition of transforming the business and law.
Laid out a clear vision of the future of the company.
I'm pleased to say, we've taken huge strides towards that vision over the past 12 months.
There's been a year of significant change for the company.
India back now feels and operates very differently to that.
We have transformed into a vacuum to a new company the new interbank as we refer to internally and with customers.
<unk> will continue this journey in 2023.
The goal of this journey is to attend strong shareholder value.
Sustained profitable growth I mean already creating this momentum.
I'm immensely proud of the entire team not only the progress they have made in delivering on our ambitious aims, but how they have embraced the vast and rapid change I have test the company with through this past year.
Yes.
As I reflect upon our commitments to our shareholders.
With my first earnings call one year ago.
I'm pleased to share that our team has executed on every single one of the mandates that we laid out for 2022.
We have refocused the business around the lean our product portfolio.
Streamlined our business and strengthened and diversified the leadership team and the wider business as a whole.
We've laid out a clear plan to return to profitability built.
Built on our existing strong position in the hard disk drive market and most excitedly have all have developed a critical strategic partnership that is supporting interacts expansion into a new growth market.
We also delivered on each quarters commitments and our financial targets for 2022.
Okay.
Looking briefly back on 2022 I'm pleased to share the following highlights with all of you.
Each of these achievements has been a significant contributor to the change of direction pace energy and momentum. The company has gained recently and with the specific intent set out at the start of my tenure within tobacco.
Yeah.
Our primary golfing tabak in reestablishing momentum and focus last year was the first assess the growth potential in each of our end markets.
India back needed to refocus its business around the lean and product portfolio.
As vaccines for Covid continued the global rollout and with the gradual reopening of travel to.
The opportunity to meet personally with each and every customer in order to determine the correct direction and priorities for interbank going forward.
I'm pleased to share that I've traveled extensively.
Each quarter, the and met personally with all critical stakeholders that touch our business today and have potential to impact us greatly in the future.
These efforts not only resulted in strengthen relationships, but also led to the decision to cease development of multiple equipment initiatives in order to focus our innovation efforts on our flagship 200 lean and to enable the development and emergence of a game changing trio plant.
This proved to be a decision that has not only shifted energy and momentum for the company, but it has changed its future growth trajectory and also the company's financial potential.
It has also led to an early patent award criteria platform and a further nine patent applications have been submitted key achievements is into that begins the process of strengthening and broadening its IP portfolio.
Looking internally, we committed to at the start of 2022 to streamlining the structure of the business and doing so.
The action to align internal resource to genuine revenue growth prospects.
2022 source raised the bar for employee performance and also shows dramatically enhance the capability of the organization.
We introduced an internal development program within the business and recruited high caliber talent we.
We have taken steps to significantly strengthen and diversify the senior leadership team and unify the organization under one cohesive leadership group comprised of the best talent from both the U S and Asian teams.
Further still today, we repeatedly measure and assess the strength of our organizational culture, having heightened emphasis on our company values of innovation and accountability.
Our internal metrics and measurements are already showing strong evidence.
Global team of employees being invested in energized and excited for the future and our customers and partners I'm also validate the strength of the organizational culture plays into our ability to deliver outstanding engineering.
This past year. It was not only seen in tabak invest in personal and professional development well, we invested in a physical space too.
We know the importance of having an environment that encourages collaboration.
Something that in turn enables innovation and the changes made to our building to the creation of a dedicated collaboration space has been a key enabler of greater cohesion throughout the business and also led to the rapid development of our game changing trio platform.
2022 was momentous from an organization perspective.
Our products people culture and customers have been part of this positive change and have seen this old yet.
Today, our R&D engineering and operational teams are developing into world class high performing teams.
We have begun the process of enhancing and developing our commercial team I.
I believe we are beginning 2023 with a strong team and are poised for continued execution in the year ahead.
Okay.
In relation to returning the company to profitability, we are firmly on track to return into back to profitability for the full year in 2024.
And remain fully invested and preserving the strength of our balance sheet.
I have personally met and engaged with dozens of investors each of which each of which have expressed their preference for a measure of protection of our balance of cash and investments whilst also sharing their ratio once it how we have executed on these preferences to date.
In 2022, we maintain the strength of the balance sheet and are committed to do the same in 2023.
