Q4 2023 Intevac Inc Earnings Call
Good day, and welcome to into that fourth quarter and full year 2023 financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Operator: Good day, and welcome to Intevac's fourth quarter and full year 2023 financial results conference call. At this time, all participants are in a listen-only mode.
Operator: A question-and-answer session will follow the phone line. If anyone should require operator assistance during the conference, please press star zero on your telephone. Please note that this conference call is being recorded today, February 5th, 2020. At this time, I would like to turn the call over to Claire McAdams, Investor Relations. Thank you, Sari, and good afternoon to everyone on today's call.
Please note that this conference call is being recorded today February six two.
2024 at this time I would like to turn the call over to Claire Mcadams Investor Relations for Internet. Please go ahead.
Thank you Sherry and good afternoon to everyone on today's call.
Claire McAdams: Thank you for joining us today to discuss Intevac's financial results for the fourth quarter and full year 2023, which ended on December 30th. In addition to discussing the company's recent results, we will discuss our outlook looking forward. Joining me on today's call are Nigel Hunton, President and Chief Executive Officer, and Kevin Solcey, Chief Financial Officer.
Thank you for joining us today to discuss <unk> financial results for the fourth quarter and full year 2023, which ended on December 30th.
In addition to discussing the company's recent results we will discuss our outlook looking forward. Joining me on today's call are Nigel Hunton, President and Chief Executive Officer, and Kevin Solesbee Chief Financial Officer.
Claire McAdams: Nigel will begin with an overview of our business and outlook, and then Kevin will review our financial results before turning the call over 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 company's most recently completed fiscal quarter and year, which remain 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 Intevac. 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 Exchange Commission, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The contents of this February 6 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. Nigel?
Joe will begin with an overview of our business and outlook and then Kevin will review our financial results before turning the call over 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 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 I've been to that.
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 Exchange Commission, including our annual report on Form 10-K, and quarterly reports on Form 10-Q.
The contents of this February 6th 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 Hi, Joe.
Yeah.
Nigel Hunton: Thanks Claire, and good afternoon. Intevac posted strong results for the fourth quarter, marking a solid finish to what was a key year of growth and execution in 2023. Q4 revenues totaled nearly $13 million, well ahead of our expectations entering the quarter. As evident by our record level of upgrades in 2023, Intevac is a key technology enabler in the hard drive industry's transition to high-speed. The fourth quarter was another period of accelerated demand from our leading customer as they ramped up to deliver production quantities of hammer dry. The key role of Intevac in enabling this ramp resulted in a very strong 47% growth in revenues for fiscal 2023, and we achieved a four-year record in annual sales for our equipment. The resulting favorable revenue mix drove strong gross margin performance, exceeding our guidance at 46% for the fourth quarter and 38% for the full year. Additionally, with continued dividends controlling discretionary spending, we sharply reduced our net losses both for Q4 and the full year compared to the prior year period.
Thanks, Claire and good afternoon.
Interbank posted strong results for the fourth quarter, marking a solid finish to what was a key area of growth and execution in 2023.
Q4 revenues totaled nearly $13 million well ahead of our expectations entering the quarter.
As evidenced by our record level of upgrades in 2023 interbank as a key technology enabler in the hard drive industry transition to hammer.
The fourth quarter was another period of accelerated demand from our leading customer as they ramp to deliver production quantities of hammer drives.
The key role of intervention in enabling this ramp resulted in very strong 47% growth in revenues for fiscal 2000, Twenty's rate and we achieved a full year record in annual sales for our equipment business.
The resulting favorable revenue mix drove strong gross margin performance exceeding our guidance at 46% for the fourth quarter and 38% for the full year.
With continued diligence controlling discretionary spending we sharply reduced our net losses, both for Q4 and the full year compared to the prior year period.
Protecting our balance sheet remains a key priority for the company and we ended the year with over $72 million of total cash and investments.
Nigel Hunton: Protecting the balance sheet remains a key priority for the company, and we ended the year with over $72 million of total cash and investment. This will remain a key focus in 2024. The ERM balance is just below our previous guidance, but only due to late payments of receivables by one customer.
