Q3 2023 Intevac Inc Earnings Call

Good day, and welcome to <unk> third quarter, 2023 financial results conference call.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press Star then zero on your telephone keypad.

Please note that this call.

2023.

At this time I would like to turn the call over to Claire Mcadams Investor Relations. Please go ahead.

Thank you operator, and good afternoon, everyone. Thank you for joining us today to discuss <unk> financial results for the third quarter of 2023, which ended on September 30th.

In addition to discussing the company's recent results.

We will discuss.

Joining me on today's call are Nigel Hunton, President and Chief Executive Officer, and Kevin Solesbee, Chief Financial Officer, Nigel will begin with an overview of our business and outlook then Kevin will review our financial results before turning over the call to Q&A.

I'd like to remind everyone that todays conference call contains certain forward looking statements, including but not limited to statements regarding financial results for the most recent.

Which remains subject to adjustment in connection with the preparation of our Form 10-Q, 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 <unk>.

Risks and uncertainties relating to these comments and other risk factors discussed in documents filed by US with the Securities Commission.

Michigan.

Port on Form 10-K, and quarterly reports on Form 10-Q, the contents of this November 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, Claire and good afternoon.

It posted.

And I'm very pleased to have this opportunity today to up to.

To date update you on <unk> ongoing developments for 2023, and our outlook for the year ahead.

As evidenced in our Q3 financial results, we achieved significant upsides to our previous forecast for our HDD business.

The revenue ramp we achieved in Q3 demonstrates our operational agility and our ability to.

Meet customer.

Yes.

Even more importantly, <unk> has emerged as the enabling technology partner for the H D D media industry.

Our results in 2023 to date demonstrate that we are a direct beneficiary of the expanded scope of HDD media technology upgrade initiatives.

Really underway.

In Q3 in particular, we delivered over $5 million of revenue upside.

In response Colin.

Deep within the quarter.

As a result today, we are reporting our largest revenue quarter in nearly three years.

Following the restructuring I met with a new leaner team in Singapore and I.

I was particularly pleased anyway, they had delivered the upside in Q3.

100% on time delivery for a more focused organization.

It's upside for Q3 revenues culminated in breakeven.

No.

$2 million restructuring charges incurred during the quarter.

Our balance of cash and investments declined from Q2 levels as a result of the timing of accounts receivable collections.

Since quarter end, we've collected over $13 million of receivables and we remain on track to end 2023 within the $75 million to $80 million guidance range consistent with our outlook provided.

Yeah.

Outlook for the year has life was improved by about 14% from our earlier expectations in August of a $44 million revenue, yet and our current expectation.

Would achieve around $50 million of revenue the 2023.

This will equate to year over year revenue growth of approximately 40% in our hard drive business during one of the most challenging periods in the HDD industry.

As indicated about critical role as a key technology enabler for process technology.

More importantly set the.

Nation for sustained basic technology upgrade revenues.

We look to the years ahead.

Turning to the trio and I'm pleased to say that we are in the qualification process for the initial system without J D O partner corny who's one of the world's leading innovators in glass classroom hurdles.

Alright to that team all the way they have collaborated together what are used as key milestone and support <unk> expansion into a new growth market.

We began the qualification during Q3 at Santa Clara headquarters and are progressing through the final steps.

The tools being fully integrated and is producing process samples.

As I mentioned, we're now in the final stages of qualification, which includes injury funds too.

These are starting this quarter and we are still on track to complete the qualification by yearend.

Once we achieve qualification the next step will be to receive an initial order as per the J D. A.

We continue to expect our first real revenues and cash to occur in the first half of 'twenty 'twenty four.

Over the last few earnings calls we've discussed what starts to trail off from other money.

Yeah.

Just to date it is increasingly clear that corning's enthusiasm the trade. It was primarily driven by the platform superior productivity and flexibility.

Today on our IR website, we have added a live action video of our trio running at Santa Clara I should propose to enter enjoys fronts, enabling you to view the modular compact design of this world class coating machine they.

These videos can be found on our IR homepage, along with another investor.

Today's earnings call.

The slides that accompany today's conference call. Also now include an overview of the longer term revenue potential for trail, which offers a significant market opportunity for interest due back.

And our recently completed analysis evaluating each of the potential end market opportunities for the trip, we see a roughly $1 billion revenue opportunity for tools, assuming a durable anti reflective coatings for Africa.

So the high end of each end market.

Of course, while our initial focus is on consumer electronics applications.

Our efforts to ramp up a partner for the automotive market will accelerate in 2024.

We look forward to updating you on our market expansion strategies on subsequent earnings calls.

In summary to date in 2023, we're on track to accomplish the objectives with Georgia.

You have to expect to see the initial orders before yearend.

As we look to 2024, we believe we will revenue to just retrieval systems and we will be building several additional tools and leveraging our investment in inventory ahead of an increased order requirements from Corning by year end 'twenty 'twenty four.

These expectations for initial trail revenues and expanded customer opportunities for 2024.

Central.

I'll drive industry.

There was no question that the expected revenue profile of our HDD media business over the next few years has changed significantly over the past year.

Our customers must have not only deemphasize and delayed that capacity expansion plans, but if in fact canceled some orders originally slated for capacity enhancements.

The steadfast votes at this time, there's a lot of technological advancements.

Excellent.

Key enabler and advancing our customers' technology roadmaps.

As I mentioned, our outlook for 'twenty twenty-three HDD revenues has improved since our last call to now around $60 million for the year.

Accordingly, as we look to 2024 and beyond technology based upgrade revenues for us are sustainable for disabled workshop.

We have a steady pipeline of work to do with our customers to upgrade and optimize their existing base.

2023, approximately 10% of the world need to install base of 200 leans will be capable of producing hammer media.

Furthermore, we believe that all technology upgrade initiatives either underway or in the planning stages by each leading H D D manufacturer or indeed, Max 200 lean platform.