Turning to our existing hard disk drive market and a flagship 200 lean product.
We believe firmly that we're increasing our share of worldwide media capacity.
And our customer partnerships have resulted in this rapidly advancing business opportunities through hammer upgrade initiatives and the securing of $17 million in 200, lean orders, which will be delivered over the next four years.
We continue to believe in the future of the hard drive business.
And our efforts in 2022 have kept us in a prime position to continue to be at the forefront of the market and its development.
Finally in what is now highly regarded internally within tobacco as well as externally as a game changing development 2022. So it's delivered on our commitment to develop a meaningful partnership relating to a new product crafts category.
<unk> development of the trio platform.
A new product that supports consumer electronics and other applications has the potential to provide a runway of compelling and sustainable long term growth opportunities and revenue green back into that far into the future.
It is by far and away the most important developments achieved by the company since the launch of the 200 lean product 20 years ago.
The recently announced partnership on December 30 is a key milestone in our growth strategy. It broadens our product line and dramatically increases the total addressable market, we can now reach.
As we sit today.
We have a stronger lean a more diverse team delivering world class products to the forefront of the markets. We're operating in M pursuing.
Our objective on this call today is to ensure that our investors analysts employees suppliers customers and all stakeholders recognize the achievements of the past year, and our confidence and commitment and our strategy to deliver strong growth and financial performance for years to come.
Okay.
Now turning towards the trio.
In late December we completed our joint development agreement with a leading provider of glass and glass ceramic materials.
The completion of this definitive agreement was a transformational event for interbank.
The agreement includes a minimum revenue requirement of approximately $100 million over five years in order for our customer to maintain exclusive access to the trio platform for consumer electronics applications.
The agreement also includes a minimal annual commitments to maintain exclusivity.
We are currently completing the first trio system, which will begin qualification later this quarter.
We anticipate that once the first trio complete qualification, we will receive a purchase order for the qualified unit.
At this time, we are planning to deliver at least two additional trio systems within 12 months of qualification.
We will be building several additional tools. This year in advance of 2024 shipments. So we can be ready for some upsides to support our key partners.
I would like to point out at this time, but going forward, we will be limited to what we can communicate about our work with this customer.
However, I can share with you a bit it wont makes the trio such a compelling manufacturing platform the coating of glass on consumer electronic devices.
What im excited this customer to engage with us and seek a level of exclusivity, which we granted.
I can also share why do we see the potential for this partnership to be well in excess of $100 million over the next five years.
The trio office three primary advantages over current coating options.
First it offers tremendous flexibility compared to existing coating equipment as the platform can accommodate almost limitless configurations of device school in practice, including both two D and three D shapes.
Second.
Building upon our 20 year history of leadership in the hard disk drive market. Our systems have a proven track record of depositing highly uniform and defect free films at the highest quality standards for durability and precision executed with very high yields of a long operating life.
And lastly, also critical to our trio customer is it productivity throughput and competitive cost of ownership and a compact footprint.
So the compelling advantages of the trio platform.
Flexibility cost competitiveness and providing one platform for many different applications.
Our plans for 2023 will be focused on qualifying initial trio system brought customers thin film technologies by midyear.
Delivering the initial systems and working with our customers to ramp in the field.
As our customer gains confidence in the value of trio, we expect that many additional systems will be deployed potentially belong them beyond the minimum contractual volume required to maintain exclusivity.
The investments in inventory that we are making today and which began in earnest during Q4 support to build up multiple trio systems.
These include not only the systems, we expect to deliver this year, but substantially more systems to ship in the following 12 months.
In the short term these investments will be enabled by our strong cash balance.
It's worth noting that the strength of our balance sheet is critically important to each of our customers.
Not just for the trio partnership, but also for our H D D business.
And the investments, we're making in 2023 will set us up for a profitable year in 2024 and consistent positive cash flows and returns on invested capital beginning next year.
As I mentioned earlier, the $100 million revenue level is mainly the minimum required to maintain exclusivity with our first customer.
We will continue to pursue additional customers the trio outside of consumer devices.
Once successful with the first few tool deployments, we continue to expect our trio opportunity will be very significant.
In summary, the development of this innovative and game changing platform will make a significant contribution to our growth plans.