This will remain a key focus in 2024.
Yeah, Ren balance was just below our previous guidance. So I always use the late payment of receivables by one customer.
Nigel Hunton: Total backlog at year-end was $42 million, reflecting the continued strong order activity for hammer-ups. In Q4, these orders included the successful rebooking of 2,200 liens in favor of additional hammer process modulars. As a reminder, these two systems have been in backlog for the past eight quarters and were originally aimed at enhancing capacity as opposed to technology. We are pleased with the renegotiation of all the backlog towards the HAMR initiative. As these are clearly the priority in the industry right now, and from a financial perspective, while upgrades carry less revenue compared to total sales, the rebooking is expected to have a minimal impact on our forecast for gross profit. Finally, as we reflect on Fiscal 2023, it was a critical year for the technology, development, and commercial launch of our groundbreaking TRIO platform. We successfully completed the development phase of our JVA and achieved system qualification, as promised, by year end.
Total backlog at yearend was $42 million, reflecting the continued strong order activity for hammer upgrades.
In Q4. These orders included the successful Rebooking of two 200 leans in favor of additional hammer process module upgrades.
As a reminder, these two systems had been in backlog for the past six school does ambarella, originally and aimed at enhancing capacity as opposed to technology.
We are pleased with the renegotiation of order backlog towards hammer initiatives. As these are clearly the priority in the industry right now and from a financial perspective, while upgrades carrying less room revenue compared to total sales the rebuilt and is expected to have a minimal impact on our forecast for gross profit gross profit.
Finally, as we reflect on fiscal 2023, it was a critical year for technology development and commercial launch of our groundbreaking trio platform.
We successfully completed the development phase of our J D I and achieve system qualification as promised by yearend.
Nigel Hunton: This is a key milestone in the growth trajectory of Intevac, as the trio achieves key performance metrics as part of the evaluation process that will enable Intevac to address market opportunities far larger than our existing hard drive. We see this career as having enormous potential, with an estimated $1 billion dollar surf market, and the achievements in 2023 are key steps forward in our plan to diversify and grow our product portfolio and customer base, which brings me to a discussion of our perspectives on the future and our strategies to deliver consistent and profitable growth in the years ahead. The important developments unfolding in Fiscal 2023 within each of our primary markets have underscored two key attributes of our business. First and foremost, Intevac plays a critical role in the global electronics manufacturing industry in that we are uniquely capable of producing equipment that addresses the needs of technologically challenging thin-film processors in highly demanding, high-volume manufacturing environments and within industries that require extremely low cost of output. This is especially evident during the challenging macroeconomic environment of 2023. A year when our customers faced enormous headwinds financially and operationally, yet they never diverted their attention from their strategic manufacturing priorities in close partnership with Intevac. But it's these same headwinds that manifested in the second reality for Intevac's leadership team in 2023, of NAPIER.
This is a key milestone in the growth trajectory in tobacco as the trio achieved key performance metrics as part of the evaluation process that will enable them to go back to address market opportunities far larger than our existing hard drive business.
We see the tree it was having enormous potential with an estimated $1 billion served market and the achievements in 2023 key steps forward in our plan to diversify and grow our product portfolio and customer base.
Which brings me to a discussion of our perspectives on the future and our strategy is to deliver consistent and profitable growth in the years ahead.
The important developments unfolding in fiscal 'twenty twenty-three within each of our primary markets I've underscored two key attributes of our business.
First and foremost is the interbank plays a critical role in the global electronics manufacturing industry and that we are uniquely capable of producing equipment that addresses the needs of technologically challenging thin film processes in highly demanding high volume manufacturing environments within industries require extremely.
<unk> low cost of ownership.
Yeah, when our customers faced enormous headwinds financially and operationally yet never diverted their attention from the strategic manufacturing priorities in close partnership with into that.
But it's the same headwinds that manifest in the second reality Green tobacco leadership team in 2023.
And that is yes.