It's multi year visibility provides us with a solid foundation of H C D business, which we estimate to stay.

And approximately $40 million and nearly in upgrade sales and field service.

Given this our expectation printed out revenues in 'twenty 'twenty four is approximately $40 million in H T T cells as well as two to three tray of systems.

Altogether, we continue to focus revenues in the low to mid $50 million range next year, so a modest growth year compared to 2023.

As a reminder, 2020.

As well as refurbished system, which we don't expect to repeat in 2024.

The key message of our outlook for 'twenty 'twenty four is that after the resizing of our cost structure completed in Q3 at this revenue level, we expect our P&L to be at least cash flow neutral for the full year.

We have reduced our quarterly opex run rate to the low 7 billion dollar level and we expect the noncash portion of our cost structure will entail.

Is that.

As we look to next year.

I'll summarize the few additional key takeaways from today's call.

First our trio qualification process is nearing its final stages.

We're on track for the first orders before year end.

Second our H D D media business outlook has improved for 2023.

It's in the early stages of the industry's multi year initiative to progress the industry's technology roadmap.

Yeah.

Energized and excited for the future.

Finally, we have a strong balance sheets sport, we expect will be several years of growth ahead.

Before handing the call over to Kevin I would like to add that we currently have two processes ongoing and standing.

What is the strategic process announced in June, which we will come out at the appropriate time.

Yeah, there was a search for new CFO, which is progressing but remains outstanding at this time in the meantime, our financials designers okay.

Shrimp CFO, Kevin Salisbury.

Now over to you Kevin.

Thank you Nigel turning to the third quarter results.

Revenues totaled $17 $9 million, well above our guidance of $12 million to $13 million and consisted of HDD upgrades spares and service.

We achieved more than $5 million of revenue upside primarily our upward.

To respond to the increase in technology upgrade order activity within the quarter.

Q3, gross margin was aligned with our expectations at 39, 1%.

Total operating expenses were $8 $4 million slightly below our guidance of $8 $5 million and as expected we recorded nearly $2 million of charges associated with our restructuring plan announced last.

Our GAAP operating loss was $1 $4 million and non-GAAP operating income was a positive zero point $5 million.

We recorded a GAAP loss of six cents per share and achieve break even results for non-GAAP EPS.

Turning to the balance sheet.

We ended the quarter with cash and investments, including restricted cash of just over six months.

$2 51 per share based on $26 4 million shares at quarter end.

During the quarter total cash decline just shy of $8 million.

So all you can do to the roughly $8 million increase in accounts receivable in the quarter as a result of delayed payments from our largest customer.

We have already added $13 million of cash through the collection of receivables quarter to date continues.

Cash in the $75 million to $80 million range.

Cash flow used by operations was $7 $5 million during the quarter.

Q3 capital expenditures were $600000 and depreciation and amortization were $400000 for the quarter.

Now moving to guidance for the fourth quarter.

We are projecting revenues in the range of $9.5 million to $11 million.

At the minute.

But it was a $50 million.

We expect fourth quarter gross margin to be between 39% and 41%.

Q4 operating expenses are expected to be around seven point to $5 million, which reflects the new lower quarterly run rate that you should expect for the coming year.

Yeah.

We expect interest income of about 600.

Yeah.

It's about $500000 in the quarter.

Most of the tax expense will be noncash.

Yeah.

We are projecting a net loss for Q4 in the range of 10 to 13 cents per share base.

Based on $26 4 million shares outstanding.

Yeah.

As we look ahead to fiscal 'twenty 'twenty four we expect this lower opex run rate will enable our P&L to be capped.

Given our revenue expectations in the low to mid $50 million range.

<unk> gross margins of approximately 38% to 40% and that the noncash portion of our cost structure will total $78 million for the full year.

Therefore, our 2023 cost restructuring program completed in Q3.

He is enabling and they're back to eliminate any further for cash.

In fiscal 'twenty 'twenty four.

This completes the formal part of our presentation operator, we are ready for questions.

Thank you.

We will now be conducting a question and answer session.

He would like to ask a question. Please press Star then one on your telephone keypad.

<unk> Tung will indicate your line is in the question queue.

Operator: A brief question and our session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, name 0 on its telephone keypad. Please note that this is called 2020-3.

You May press Star and then two if you would like.

For participants using speaker equipment, it might be necessary to pick up your handset before pressing the sakes.

The first question we have is from P. Tomatoes interact. Please go ahead.

Great Congratulations on a wonderful quarter and thank you for taking my question.

Claire McAdams: At the time, I would like to turn the call over to PMIC Addams in with the relations for Intervax, please cover hate. Thank you, operator, and good afternoon, everyone. Thank you for joining us today to discuss Intervax financial results for the third quarter of 2023, which ended on September 30.

Okay.

Hum.

But I just like I I have two questions for you. The first one is.

Right.

Just one number that you referred to is what what number was upgraded in 'twenty three.

Claire McAdams: In addition to discussing the company's recent results, we'll discuss joining me on today's call, our Nigel Hunton, President and Chief Executive Officer, and Kevin Soulsby, Chief Financial Officer. Nigel will begin with an overview of our business and outlook, then Kevin will review our financial results before turning over the call to Q&A. I'd like to remind everyone that today's conference call contains certain forward-looking statements, including but not limited to statements regarding financial results for the closed-recent.

Claire McAdams: Which remains subject to adjustment and connection with the preparation of our Form 10Q, as well as comments regarding future events and projections about the future financial performance of Intervax. 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, and other risk factors discussed in documents filed by us with the Securities and Commission. Port on Form 10K and quarterly reports on Form 10Q. The contents of this November first 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.

Nigel Hunton: I'll now turn the call over tonight. Thanks, Claire, and good afternoon. In this posted, and I'm very pleased to have this opportunity today to update you on Intervax on-going developments for 2023 and our outlook for the year ahead. As evident in our Q3 financial results, we achieved significant upsides to our previous forecast for our HDD business. The revenue round we achieved in Q3 demonstrates our operational agility and our ability to access to meet customers.