Which brings me to an update on our HDD business.
Recent news indicates encouraging signs on the horizon setting of a return to growth in data center investments and mass capacity drives.
In the meantime, as we discussed last quarter, we're seeing a greater level of customer investments in new technology.
During this period of reduced factory utilization.
We're very proud to be a critical technology partners in the industry has transitioned to hammer, which is proceeding ahead of schedule. It's testament to our strong upgrade revenues in Q4 and another strong quarter expected ahead upgrades in Q1.
Ah.
Fundamental part of our strategy is to maintain a focus on innovation and collaboration with key partners as such our Roadmaps are aligned with them.
Our HDD guidance for 2023 as well as a five year revenue forecast remains consistent with what we communicated last quarter.
We continue to see an extended investment cycle in both capacity and technology upgrades that is providing visibility or at least $300 million of HDD revenues from 2022 through 2026.
We expect this strong revenue growth. The next few years will be driven by upgrades in support of the installed base of over 150 systems that will require additional process modules to be hammered capable as well as our system backlog today of about $17 million.
In summary.
2022 was a transformational year for interbank.
We are very excited about the arrowhead and a new partnership Patria platform.
I will take this moment to emphasize just how committed we are as a company to increasing stockholder value and protecting the strength of the balance sheet as we grow the business and transform into back into a consistently growing and profitable cash generating company with a leading position in each of its key markets.
That completes my prepared remarks, and with that I will now turn the call over to Jim.
Thank you Nigel.
First I will briefly summarize our fourth quarter results.
Revenues came in a bit stronger than forecast at $11 $3 million compared to our guidance of $10 million as expected Q4 revenues were comprised of HDD upgrades spares and service.
The primary reason for the upside in Q4 was our customer's prioritization and pooling of certain upgrade investments, which resulted in a more favorable mix of revenue in the quarter.
This resulted in Q4 gross margins of 44, 3% well.
Well above our guidance of 32% to 34%.
The mix of lower margin business that was expected in Q4 is now spread across our full year 2023 forecast. So we expect to continue to maintain our quarterly gross margins of 40% or more for the forthcoming quarters.
Q4, operating expenses were $8 $3 million slightly above our guidance of $8 million due to the prioritization of certain R&D spending for trio as well as an increase in variable compensation due to the exceptional work of the team in executing key milestones before year end.
The Q4 net loss was $3 $2 million or 13th.
For diluted share and better than our guidance of 17 to 21 cents.
Per diluted share primarily as a result of the favorable revenue profile in the quarter.
With total new orders of $133 million in 2022.
We ended the year with 12 year record high backlog of $122 million as we have communicated throughout 2022, the strong level of order activity for both systems and upgrades resulted in quarterly increases in backlog during every quarter of 2022.
Of the 11 200 lean.
HDD systems in backlog, we expect to deliver one in Q4 and multiple leans in each of the following three years.
We ended the year with cash and investments, including restricted cash of $113 million equivalent.
Equivalent to approximately $4 42 per share based on $25 5 million shares at year end.
Our year end cash balance was stronger than our forecast of $105 million to $110 million, primarily due to Q4's trio inventory purchases still residing in AEP at the close of fiscal 2022, and we have since paid down that AEP year to date.
Cash flow used by operations was $11 $3 million during the quarter and $7 $4 million for the year.
During Q4, we added $11 $9 million in inventory to support the growing backlog and anticipated shipments of trio systems in 2023.
Q4 capital expenditures were $493000 and depreciation and amortization were $383000 for the quarter.
Now moving to Q1 2023 guidance.
We are projecting revenues to be between 10, five and $11 $5 million.
Consistent with our commentary last quarter, we do not expect system revenues until the second half of 2023.
But the level of upgrades and field service for the first half of 2023 is a bit stronger than we indicated last quarter.
We expect first quarter gross margin to be between 40% and 42%.
Q1, operating expenses are expected to be between nine and $9 $5 million.
Slightly higher than our expected run rate for the full year due to timing of investments in research and development along with some typical seasonal increases.
After Q1, we expect quarterly opex to be around the $9 million level for the remainder of 2023.
We expect interest income of about $400000 and GAAP tax expense of about $400000 in the quarter.