Nigel Hunton: The only relevant influence that our large customers can exact on our short-term financial results is a problem that today we are addressing head on. As we enter into the new year, we are steadfast in taking a long-term focus on improving the underlying financial performance of Intevac. We're always going to be focused on the shiny aspects of our financial performance, such as revenue volumes and our cash position. At this juncture, however, we have made a determination to temporarily redirect our focus away from short-term metrics to quarterly revenue and cash targets, in order to set up a stronger long-term value proposition for our state. This means we have made the decision to temporarily withdraw near-term financial guidance in order to enable our focus to reside primarily on the long term and specifically on improving our longer-term growth, profitability, and cash flow profile. This has implications for each of us Earth Marks.
You wouldn't you wouldn't have an influence that a lot of customers can exact on our short term financial results, which is an issue that today, we are addressing head on.
As we entered new yeah, we are steadfast and taken a long long time focus on improving the underlying financial performance I mean tabak.
They're always going to be focus on critical aspects of our financial performance such as revenue volumes on our cash position.
At this juncture. However, we have made the determination to temporary redirect our focus away from short term metrics, just quarterly revenue and cash targets in order to set up a stronger long term value proposition cross stakeholders.
Which means we have made the decision to temporarily withdraw near term financial guidance in order to enable our focus there is on primarily on the long term and specifically on improving our longer term growth profitability and cash flow profile.
This has implications for each of our served markets.
First in our primary H D D market.
Nigel Hunton: First in our primary HCD market. The revenue round we achieved in 2023 demonstrated our operational agility and our ability to execute to meet customer timelines for hammer down. Even more importantly, Intevac has emerged as the enabling technology partner for the adoption of HAMR, and our revenue results in 2023 demonstrate that we are a direct beneficiary of the HCD Media Technology Upgrade initiatives currently underway. We have demonstrated our critical role in the hard disk drive industry at the same time as we have supported the strength of our customer's financial position at the expense of our own. Our cash conversions per item have slowed to historical lows, and connection delays have become pervasive or a quarterly norm. We encountered an unprecedented order cancellation more than eight months ago, which has yet to resolve the factor of industry and material receipts off our balance sheet.
The revenue ramp we achieved in 2023 demonstrates our operational agility.
Our ability to execute to meet customer timelines for hammer upgrades.
Even more importantly interact has emerged as the enabling technology partners. The adoption of hammer on our revenue results in 2023 demonstrate that we are a direct beneficiary of the H D. D media technology upgrade initiatives currently underway.
We have demonstrated the critical role for the harvest is just drive industry at the same time as it supports the strength of our customers' financial position at the expense of our own.
Our cash conversion cycle has slowed to a historical lows.
You shouldn't delays have become pervasive or a courtly norm.
We encountered an unprecedented order cancellation, but nine months ago, but still have yet to resolve the transfer of inventory and material receipts off our balance sheet.
Okay.
This quarter, we have made the decision to temporarily suspend our fulfillment of H D. D oldest intellect customer fulfill their obligations regarding adding payables and inventory. We are confident we can get the business back in alignment with our standard terms.
Nigel Hunton: For this quarter, we have made the decision to temporarily suspend our fulfillment of HDD orders until that customer fulfills their obligations regarding our repairables and implements. We are confident that we can get the business back in alignment with our standard terms, but we are not using Intevac cash to fund our customers. I know our investors will understand the position we have taken. Nick, turn to the actions we're taking in the display market.
Using <unk> cash to fund our customers I know our investors will understand the position we have taken.
Next turning to the actions, we're taking in the display market.
Nigel Hunton: The recently completed qualification of our freer system is testament to the quality of engineering resources resident within Intevac and our ability to meet key performance specifications for a very demanding and exacting customer. Upon achieving qualification and the successful completion of our joint development agreement, we engaged with our JDA partners in negotiations for a commercial agreement for multiple, While we are not able to complete such agreement by year-end as we had originally hoped, we expect such negotiations to conclude by the end of the first quarter. As we've said before, the supply chain for display cover glass for high-volume consumer device applications is highly complex, to say the least.
Recently completed qualification of our trio system is testament to the quality of engineering resources resident with any tobacco and all.
Upon achieving qualification and the successful completion of our joint development agreement, we engage without J D power and are in negotiations for a commercial agreement for multiple systems.