That really though depends heavily on the success of the hammock products into the market and I think have you seen some of the public announcements Ham restarting get some great traction.

People in that putting out for <unk> for 2024.

And therefore I think for me the positive move of Hammer finally, coming to fruition and started to actually be seen in being evaluated and get some successful revenue for our customers.

Uhm additional revenue this year.

But as we've said, we see a similar level of revenues.

<unk> next year and the subsequent year.

And is there any is there any capacity constraints on your site if that was to get pulled into next year last part of the Hamburger then I'll ask one other one other follow up question and it'll come back to you is the trio billion dollar Tam that you have on the 11th.

Nigel Hunton: Even more importantly, Intervax is immersed as the enabling technology partner for the HDD media industry. Our results in 2023 to date demonstrate that we are a direct beneficiary of the expanded scope of HDD media technology upgrade initiatives currently underway. In Q3 in particular, we delivered over $5 million of revenue upside in response callings, feed within the callings, and as a result today, we are reporting our largest revenue quarter in nearly three years.

Your joint development agreement does that represent the first three pieces. So does that cover smartphone wearables and tablet and then it does not include automotive is that a good way to think about that.

And then is it too early to say, who your partners are gonna be on that do you think it's gonna be an exclusive or do you think there could be several people that you're working with on the auto side.

Nigel Hunton: Following the restructuring, I met with our new Lena team in Singapore, and I was particularly pleased in the way they had delivered the upside in Q3 with 100% on time delivery from a more focused organisation. This upside for Q3 revenues culminates in break even on the non- $2 million restructuring charges incurred during the quarter. Our balance of cash and investments decline from Q2 levels as a result of the timing of accounts receivable collections.

Yeah, I mean, just.

Hammer.

Serviceable available market or a billion dollars first I say that question first.

And it's as as as Commissioner <unk>, we put that sliding following so I think one of your request. So I hope you appreciate the.

The level of detail, we've gone to ensure the size of the available market. We think it is very significant.

The agreement in partnership with Corning is focusing.

Nigel Hunton: Since quarterend, we have collected over $13 million of receivables, and we remain on track to end 2023 within the $75 to $80 million guidance range, consistent with our outlook provided earlier. Outlook for the year has likewise improved by about 14% from our earlier expectations in August of a $44 million revenue year to now our current expectation that we will achieve around $50 million of revenue for 2023. This will equate to the year of a year revenue growth of approximately 40% in our hard drive business during one of the most challenging periods in the HDD industries.

<unk> to consume consume it.

And laptops, and we see that partnership being key getting momentum and success into that sector.

You also display is outside of that partnership and we all it's it's early days, we're talking to people, but it's early days and I think 2024 will see some progress around the auto sector, but I'll focus as a keep sending on these calls is very much around qualification for Ya.

<unk>.

<unk> partnership so it so it's.

So hopefully that slot. It gives you a mix of both the current focus and then the future potential.

And we've also tried to explain the details of how we've actually position they surround.

Nigel Hunton: This is indicative of our critical role as a key technology enable of the process technology, and more importantly set the foundation for a sustained base of technology upgrade revenues as we look to the years ahead. Turning to the trio, and I'm pleased to say that we are in the qualification process for the initial system with our JDA partner corning, who is one of the world's leading innovators in glass and glass raps.

High priced smartphones first similar to touch screen laptops and high in tablets.

Four as we say over the next 345 years the market adoption expanding that we believe is <unk> beyond that as well.

We'll come back to <unk>. Thank you so much.

The next question is from a dissenter.

Nigel Hunton: Our Intervaq team on the way they have collaborated together releases key milestone and support the Intervaq's expansion into a new growth market. We began the qualification during Q3 at our Santa Clara headquarters, and are progressing through the final steps. The tool has been fully integrated and is producing process samples. As I mentioned, we are now in the final stages of qualification, which includes injuries to injury. These are starting this quarter, and we are on slow track to complete the qualification by year end.

Please go ahead.

Good evening, Nigel and Kevin.

Good evening.

I didn't catch it I'm willing to understand more about the pool and [noise].

<unk>.

From early 20th 24 or both.

Okay, and just just to follow them form of pay discretions I mean, we have a very agile workforce, it's actually <unk>.

Demand and that enables to handle pullins very effectively in the Porta and that's capability and agility. The organization is is a key strength of interact.

Nigel Hunton: Once we achieve qualification, the next step will be to receive an initial order as per the JDA. We continue to expect our first trio revenues and cash to occur in the first half of 2024. Of the last few earnings calls, we've discussed what sets the trio apart from other manipulations. Just to date, it is increasingly clear that cornings enthusiasm for the trio is primarily driven by the platform superior productivity and flexibility.

Some of those Pullins with <unk>.

The few three and I think part of this is is they understand the needs and they're actually ramping to ensure they meet the 2024 demand for the product line to have that capacity in place and ready.

But we believe you know based on the feedback from customer meetings. So we can get a similar level, though in 2024, but some of those pullins with clearly out of Q4 into Q3.

Nigel Hunton: Today, on our IR website, we have added a live action video of our trio running in Santa Clara as it is proposed to enter into our front. Enabling you to view the modular and compact design of this world-class coating machine. This video can be found on our IR homepage along with an update, today's earnings score. The slide that accompanies today's conference call also now include an overview of the longer-term revenue potential for trio, which offers a significant market opportunity for Intevac.

Okay.

I think you indicated earlier that.

The upgrades depends on the success of hammer in the market, what kind of time frame to see he outcome of how successful hammer is in the market like how many more months should we have any indication.

I think if you look at the the public messaging in the public announcements around.