We are projecting a net loss in the range of 16 to 20 <unk> per share based on 26 million shares outstanding.
As we look ahead to the full year's financial results I'll recap some highlights from Nigel remarks.
We continue to expect approximately $40 million in HDD revenue in 2023, which will be relatively evenly weighted between the first half and second half with upgrades driving most of the first half revenue and one system expected to revenue in the second half.
The trio activity in the first half will be to build the first production system and work with our customer to pass qualification in Q2 on that system.
After we passed qualification we expect to receive the purchase order for the initial unit.
We are currently planning to deliver at least two additional trio systems within 12 months of successful qualification.
On our May call. Once we are well into the qualification process, we expect to be able to provide a range of how many systems could revenue in 2023.
With this revenue profile, which is largely HDD driven but should also include some level of trio systems revenue.
We expect full year gross margins to be around 40%.
And as I mentioned earlier opex of approximately $36 million to $37 million.
We expect both interest income and taxes to be in the range of 1 million to $2 million in 2023.
Finally, we will continue to closely manage cash to support the business strategy.
This completes the formal part of our presentation.
Kevin we are ready for questions.
Certainly.
Well now be conducting a question and answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Press Star two if you'd like to move a question from the queue.
For participants using speaker equipment may be necessary to pick up your handset before pressing star one one moment. Please while we poll for questions.
Our first question today is coming from Hendi <unk> from Gabelli funds. Your line is now live.
Good afternoon, Nigel and James.
Yeah.
Hi, good afternoon.
So Nigel I'll be congratulation on the trio partnership.
May I inquire.
Inquired like more colors on what kind of.
That's like profiles.
We can expect let's say for the three off system once the customer ramp up.
Should we expect alenia ourselves profile or if it will resemble more like a snap a profile.
From let's say like one period to another.
Yeah, Andy Thanks for thanks for the question.
Very clearly and hope it was came across on the call.
I'll focus absolutely has to be this month on completing the build of the first two.
We then move into the qualification of the tool and well.
To mystic and enthusiastic and excited about the process, we're going through on this qualification.
And that's a call of vacation of the production tool. The tool was qualified on the testbed and that moves to a production tool.
And really that process is going to take the next couple of quarters and.
And that's a critical thing for me is to maintain this organization is focused on delivering and executing on that plan.
If I look out way beyond that in the profile.
I think it's too early to say I mean, I think for me the opportunity as we've said is pretty compelling it's a very significant opportunity.
It's a very different market, we're entering its one of these.
Partner enough so that they can maintain a level of confidentiality swaps hedges.
The courses, what we actually share with people on these calls moving forward because the key for me is to maintain a.
Strength maintain that technology advantage and then move forward. So really for this call is very much about we're absolutely on track with that first unit. We're on track with our partner to get that qualified I think once we get through that we'll have a much better view on what the market potential opportunities.
And the Great thing for me is the commitment from that partner for the $100 million over five years as a minimum and for that period, but I think it's too early to say that thats, a linear or anything else I think I think the excitement for me is to get the first tools completed into the market.
And actually stopped building success in securing some orders.
As can be my absolute focus so it's really too early I mean are.
We're so excited about it and that the potential is huge.
But so I don't think it'll be linear, let's say, let's put anything to say.
And then Nigel with regards to the gel system. What is the latest estimate off the production grade and that I would like.
Also to note, let's say when there's a estimate for production rate will be it's somewhat like semi fixed meeting that that's the run rate and then there is no like big window, let's say flipped from like early into like a fool if I'm off whether theres like a big range like how many units they can.
Produce.
Yeah would you share some color on that.
Yeah, I mean, I think probably one of the really exciting things about the product is this new platform, which is very different to anything we've done before so people are going to stop thinking about segregating in their minds. The traditional business to this new platform. This platform has huge flexibility.
Not only can it do two dimensional coating, but it can do three dimensional coating, which is which is a phenomenal step forward.
But it also has the ability to actually do multiple size structures through the machine. So it's not it's not like we're just putting through if I go back to the HDD business our machine. It there's billions of one size desk day in day out.
So it's it's platform concept and the flexibility of the design is one of the key things that attracted us in this technology to our partner and so the machine can have multiple songs just running on it it could be running on different programs. So you can't really say, it's gonna be a fixed number.