While we were not able to compete complete such agreement by year end as we had originally had hoped we expect such negotiations to conclude by the end of the first quarter.
As we said before the supply chain for display cover glass for high volume consumer device applications is highly complex to say the least.
Nigel Hunton: Meanwhile, conditions in the display market have become more challenging in the face of slowing customer demand, which is manifesting itself in conservative financial planning by our JDA partner in the short term. It is also quite apparent to us that there is a significant customer pull coming from the end device OEMs to rapidly deploy TRIO systems into volume manufacturing environments so that the benefits of our tools can be realized on multiple device types. Whether through the originally contemplated exclusive arrangement with our current partner, which is tied to a minimum purchase of multiple systems, estimated at approximately $100 million over a five-year period, or through other customer sales, we will work towards maximizing the long-term potential of TRIO. Which means, by withdrawing ASM guidance, we'll be firm in our negotiations regarding any commercial terms for the TRIO that have a long-range implications.
Meanwhile, conditions in the display market that become more challenging in the face of slowing customer demand, which is manifesting itself in conservative financial planning by J D. A partner in the short term.
It's also quite apparent to us there is significant customer pool coming from the end devices Oems to rapidly deploy tree of systems into volume manufacturing environments that the benefits of our tool can be realized or multiple device types.
Whether it's through the originally contemplated exclusive arrangement with our current partner, which is tied to a minimum purchase of multiple systems estimated at approximately $100 million over a five year period or through other customer cells, we will work towards maximizing the long term potential of trio.
Which means probably drawing near term guidance will be firming on negotiations regarding any commercial terms for the trio.
Long range implications.
While we work through this process with each within each of our markets. I'll also note there's been no material changes in demand right. As we've indicated previously providing a preliminary outlook for 2024, which we shared on our last two earnings calls.
Nigel Hunton: While we work through this process within each of our markets, I will also note that there has been no material change in the demand rate to be vindicated from previously providing our preliminary outlook for 2024, which we shared on the last two earnings calls. For purposes of annual revenue guidance, our outlook for the full year is largely unchanged at the $50 million level.
For purposes of annual revenue guidance, our outlook for the full year is largely unchanged at $50 million level.
Kevin Solcey: Furthermore, we expect to end 2024 with a similar balance of cash and investments as we are in 2023. However, given our decision to halt the deployment of certain of Intevac's resources in the short term in favor of maximizing the company's longer-term potential, we are not providing official guidance for margins or profitability or a specific revenue range for Q1. And with that, I'll turn the call over to Kevin for his Q4 review. Thank you, Nigel.
Furthermore, we expect to end 2024, with a similar balance of cash and investments as year end 2023.
However, given our decision to halt the deployment of certain of interaction has offices in the short term in favor of maximizing the company's longer term potential we're not providing official guidance range just for margins or profitability or a specific revenue range for Q1.
And with that I'll turn the call over to Kevin for his Q4 review.
Thank you and agile turning to our results Q4 revenues totaled $12 $9 million, which exceeded the midpoint of guidance by $2 $7 million due to the acceleration of her upgrades during the quarter.
Kevin Solcey: True of our results. Q4 revenues totaled $12.9 million, which exceeded the midpoint of guidance by $2.7 million due to the acceleration of hammer upgrades during the quarter. For the four years, revenue grew to $52.7 million, up 47% from 2022 sales of $35.8 million.
For the full year revenues grew to $52 $7 million up 47% from 2022 sales of $35 $8 million.
Kevin Solcey: 2023 sales included a record level of HDV upgrades, as well as one new 200 lane and one refurbished 200 lane systems. Q4 gross margin benefitted from favorable mix and exceeded our forecast at 46%. For the full year, gross margin was 38.4%.
2023 sales included a record level of HDD upgrades as well as one new 200, lean and one refurbished 200 lean system.
Q4, gross margin benefited from favorable mix and exceeded our forecast at 46% for the full year gross margin was 38, 4%.
Q4, operating expenses were $7 $8 million.