Nigel Hunton: It now recently completed an analysis evaluating each of the potential end-market opportunities for the trio. We see a roughly $1,000,000,000 revenue opportunity for tools, assuming a durable, anti-reflective coaching software application through the high end of each end-market. Of course, while our initial focuses on consumer electronics applications, our efforts to ramp up a partner for the automotive market will accelerate in 2024. We look forward to updating you on our market expansion strategies on subsequent earnings calls.

<unk>.

The successful evaluations the amount of customers now who are trying the products and the the plans to ramp and the first half of 2024 Ah clear indications. This hammer is successful and hammer is now coming through into the market with some adoption. So so we.

Very positive and I think our customers a positive and you see that in some other announcements and gardens as well.

Uhm.

To us about the expectation that you will sell two or 330 system implanted 24 Ah disliked indicated that forest revenues are expected in the first half of 2024, how should we see that first rep and you will be just like once you you'll see some first or it could be like top too.

Nigel Hunton: In summary, today in 2023, we're on track to accomplish the objectives of our joint new to expect to receive initial orders before year end. As we look to 2024, we believe we will revenue two to three trio systems, and we will be building several additional tools and leveraging our investment in imagery ahead of an increased order requirement from Corning by year end 2024. These expectations for initial trio revenues and expanded customer opportunities for 2024 are in central, our drive industry.

Two or three four so Paul.

I think we've been very clear.

<unk>.

Qualification that qualification will then triggered the shipment of the first system. So one system will go out ahead of everything and.

We've said there'll be orders for more than one system by the end of December.

So a second assistant will follow that first system at some point in the first half of next year.

Nigel Hunton: There is no question that the expected revenue profile of our HDD media business over the next few years has changed significantly over the past year. Our customers must have not only de-emphasised and delayed their capacity expansion plans, but in fact cancelled some orders originally slated for capacity enhancements. The steadfast focus at this time is on our technological advancement and the key enabler in advancing our customers' technology roadmaps. As I mentioned, our outlook for 2023 HDD revenues has improved since our last quarter, to now around $50 million for the year.

So I I would assume.

It's potentially.

Two in the first offer and saw one later in the second half.

It's a rough Tommy.

But.

Its ability around that.

It wouldn't surprise me if it's one of the first half and then two in the second half, but as we get this first product into the field with pretty excited about getting that.

Into our customer <unk>.

Producing products are driving the future success.

Yep, and then I feel any any estimate how long the qualification may be like will it bring like.

Nigel Hunton: Importantly, as we look to 2020 form beyond, technology-based upgrade revenues for us are sustainable for the foreseeable future. We have a steady partner and a work to do with our customers to upgrade and optimize their existing price. In 2023, approximately 10% of the world media in store-based of 200 leans will be capable of producing hammer media. Furthermore, we believe that all technology upgrade initiatives either underway or within the planning stages by each leading HDD manufacturer are on Intervax 200 lean platform.

20.

None of this just to just to clarify that I think some people got slightly confused on the last call. The qualification final partner on the trio is on the first system that is running here in Santa Clara So that qualification that is the sign off with that customer and a key.

Part of that agreement is on the system here. So that's the real key qualification of the technology.

Will be part and we're working with our customers running products onto the machine.

Nigel Hunton: This multi-year visibility provides us with a solid foundation of HDD business, which we estimate to sustain, paying to approximately $40 million annually in upgrade sales and field service. Given this, our expectation for Intervax revenues in 2024 is approximately $40 million in HDD sales, as well as 2-3-3-0 systems. All together, we continue to focus revenues in a low-to-mead $50 million range next year, so a modest growth year compared to 2023. As a reminder, the 2020 system, as well as the refurbished system, which we don't expect to repeat in 2024.

That's very much confidential and between partner in their customers how they run what they are running on the machine, but thoughts from our perspective.

The key qualification is a qualification in Santa Clara on that festival.

I see and then this is a question for Kevin I'm cooking.

Package will lead to build infantry ahead of like cell phone to your system if it.

If it's successful any any further clouded the on how much infantry bills and the timing or the timing of when and the fact that will decide to put working capital to build up she'll systems.

Nigel Hunton: The key message of our outlook for 2024 is that after the resizing of our cost structure completed in Q3, at this revenue level, we expect our P&L to be at least cashflow neutral for the full year. We have reduced our quarterly topics run rate to the low 7 million dollar level, and we expect the non-cashforce of our cost structure will entirely offset as we look to next year.

If I could answer that before Kevin.

So yes, as we said on multiple calls we have made a significant investment and inventory to enable us to do fast deployment of tools in 2024.

That.

Give us the opportunity to not just bills.

Nigel Hunton: I'll summarise the few additional key takeaways from today's call. First, our tree of qualification process is nearing its final stages, and we on track for the first orders before year ends. Second, our HDD media business outlook has improved for 2023, and it's in the early stages of the industry's multi-year initiative to progress the industry's technology roadmap. Third, we energise and excite it for the future, and finally, we have a strong balance sheet to support. We expect it will be several years of growth ahead.

Two to three systems, but enabled <unk>, maybe three to five systems next year to use that imagery and to ensure we can actually respond quickly to future demand. So the first objective is to.

Actually.

Which really haven't utilized that capex two l's to respond fast 20 additional demand we see in 24 or 25.

Kevin you want to add anything to that.

So we're we're building the first tool that will be shipped when <unk> finished qualification and receive orders and then we'd have plans in 2024 to build additional tools for next year's revenue.

Nigel Hunton: Before we end the call over to Kevin, I would like to add that we currently have two processes ongoing and outstanding. One is the strategic process in out in June, which we will comment on at the appropriate time.

Satisfy demand beyond.

Okay.

Any any additional color on the spot kick alternatives Ah how long it may take and what kind of framework.

Nigel Hunton: The other is the search for new CFO, which is progressing, but remains outstanding at this time, and the meantime, our financial design is capable of having a trim CFO, Kevin Solzby.

Our options.

And as I said in my prepared remarks, we will explain that at the appropriate time, all I can say at this stage is the process is ongoing.