So I think that that level of flexibility is probably one of the unique capabilities of the technology.
And is it going into consumer electronics market again that market is huge has different components within it.
And therefore this flexibility of the tools, probably fundamentally I'm one of the game changes and why we've been selected by the partner.
Okay and then Mike just go ahead with your question, but hopefully it gives you some flavor that this machine can do.
This isn't about what machine, it's about multiple machines supporting a very large industry that we're actually gonna start entering.
And then Nigel with regard to the annual minimum commitment of that partnership.
Mike.
When is the timing of.
Like the exclusive 50 like will it start when the annual minimum commitment.
Like.
Got it got worse.
What is its met or whether it now you can explore potential sales with other customers while waiting for the annual minimum commitment to be met sometime later in 2023.
I mean, the agreements I think we were pretty clear when we announced it.
It does not restrict us from looking at other market opportunities. So the exclusivity is the is that is within the consumer electronic devices for glass and glass substrates. So that is very clearly.
Documented and was in the sort of announcements so outside of that we can look for other opportunities.
From the starting points of the agreements the agreement that we announced was signed in December and that's the start date for the agreements.
But for me it is.
Is the real focus today is making sure we get the first production unit.
<unk> finished that first unit qualified and then move forward with that strategic partner.
Got it and then a question for James James would you be able to share how much like cash consumption. We can expect in 2023, especially considering that is the fact that it's to build a trio systems.
And then I also noticed that there is a long term customer at fences of 22 million on the balance sheet I'm wondering whether the cash on the balance sheet got boosted by that 22 million and that's why the cash balance is higher.
Higher than the prior estimates.
Estimates.
Sure I can answer a couple of questions first let me answer your second question first.
The cat the ending cash of $113 million.
It was not influenced necessarily by the 22 million that was known quarters ago that that is one of our customers.
Who placed large orders that are in our backlog customary for that customer to give us.
Cash down payments or customer deposits, we use those customer deposits to secure inventory. So if you look at the inventory growth through the year inventory went up by about $24 million from the beginning of the year to the end of the year. The majority of that was not trio trio inventories started to build in earnest in the fourth quarter. So we were you.
Using the customers down payments to support the backlog and to buy the inventory as the customer requested but that number of the cash down payments of $22 million.
Had been reflected in our estimation, so $105 million to $110 million and when we ended at $113 million, the slightly higher $113 million above our last call guidance.
We did secure the inventory for trio that we expected, but it came later in the quarter. So it's still there.
The payment was not made did not draw down the cash it was an accounts payable we draw that down.
As far as the cash being used for the business I think if you look over the last number of years and especially in 2022, we've been excellent stewards of the cash will continue to use the cash strategically.
And as Nigel said in his prepared remarks, we're building inventory.
Beyond whatever the minimum order quantity is for 2023, so you'll likely see inventory continue to go up.
As we go through the year, but we will still manage cash you won't see cash go down, let's say to have 80 or.
$90 million level right away, if you see cash go down there'll be normally a corresponding increase with wassa.
Building inventory to support customer requirements.
Okay got it thank.
Thank you James Thank you Nigel.
Youre welcome. Thank you for the questions.
Your next question from Mark Miller with benchmark. Your line is now live.
I'd like to congratulate you on our progress last year I'm looking forward to the future.
Yeah.
Yeah.
After listening to Seagate and western digital over the last week.
Her indicating that the customer inventory.
For our hard drives is starting to deplete.
And as a result, they're more optimistic about the outlook for hard drives for the remainder of the year have you sensed anything in terms of improvements in capacity utilization or anything in terms of maybe more demand.
But it now that customer inventories from hard drives to come down.
Yeah.
Yeah, I think that the person to Covid, what we've seen is really excitement is and as you say listening to some other calls one in particular and the emphasis and the level of Q&A around the hammer.
I think what we've done in the last year, we have enabled the hammer technology just come through.
It's been a key part of our last quarter's performance and.
And we're seeing that hammer focus and the hammer readiness and to ensure that actually the equipments are capable of supplying the equipment for that launch to be maintained and they I think Jim said that would be maintained into Q1. So we are seeing continued focus around those technology upgrades.
And again like you we are optimistic that demand is starting to come back.