Kevin Solcey: Q4 operating expenses were $7.8 million, down both sequentially and year over year, reflecting the restructuring of our business and a leaner operating structure. As a result, we were able to reduce our operating and net loss, both for Q4 and the full year, compared to the year-ago period. Turning in the balance sheet. We enter the quarter with cash and investments, including restricted cash, of $72.2 million, equivalent to $2.74 per share, based on 26.4 million shares at quarter end. As Nigel mentioned, we would have ended the year with total cash in the range of $75 to $80 million if not for the persistent delay in collection from one large customer. Cash flow from operations was a positive $5.9 million during the quarter.
Down both sequentially and year over year.
During the restructuring of our business and leaner operating structure.
As a result, we were able to reduce our operating and net loss both for Q4 and the full year compared to the year ago periods.
Turning to the balance sheet, we ended the quarter with cash and investments, including restricted cash of $72 $2 million equivalent to $2.74 per share based on $26 4 million shares at quarter end.
As Nigel mentioned, we would have ended the year with total cash in the range of $75 million to $80 million if not for the persistent delay in collections from one large customer.
Cash flow from operations was a positive five $9 million during the quarter.
Q4 capital expenditures were $500000 and our non cash costs for the quarter included $1 million of stock based compensation and $400000 of depreciation and amortization.
Operator: Q4 capital expenditures were $500,000, and our non-cash costs of the quarter included $1 million of stock-based compensation and $400,000 of depreciation and amortization. This completes the formal part of our presentation. Operator, we are ready for questions. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question area. Press Star 2 if you would like to remove your question. Thank you for participating using speaker equipment. It may be necessary to pick up your handset before pressing the start button.
This completes the formal part of our presentation operator, we are ready for questions.
Thank you if you would like to ask a question. Please press star one on your telephone keypad.
Tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star T is.
Our first question is from Mark Miller with the benchmark company. Please proceed.
You mentioned that the trio negotiations are you expect them to be complete this quarter I'm. Just wondering could you provide any more color on what's being discussed.
Mark S. Miller: Our first question is from Mark Miller with the Venture. You mentioned that the three other negotiations you expect them to be completed this quarter. I'm just wondering, could you provide any more color on what's being discussed? If you take the JGA wind we have, and the plan for that was to go to the JBA agreement and then negotiate a commercial agreement for ongoing supply. So we're in the middle of negotiating a JBA agreement, a Sales and Purchase Agreement, for the future.
And if you if you take the J D. I agree we had.
Plan for that was to go from the D. J D. A agreement and then negotiate a commercial agreement for ongoing supply.
So we're in the middle of negotiating a sale.
Sales and purchase agreements.
Well the future.
Nigel Hunton: So that's what's been involved in this negotiation. So we're still working at roughly 100 million hours, at least in sales for Trio. We're looking to conclude that negotiation in this quarter, and the outcome of that negotiation we'll cover in the next earnings report. Any thoughts about the TRIO tool that was just qualifying terms of being revenue? No, the JDA wants its qualification and then moves to negotiations on the commercial agreement, and at this time, we want to get the best outcome for us, the best industry shareholders.
That's what I've been involved in the negotiations.
So we're still looking at roughly 100 million hours at least in sales for trio.
We're looking to include that in the Gate Association in this quarter and the outcome of that negotiation will cover on the next earnings call.
Any.
Any thoughts about the trio tool that was just qualify in terms of being revenues.
Oh.
J D. A once its qualification then moves to a negotiation on the commercial agreements and at this time, we want to get the best outcome for us the best interest of our shareholders.
Nigel Hunton: So it's probably not best to discuss specific outcomes of the... That's all right. Western Digital, during its recent conference call, indicated that they were going to wait until 4 terabytes per platter to phase in HAMR. Do you have any feeling as to when that would be?
He knows best to discuss does anything outcomes of.
Awesome.
Western digital is doing it's a recent conference call indicated that they were going to wait until four terabytes terabytes per plot are facing harm or do you have any feeling when that would be will that be waiver. This year are 2025.
Nigel Hunton: Will that be later this year or 2025? I think Western Digital's announcement was very positive for us. I think, as you see, the industry move towards Hammer was traditionally focused really around one customer. I think now you're seeing the industry following.