Kevin Soulsby: Now, over to you, Kevin. Thank you, Nigel.

Kevin Soulsby: Turning to the third quarter results. Revenues totaled $17.9 million. Well above our guidance of $12 to $13 million, and consists of the HDD upgrades, spares and service. We achieved more than $5 million of revenue upside, primarily to respond to the increase in technology upgrade or directivity within the quarter. Q3 gross margin with a line with other expectations at 39.1%.

Okay. Thank you.

Thank you and thank.

Thank you.

<unk>.

He would like to ask a question.

Welcome to <unk> and then one.

Pause it for a moment to assemble it.

[noise] next question, we have like a follow up question from Pizza Hut interact. Please go ahead.

Great. Thank you just looking at the trio a model how flexible is the system when you start moving into.

Kevin Soulsby: Total operating expenses were $8.4 million, slightly below our guidance of $8.5 million, and as expected, we recorded nearly $2 million of charges associated with our restructuring plan, announced last. Our gap operating loss was $1.4 million, and non-gap operating income was a positive $0.5 million. We recorded a gap loss of $0.6 per share, and achieved breaking even results for non-gap EPS.

<unk>.

The Street is.

Use the inventory that you're building for maybe three to five system something flexible it could go <unk> into that industry or would that be would that be a different tool configuration.

When you're looking at that.

And then my my last question is if you look at kind of the business model just for trio how.

How should we think of the.

The service you know the spares the upgrades the systems I know upgrade something obvious.

How should that mixed walk so when we look at your hard drive business. In comparison, you know, it's maybe a 40 15 split but you've got an installed base of of 180 systems out there so how.

Kevin Soulsby: Turning to the balance sheet, we ended the quarter with cash and investments, including the restricted cash of just over $1.6 million. $2.51 per share, based on 26.4 million shares at quarter end. During the quarter, total cash declined just shy of $8 million, solely due to the roughly $8 million increase in accounts receivable in the quarter, as a result of delayed payments from our largest customer. We have already added $13 million of cash through the collection of receivables in order to date, cash in the $75 to $80 million range.

How should we think of this trio contract. So if we have to roll forward five years.

20 tools out there you know just with your first first customer what would the service component look like soundtrack.

Okay, a crystal ball question [laughter] Festival to talk to the trip I mean, one of the really excited things about the trio concept and design is the modularity of it. So that's the system. We took some of the real learnings from the 200 Lee and built into the.

Kevin Soulsby: Cash flow used by operations with $7.5 million during the quarter, Q3 capital expenditures for $600,000 and depreciation and amortization for $400,000 for the quarter.

Design, a modular build so as you look on the video as you look on the enhanced slide.

<unk>.

Yeah that modular structure enables you to add to a common chamber multiple types of process chambers, So I could actually put on and I'm being <unk> at stage I could put on other bits of technology and actually expand or shrink that tool.

Kevin Soulsby: Now moving to guidance for the fourth quarter, we are projecting revenues in the range of $9.5 to $11 million. At the mid, what is, $50 million. We expect fourth quarter gross margin to be between 39% and 41%. Q4 operating expenses are expected to be around $7.25 million, which reflects the new lower quarterly run rate that you expect for the coming year. We expect interest income of about $600,000, about $500,000 in the quarter. Most of the tax expense will be non-cash.

To optimize it for other materials that'd be for auto sector or would that be for running a a polymer through the machine. So the machine is incredibly versatile.

If you look at.

For us it's early days to get a real understanding of the key target applications risks.

But we didn't that order sent to you have.

You can think about inside the inside of a car.

Screens that are very similar to a tablet or a laptop and therefore those are actually would actually fit very nicely into the common structure of the machine today.

Kevin Soulsby: We are projecting a net loss for Q4 in the range of 10 to 13 cents per share based on 26.4 million shares outstanding. As we look ahead, to fiscal 2024, we expect this lower op-ex run rate will enable our PNL results to be given our revenue expectations in the low to mid $50 million range. Gross margins of approximately 38 to 40% and that the non-cash portion of our cost structure will total $7 to $8 million for the full year. Therefore, our 2023 cost restructuring program completed in Q3 is enabling in a back to eliminate any further forecast fiscal 2024.

If you look beyond that into large hyper screens ago panel to panel it probably would be at the new mission, but <unk>.

Virginia capability, leveraging the R&D, we've put into getting the tools, where it is today a new philosophy. That's initially to get some inroads into the auto sector. So I see that the whole design concept being a brilliant bit of engineering expertise from the team to enable that flexibility.

Okay that sense of that question as I look out 510 years, I mean, clearly service is going to be a key part of our strategy.

His reaction.

<unk>, a very different strategy around the 200 lead to build a much stronger service capability I think it is too early to give you a mix today, but as we actually build the market presence, we stopped putting tools into the market a key part of our thinking is around bill.

Kevin Soulsby: This completes the formal part of our presentation.

Operator: Operator, we are ready for questions.

Building, a strong service cable in a service business.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. The confirmation turn will indicate your line is in the question Q. You may press star and then two if you would like to for participants using speak equipment, it may be necessary to pick up your handset before pushing the saw keys.

But also as you've seen with the concept of design.

As we've seen over the 200 lean over 20th <unk>.

A technology a different type of sputtering component onto the machine. So I do see that the whole design concept of upgrades being possible, but I think it's for the first couple of years, it's about getting the standard two lines that market.

Building some real learning building.

Building a business around the Spurs in service.

Hendi Susanto: The first question we have is from the divide of Interact. Please go ahead. Congratulations on a wonderful quarter and thank you for taking my question. Nigel, I have two questions for you. The first one is one number that you referred to as what number was upgraded in 23. If you can help me put this in context of the installed base, what I'm trying to understand is how many systems need to go through upgrade and what portion of the available installed base does that represent to have kind of steady state service spares and upgrade revenue in 24.