Some of those key markets in Asia will stop this gets additional business for them and we're confident that the positive outlooks are going to start coming through.
It really under fundamentally is this technology shift to hammer I think is actually also going to be a significant change in that sector in that industry and we are well positioned to maximize not only do you want to add to that Jim I think I think as Nigel mentioned, it's been you can see some of that in the results in Q4 and some of our Cup.
<unk> calls as you mentioned Mark they really are taking advantage of the lower capacity and trying to build on inventory to improve their technology and were a key component of them being able to do that in there.
They are helping as you see in Q4, that's one of the main drivers why revenue was above guidance and continue will continue as I said in my prepared remarks that the first half of the year will actually be stronger than what we implied on the last earnings call as it relates to the linearity of shipments first half second half and most of that.
Will be upgrades.
Okay.
What I gleaned from your comment you just comments about cash in 2023.
Oh, there's going to be some draw down as you build new tools.
But you are talking about shipping I believe one lean towards later in the year do you think by the fourth quarter, you'll be cash flow positive.
I think it all depends on what happens with the trio build.
That's really going to be the driver of cash flow positive. When you look at a combination of what the linearity of the revenue is in Q4, but I think the biggest.
Use of cash for us, which is just going to be a timing issue is going to be building to support a large backlog should that happen once we pass qualification on trio.
Okay.
In terms of the lean tools, you'll be shipping later this year.
And beyond.
These tools have more features such as more deposition chambers in prior tools or any new technology. These tools.
I think that the the one that'll ship has an additional process module.
But I don't think there's much additional technology other than some of it has some hammer enabled capability.
I mean, the major focus is really as we've talked on is.
Enabling the install base.
Putting in the hammer upgrades for those tools.
And ensuring the Aha.
Customers already and enabled to actually execute on their hammer Roadmaps and Thats a key thing we've done is making sure. Our roadmaps are absolutely aligned with our key customers.
And that's been a key success over the last 12 months is having those regular technology review meetings and ensuring we're meeting their needs and actually helping enabling them to actually move to that next generation of technology. So it's been an exciting yeah.
If all goes well with the first qualification of the trio tool you're talking about delivering to more trio who's here for that one could do you think these tools be revenue early 'twenty 'twenty four.
I think as is customary with our with our Rev. Rec responsibility and rules will need a couple of tools on the field.
To be installed to go through full qualification on site and once they do that and the customer signs off on the qualification will take revenue and then probably the third or fourth tool after that.
We can take.
We can take revenue at the time of shipment, but we have to first pass the call and we do expect revenue in 2023 as we've said that's first qualified tool that Nigel emphasize and I think everybody should remember is that's our focus right now our focus right now is building a production tool getting through qualification and trying to get that qualification through.
Q2, once we get qualification and sign off that tool can take revenue and then any tools will ship after that if they go into the field they'll have to get installed qualified signed off and then we can take revenue. There then it's after that point in time.
We can probably take revenue at shipment, but revenue at shipment is likely going to happen in 2024, but we will see you sign off so we will see revenue in 2023 from trio.
I'm sorry.
Understood. Thank you.
Thank you Mark Thank you Mark.
Thank you next question today is coming from Sweeny Sungard from partner capital. Your line is now live.
Okay.
Congratulations on that.
Quarter.
My first question for.
Why was the accounts payable.
Postpone.
Hello Hello.
I wish I feel terrible.
Notes payable was your corn scales Rooney.
Yeah.
But.
I'm not sure. If your question is why is accounts payable higher at the end of the year.
Yeah is that is there.
That's your question.
Yeah.
So so if I understand your question, although it was hard to understand that question. The accounts payable was higher at the end of the year because of the timing mostly of the delivery of the trio inventories. So it came in it was received but there are payment terms of when we have to pay our vendors those.
Payment terms.
Required us to pay the vendors in January not December so it was sitting in accounts payable youll see accounts payable went up from the September quarter to.
To the December quarter, and that helped the cash because essentially it was accounts payable which has since been paid and it was roughly around $5 million.
Kind of coincided with the growth of the three of inventory in the quarter.
Hum.
As a follow up.
The move.
<unk> 200 system.
We will be shipping in the next.
Two or three years, they will all be going out with.
Right.