And then actually coming back to play in in Ah.

<unk> 12 to 18 months of giving you a bit more granularity around the service.

We want.

To drink.

If I could have one little little follow up into your Crystal ball there.

If you think of upgrades just alone on this business. How does this technology evolve over time is it chemistry as a sickness is it I I get productivity and throughput and that's more of a tool generation, but upgrading existing tools.

You know like Hammer as a as an example of different architecture or <unk>.

Density or what kind of <unk>.

That is gonna be kind of how these systems get better over time.

I think if you think about material science I think one of the extra things we've done with that.

Hendi Susanto: Thank you for that question. Yes, if you look at the hammer upgrades, so I think we've shared with people that around, you know, over the sort of history of the 200 lean, there's been over 182 systems shipped. We believe there are up and running around today in the sort of 140 plus level, up towards 150 as some of those upgrades are completed. And we've said around the end of the, so you know, pretty simple, it's around 15 units will be upgraded to be hammer ready.

The last I suppose 10 years within the H D business is leveraging all material science I'm, making sure we keep absolutely aligned with our customers Roadmaps in a similar way we want to make sure. We stay on line with our customers Road maps and could you <unk>.

You know I'm not sure what what happened, but I know that the technology will keep shifting input.

The importance of <unk>.

<unk> glass and automobiles will keep expanding.

And therefore, you know familiar over time, I think this there'll be more and more opportunities coming through and it'll it'll be driven by material science.

More than anything else.

Wonderful.

Hendi Susanto: Wonderful. And so the NFC assumption, how do you see that trending in 24 is the opportunities that bigger or smaller if you can have that, and then I've got, I've got a follow up as well. Yeah, I think what we are looking at and we've said we're going to run this. That really though depends heavily on the success of the hammer products into the market. And I think if you've seen some of the public announcements, hammer is starting to get some great traction.

Congratulations again on the Great Court.

Thank you.

Okay.

Ladies and gentlemen, just to find out reminder, if you would like to ask a question you're welcome spacetime and then one.

Next question, we have <unk> ask the elephant. Please can I hate Yep, Nigel I look at slide 11 that has estimate of how many thrill tools across like different markets.

Hendi Susanto: People are now putting out forecasts for 2024. And therefore I think for me, the positive move of hammer finally coming to fruition and starting to actually be seen in being evaluated and getting some successful revenue for our, additional revenue this year. But as we've said, we see a similar level of revenues of the hammer upgrades next year and for the subsequent year. And is there any, is there any capacity constraints on your side, if that was to get pulled in to next year? Last part of the hammer and then I'll ask one other, one other follow up question.

My thoughts are I.

I spent on it.

And then the <unk> the initial market penetration, maybe you can give us.

Insight into how you calculate the number of steel tools. There and then my second question is in the mail wearable section. It is sad that it can be a replacement officer fire is it more of let's say if a glass display quoted with appealed it can.

I would like to verify my understanding there. Thank you.

Hendi Susanto: And I'll come back to you is in the trio billion dollar PAM that you have on 11 of your joint development agreement. Does that represent the first three pieces? So does that cover smartphone wearables and tablet? And then it does not include automotive is that a good way to think about that. And then is it too early to say who your partners are going to be on that? Do you think it's going to be an exclusive or do you think there could be several people that you're working with on the other side?

Okay, but if I run through.

At a high level a model for.

The smartphones.

So literally you if you if you look at the smartphone market opportunity.

You'll get a total market size.

You can actually break that down into.

High end models.

And then and then a low rent and.

And so therefore by taking a percentage off.

Hendi Susanto: Yeah, I mean, just a hammer service of all available market of a billion dollars first. So I'll say that question first. And it's committed on the last call. We put that slide in following one of your requests. So I hope you appreciate the level of detail we're going to share in the size of the available market. We think it is very significant. The agreement and partnership with Corning is focusing on the consumer device and laptops.

The market opportunity I'm really focusing that's on the higher in percentage gave a.

Mm <unk> reduced market size opportunities, which at the time down to the lowest Sam.

And then I've taken a average throughput per year of the tool.

And converted that into number of two sorry.

Alex's as you work your way through the total smartphone market to the high end market to an average size of phone that can go into a machine.

Which number of those phones at making <unk> and that gives you a total number for your tools.

Hendi Susanto: And we see that partnership being key, getting momentum and success into that sector. The office display is outside of that partnership and it's early days. We're talking to people, but it's early days. And I think 2024 will see some progress around the auto sector. But our focus as I keep saying on these calls is very much including this partnership so it's so hopefully that slide gives you a mix of both the current focus and then the future potential.

And that's why we said you know initially that we believe that number will be for this whole high priced more market opportunity.

Similarly, the Wearables. We've says you know some of those variables at all.

<unk>.

Will not move to a new technology in the short term, but as our technology and the capability and they.

The market acceptance of having a heart scratch resistant and to effective coaching phone into the wearable mark it becomes more accepted.

Then you'll see that being considered for complete replacement I think of <unk> in the future.

Hendi Susanto: And we've also tried to explain the detail there how we've actually positioned this around the high priced smartphones first, similarly the touch screen laptops and high end tablets. And therefore as we see over the next three, four, five years the market adoption expanding, then we believe there's a significant upside beyond that as well.

In a similar way as we've gone to tablets I've taken the tablets.

<unk>.

Which which I think will get.

Uhm looked at first for this coatings take.

Taken them by again.

Home to set number of tablets.

Panel to go through the machine that gives us a smaller number the smartphones are yeah, but it gives you a number of tools P. A and then it goes into the number of tools, we require in a similar way for laptops I've taken the touch screen laptops, not all laptop so out of the world.

Hendi Susanto: We'll come back to you.

Hendi Susanto: Thank you so much.

Hendi Susanto: The next question we have is from Hendi Susanto of Cabelli Funds. Please go ahead. Good evening Nigel and Kevin. Good evening. Nigel and Kevin I wanted to understand more about the pull-ins. From early 2024 or both. Okay and just to follow on for one of Peter's questions. I mean we have a very agile workforce that's actually able to flex up demand and that enables to handle the pull-ins very effectively in the quarter and that capability and agility the organisation is a key strength of Intervac.

Besides that.

Touch screen elements of it so we've tried to make this a.

Very clear serviceable addressable market rather than go for the much bigger Tam to give you some initial.

Initial views on the size of this market opportunity. So hopefully that helps give you some of the detail and granularity behind <unk> around me some tools.

Okay.

Nigel.

Thank you.

Further questions at this time.

Hendi Susanto: Some of those pull-ins work in Q4 which is the Q3. And I think part of this is as they understand their needs and they're actually ramping to ensure they meet the 2024 demand for the product line to have that capacity in place and ready. But we believe based on the feedback from custom meetings that we can get a similar level in 2024 but some of those pull-ins are clearly out of Q4 into Q3.

Amount and the call back over to natural hunting <unk>.

Thank you Anthony Uhm first I wish to thank all of our employees as well as their counterparts with our industry partners for.

For the hard work and dedication as we proceed to the qualification face for the trio.

And during the same actually.

And nearly three yes, thanks to our role as a key technology enabler any HD industries transition to Hammer just really we have a great team here in Santa Clara have a great team in Singapore, driving I H T D business.

Hendi Susanto: I think you indicated earlier that the upgrades depend on the success of hammer in the market. What kind of time frame to see the outcome of how successful a hammer is in the market? But how many more months should we have any indication? I think if you look at the public messaging and the public announcements around the successful evaluations and the amount of customers now who are trying the products and the plans to ramp in the first half of 2024, a clear indication that hammer is successful and hammer is now coming through into the market with some adoption.

I also wish to thank our investors strong going support.

And that was always the vestige can reach out to Claire directly they're gonna follow up with with US either in November or the New York Summit in December.

And I look forward to updating you all for <unk>.

S. I will conclude today's cool thank you.

This concludes today's conference.

Thank you for joining US you may now disconnect your lines.

Hendi Susanto: So we are very positive and I think our customers are positive when you see that in some of their announcements and guidance as well. To ask about the expectation that you will sell two or three of system in 2024, I decided indicated that first revenues are expected in the first half of 2024. How should we see that first revenue will it be just like one trio system first or it could be like top two or three first of all?

[noise].

[noise] [noise].

Hendi Susanto: I think we've been in a very clear, the Qualification. Qualification will then trigger the shipment of the first system. So one system will go out ahead of everything. We've said there will be orders from more than one system by the end of December. So a second system will follow that first system at some point in the first half of next year. So I would assume it's potentially two in the first half and sort of one in the late from the second half.

[noise].

Hendi Susanto: It's a rough timing, but it's a possibility around that. It wouldn't surprise me if it's one in the first half and then two in the second half. But as we get this first product into the field, we're pretty excited about getting that Intevac customer producing products and driving the future success. Yeah, and then I do any any estimate how long the qualification may be like will it bring like 20. Now that this just just to clarify because I think some people got slightly confused on the last call.

Hendi Susanto: The qualification by our partner on the trio is on the first system that is running here in Santa Clara. So that qualification that is to sign off with that customer and a key part of that agreement is on the system here. So that's the real key qualification of the technology. We'll be you know our partner we're working with our customers running products onto the machine. And really that's very much confidential and between our partner and their customers and how they run what they're running on the machine. But from our perspective the key qualification is the qualification in Santa Clara on that first tool. I see.

Hendi Susanto: And then this is a question for Kevin. Kevin is willing to build inventory ahead of like south of three of system. If it's successful any further clarity on how much inventory builds and the timing or the timing of when Intevac will decide to put working capital to build trio systems. If I can answer that before Kevin. So yes as we said on multiple calls we have made a significant investment in inventory to enable us to do fast deployment of tools in 2024.

Hendi Susanto: That gives us the opportunity to not just build two to three systems but enable some build maybe three to five systems next year to use that inventory and to ensure we can actually respond quickly to future demand. So the first objective is to ensure we have a utilize that capital to respond fast to any additional demand we see in 24 or 25. There were Kevin and Brad pending to that. So we're building the first tool that will be shipped once we finish qualification and receive orders and then we have plans in 2024 to build additional tools for next year's revenue and to satisfy demand beyond.

Hendi Susanto: Any additional color on the strategy algorithm that this how long it may take and what kind of framework or options? Yeah, now, as I said in my program, Marks, we will explain that at the perfect time. All I can say this stage is the process is ongoing.

Hendi Susanto: Okay, thank you. Thank you, Hendi. Thank you.

Operator: Ladies and gentlemen, if you would like to ask a question, you're welcome to play star and then one. We will pause for a moment to assembly.

Peter Wright: Next question we have is a follow-up question from Peter Wright of Interact. Please go ahead. Great. Thank you. Trio model, how flexible is the system when you start moving into markets? Is the inventory that you're building for maybe three to five systems, something flexible it could go into that industry or would that be, would that be a different tool configuration? When you're looking at that, and then my last question is, if you look at kind of the business model, just for Trio, how should we think of the?

Peter Wright: The service, you know, the spares, the upgrades, the systems, I know upgrades. How should that mix look? So when we look at your hard drive business in comparison, you know, it's maybe a 40, 15 split, but you've gotten installed base of, you know, 180 systems out there. So how should we think of this Trio contract? So if we have, you know, roll forward five years, 20 tools out there, you know, just with your first, first customer, what would the service component look like on track?

Nigel Hunton: Okay, a crystal ball question. Best of all to talk to the trio. I mean, one of the really excited things about the trio concept and design is the modularity of it. So the system, we took some of the real learnings from the 200 lean and built into the design, a modular build. So as you look on the video, as you look on the enhanced slide. How that modular structure enables you to add to a common chamber multiple types of process chambers.