Hum.
Those were ordered.
Around this time last year.
Some of that technology innovation.
Will be included in them and it would be something that's not so there'll be further upgrades for those tools. So it post install.
So there'll be some level of hammer readiness, but not the latest hammer upgrades that we've actually.
We developed and executed and delivered on in 2022.
Okay.
Oh sure I'm on the subject of exclusivity could you.
Explain what it exactly means.
Meaning that you cannot sell it to somebody else or you can send it to somebody else.
So the exclusivity is very clearly for consumer electronic devices.
The glass and glass ceramic substrates. So it is a very clear definition.
The market.
Substrates.
So.
Hum.
So against that and will that mean that exclusivity means we cannot sell to anyone for those applications.
So that's what that's why he thinks easily it is it is absolutely exclusive to them.
For that application.
Mhm.
Okay.
And is this oh.
Sure My ignorance.
But.
I want to know what is the market share.
Oh your trio partner.
Cellphone market.
Okay.
It remains.
There's market share. It is is it's not really for us to comment on.
The market share by partner is I think is probably on the website, but they are clearly the market leader.
In absolute number one so there they are market leader in.
In that sector.
And I would say anybody that.
Cause has paid attention over the last four or five months as to what we're doing.
Yes.
Mhm yeah.
Yeah.
Okay.
Hum.
Oh, there's a trend towards putting tempered glass.
On top of the list.
Play.
Uh huh.
That's temporary.
Sure.
Trio.
Uh huh.
I mean, I think if you.
Look at what we announced the press release.
Trio as for.
Coaching.
Laughs and glass ceramic substrates and any glass and glass substrate, it's covered in that agreement.
So it's okay, it doesn't matter, which tempered our not temporary.
It will cover it covers any substrate.
And that's why I mean, it is a game changing technology that really has the flexibility and everything about it is y.
The partner is so excited about it and why we are giving the exclusivity.
Okay.
Virtually all my questions. Thank you very much.
Congratulations Jim.
Christian.
Thank you I appreciate that Tony.
Yeah.
Thank you next question today is a follow up from Hendi <unk> from Gabelli funds. Your line is that a lot.
Yeah.
Sure.
We can't hear you Hendi.
I know this is just me.
Ken.
Yeah.
Hendi yeah.
Yeah, Nigel and James.
Hi.
I think 'twenty 'twenty four is still far away, but.
With regards to the first full year of profitable results.
Do you have insight into what revenue level and what kind of revenue mix is the underlying assumptions among let's say like hard disk drive market, leading trying to hammer and trio.
Yeah, I would say at this time, we're not prepared to talk about what the revenue mix could be how much between the two but what we look at internally is if you look at the investments we'll make in R&D. This year and as we said in our prepared remarks, our opex being somewhere between 36 and $37 million. If you just.
It's simple math and assumed a 40% gross margin you need to be somewhere around $90 million in revenue to break even.
So that that is very encouraging that James.
And then second question.
And then second question is I saw on your website.
The whole thing is that the commercial name for a trios.
Yes.
Let's say and products and then.
Outside of consumer electronic devices.
Do you see any like low hanging fruit.
Asians.
Yeah, just to cover that first I mean, as you said as you know when I joined a year ago, we had the internet ballistic coaching and the I B C.
Is up as a potential route forward in a potential technology.
Some of that has been developed into the trio tool. So the website is it says is under development.
And we will actually address that in 2023 my focus in 2022 has not been about trying to put some nice things onto our websites. It's been absolutely about creating a new technology platform.
Getting this business fundamentals correct.
You're right. This year is the time to get the website upgraded put some additional.
Material on that and actually bring trail to life on the website. So so that that will be one of my actions for this year, but last year was very much about getting the technology launch focused on making this company a success, but you're right. The website. It still does say under development for I'd be saying them, we will change that to trio.
Current platform and the future growth.
I see.
And Nigel just on my second question is about like potential pocket application outside of consumer electronic devices for trio.
Yes, I mean at the moment as you as we've said very much. The focus is getting this tool belt qualified in outlet and making that a success beyond that I say other opportunities I think we talked in one of the announcements about this potential around the automotive and other sectors, there's market opportunities I mean for me at the moment.
Is let's get this thing built qualified into the markets and keep updating you as investors every single courted by saying. This is what we've done. This is what we're going to do next quarter and keep building that story and building that success. So I think I've got enough to do to focus on that one exciting market opportunity of electron.
Devices first yep. Thank.
Thank you Nigel and then all the best for winning a trio sales in the production environment.
Thank you Andy it's appreciate that.
Thank you Andy take the next question is coming from Dan Weston from Westcap Management. Your line is now live.
Yeah, Hi, good afternoon, guys. Thanks for taking the questions and congratulations on all the progress.
Most of the questions have been answered just a few more if you don't mind.
In terms of the trio could you share with US what you think your internal capacity is for building ships per year for that product.
I mean, that's highly confidential.
Imagine.
What we're really doing now is building the plan around it with executing on the first bills, we're kind of getting the full qualification done and then we're going to make sure we have capacity to meet whatever demand is out there. So it's hard I mean.
The market size and what we're gonna do and how we're going to deliver against SaaS is clearly within entitled plans and we are planning and scaling and building for success, you don't and if somebody like this without saying we're gonna be successful we know what we need to do we have to have capacity to do it they have to be able to actually manage our way.
To the industry, but some still supply chain challenges, we've got the strength of the balance sheet to actually help us leverage with some inventory. So we can be ready to ramp and build whatever the market needs, but I don't want to put numbers in there for people at the moment.
But we are where we've got we know we have to do and as we've said.
We actually plan things out we think it through and then we execute so.
Okay.
Alright.
Yeah, we just got to get it fast.
Chuck.
No no that's fine it's great, but it's you know we are going to move forward, we're going to be successful and it's about getting this first one qualified and then moving forward successfully with our partner.
Yeah.
Totally understood. Thanks, Nigel let me ask it this way.
Just given the minimum commitments on this particular customer for trio.
Assumes I'm guessing using a roundabout figure for about four units per year to build and ship and revenue.
Let's say the customer.
Excluded this minimum commitments and he required.
Eight or 10 units to be built and shipped to him in a particular year are you, saying that you could successfully build and ship 10 units per year.
Yeah, I'm not committing to any number but I am saying, we are planning for success and whatever our customer needs we will deliver.
So you can read into that what we're doing.
Okay Klein, let me ask you a question in terms of the evaluations that Corning was doing initially on the trio platform.
Did they have any of that their end customers involved in that evaluation as well.
I mean, clearly I can't answer that question, but I can say to you is the we've covered it all in the last couple of calls.
When you launch a new product you align it with our key partner you have them to be successful in launching products through my 30 years of experience in many different companies.
It's when you have a customer who is working with you.
It's feeding and working with you all development teams.
And you are producing product and we talked on our call couple of calls ago. We gave them. Some samples they came in they run their own samples we've done coupons for multiple different potential applications and so on we've had other people come in and run it.
The qualification success and the.
The real performance of the trio and its flexibility and adaptability has been superb and on the back of that.
Why they wanted to exclusivity so.
If you're about to read into that what we've been doing.
Fair enough. That's all I had for you. Thank you Nigel for answering all my questions I appreciate it.
I appreciate it thanks Dan.
Thank you we've reached end of our question and answer session I'd like to turn the floor back over to management for any further or closing comments.
Yeah.
Thank you.
As I look at where we are today.
Compared to my first earnings call one year ago.
I feel we've executed on a complete transformation of the company, we've created a new interbank announced.
An outstanding achievements.
We are now squarely on a path towards consistent annual revenue growth.
And the 'twenty 'twenty four outlook supporting significant revenue growth.
Positive cash flow from operations and a profitable year for the company.
Overall I'm extremely enthusiastic about the future and we will continue to leverage our collective expertise and strong balance sheet to ensure the company is positioned for growth well into the future.
And finally I want to thank all of our employees as well as our counterparts with our industry partners for their hard work and dedication as we progressed with our partnership with nutria platform as well as the HDD industry transition to hammer.
And that's been for me, it's been a fantastic achievement all round.
We've also been steadily ramping up our investor outreach over the last year and we're eager to continue meeting with as many interested investors as possible.
So if anyone wants to reach out to Claire please do that directly and well organised fallouts with us.
And with that I will conclude today's call. So thank you.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.