Nigel Hunton: So I could actually put on an I'm being etched stage. I could put on other bits of technology and actually expand or shrink that tool to optimize it for other materials, whether that be for an auto sector or whether that be for running a polymer through the machine. So the machine is incredibly versatile. It's been looking for us. It's early days to get a real understanding of the key target applications. But within that order sector, you have as you can think about it inside the inside of a car.

Nigel Hunton: Screens that are very similar to a tablet or a laptop. And though for those are actually would actually fit very nicely into the common structure of the machine today. If you look beyond that into large hyper screens to go panel to panel, it probably would be a new machine. Emerging the capability, leveraging the R&D we've put into getting the tools to where it is today and utilizing that initially to get some inroads into the auto sector.

Nigel Hunton: So I see that the whole design concept being a brilliant bit of engineering expertise from the team to enable our flexibility. I hope that answers that question. As I look out five, ten years, I mean clearly service is going to be a key part of our strategy. I think we actually have a very different strategy around the 200 lean to build a much stronger service capability. I think it is too early to give you a mix today.

Nigel Hunton: But as we actually build the market presence, we start putting tools into the market, a key part of our thinking is around building a strong service capability and a service business. But also as you've seen with the concept of design, as we've seen over the 200 lean over 20 years, take a modern technology, a different type of sputtering component onto the machine. So I do see the whole design concept of upgrades being possible.

Nigel Hunton: But I think it's for the first couple of years, it's about getting the standard to land that market, building some real learning, building a business around the spurs and service. And then actually coming back to you in a, you know, probably 12 to 18 months are giving you a bit more granularity around the service.

Nigel Hunton: If I could have one little little follow up into your crystal ball there, you know, if you think of upgrades just alone on this business, how does this technology evolve over time? Is it chemistry? Is it thickness? Is it I get productivity and throughput? And that's more of a tool generation, but upgrading existing tools. You know, a camera as an example, a different architecture or density or what kind of the mic that is going to be kind of how these systems get better over time.

Nigel Hunton: I think if you think about material science, I think one of the things we've done with the last I suppose 10 years within the HD business is leveraging our material science and making sure we keep absolutely aligned with our customers road maps. In a similar way, we want to make sure we stay aligned with our customers road map maps and consumers and all. You know, I'm not sure what will happen, but I know that the technology will keep shifting.

Nigel Hunton: The importance of thin glass in automobiles will keep expanding. And therefore, you know, for me over time, I think there will be more and more opportunities coming through and it will be driven by material science more than anything else. Wonderful.

Hendi Susanto: Congratulations again on the great core. Thank you. Ladies and gentlemen, just a final reminder, if you would like to ask a question, you're welcome to play star and then one. The next question we have is a follow-up from Henny Susanto of Gdaily Fund. Hi Nigel, I look at slide 11 that has a teammate of how many three or two across like different markets. My thoughts are, and then the initial market penetration.

Hendi Susanto: Maybe you can give us some insight into how you calculate the number of three tools there. And then my second question is in the merriable section, it is said that it can be replacement of Sapphire. Is it more of, let's say, if a glass display quoted with the three of mid-cal? I would like to verify my understanding there. Thank you.

Nigel Hunton: Okay, but if I run through at a high level, a model for the smartphones. So, literally, if you look at the smartphone market opportunity, you look at the total market size, you can actually break that down into high end models, the pre-sector, and then the lower end. And so therefore, by taking a percentage of the market opportunity, and really focusing that on the higher end percentage, gave a sort of reduced market size opportunity.

Nigel Hunton: So, we took the tab down to a lower tab. And then I've taken a average throughput per year of the tool and converted that into a number of tools. So, it analysis, as you walk your way through the total smartphone market to the high end market to an average size of a phone that can go into a machine, average number of those phones that we can go to per year, and that gives you a total number of three of tools.

Nigel Hunton: And that's why we've said that, you know, initially that we believe that number will be for the sort of high price model market opportunity. Similarly, in the wereables, we've said, you know, some of those wereables that are not moved to a new technology in the short term, but as our technology and the capability and the sort of the market acceptance of having a hard, scratch-resistant, anti-reflective coating phone into the wereable market becomes more accepted.

Nigel Hunton: Then you'll see that being considered for complete replacement, I think, of Sapphire Glass in the future. In a similar way, as we've gone to tablets, I've taken the tablets, which I think will get looked at first for these coatings. We've taken them by again, assumed a certain number of tablets per panel to go to the machine that gives a smaller number, the smartphones a year, but gives a number of tools per year, and that then goes into the number of tools we require.

Nigel Hunton: And in a similar way, for laptops, I've taken the touchscreen laptops, not all laptops, so out of the world, the size of the touchscreen element of it. So we've tried to make this a very clear serviceable, addressable market rather than go for the much bigger TAM to give you some initial views on the size of this market opportunity. So hopefully that helps give you some of the detail and the granularity behind our thinking around these numbers of tools. Thank you, Nigel. Thank you.

Operator: They are known for the questions at this time.

Nigel Hunton: I will now turn the call back over to Nigel Hunton for his closing remarks. Thank you, Arnie. First of all, I wish to thank all of our employees as well as their counterparts with our industry partners for their hard work and dedication as we proceed to the qualification phase for the trio. And you're on the same point. Actually, in nearly three years, thanks to our role as a key technology enabler in the HDD Industries transition to hammer.

Nigel Hunton: So, it's really, we have a great team here in Santa Clara, and we have a great team in Singapore driving our HDD business. I also wish to thank our investors for ongoing support. And as always, the investors can reach out and declare directly. They want to follow up with us either in November or the New York Summit in December. And I look forward to updating you all before call.

Nigel Hunton: As I will conclude today's call. Thank you.

Operator: This concludes today's conference. Thank you for joining us. You may now disconnect your lines. Thank you.