I think western Digital's announcements was very positive for us I think as you sit in the.
Industry moved towards hammer, which produce it.
The focus really around one customer I think now you're saying that the industry following them and I think I think when practical resource at WD might be yeah behind.
Nigel Hunton: And I think, on prior calls, we've sort of said that WD might be a year behind. I think we'll see, towards the end of this year, into 2025. I think it's a very positive thing for the company. Thank you. Our next question is from Hendy Susanto with Gabelli.
I think we will see towards the end of this year into 2025, I think it's a it's a very positive thing for the company.
Thank you.
Okay.
Our next question is from it Hendi Santo with Gabelli funds. Please proceed.
Good afternoon, Nigel and Kevin.
Good afternoon afternoon Wayne.
Nigel I would like to.
Hendy Susanto: Good afternoon. Nigel, I would like to ask your perspective on the latest forecast of the 2024 hard disk drive market and then the outlook for hammer upgrades. And then, second, I'm wondering whether you can share some color on the kind of timing or cyclicality of hammer upgrades. Does it tend to be lumpy or can it be somewhat linear and incremental?
What's your perspective on the latest forecast of 2020 for hard disk drive market and then the outflow for Hammer upgrades and then second I'm wondering whether you can share some color all of or like what kind of timing or cyclicality of hammer upgrades does does it tend to be lumpy.
Or.
Like can you be somewhat like a linear and incremental.
Nigel Hunton: I think, as we've said on the practical, we have, It's a store base of around 140 systems, with over 10% of them upgraded towards HAMR. We see that continuing through the next three to four years. So we see the HAMR opportunity as being significantly large, and as Mark Miller commented earlier, we're actually seeing a level of interest from WD coming in as well. The key for us is really making sure we are ready to support the HAMR round, making sure we're able to actually support that business. We've been a key enabler.
I mean, I think as we've said on the Bronco with golf.
It's installed base around 140 systems with over 10% of that upgraded towards hammer.
We see that continuing.
Through the next three to four years, so we see the hammer opportunity as being significantly large and is Mount Milligan coming to that we were actually seeing now a level of interest from W. D coming in as well.
That's the key for US is really is.
Making sure we are ready to support the hammer ramp.
Making sure we're able to actually support that business and we've been a key enabler of the technology has helped prove and establishment of is that as a step change in technology.
Nigel Hunton: The technology has helped prove this. How is it that this is a step change in technology? The critical thing for now is to make sure we make the right decisions for the business. Therefore, that's focusing on getting one of our key customers back to standard terms. Getting our cash position back to where it should be is a key focus at the moment. And then we'll, once we get that done and resolved, then we'll look to continuing further shipments. Hence, we've just grown dim. Thank you all for joining us this morning, and we look forward to seeing you again this quarter. And may I verify the camera upgrade: can it be lumpy from one corner to another?
I'm, saying for now is to make sure we make the right decisions for the business.
And therefore, that's focusing on getting our one of our key customers backing to standard terms.
Our cash position back to where it should be is a key focus at the moment and then we'll once we get that done and resolved them. Then we'll look to continuing further shipments.
Hence, we've postpone guidance for this quarter and while there was a resolve that because we do believe fundamentally hammer has got a great future.
And then I.
Fairly fyfe or like camera upgrades can be lumpy from one quarter to another.
Nigel Hunton: I think, as you've seen, it will depend on the uptake and demand and the... How fast does this take off for that product? Well, I think it'll be... Over the next couple of years, it'll be, as Indy's talked about, 35-40 million a year. But that quarter-to-quarter will be at a level of lumpiness depending on what upgrades are pulled in and the timing of those investments. In order to position Intevac to support the Hammer RAM, any advice on how we should be thinking about the inventories? A key thing for us is to, one, resolve the inventories around. The Existing Calculation, that's a key aspect. And as we look at actually building the business, we've got to actually make sure we actually minimize inventory, look at the best use of our cash, and ensure we can deploy that industry against those key hammer shipments as we get orders for them moving forward. I think our inventory is... which splits roughly a third, a third, a third of the muck between HDD. We've got a lot to do on inventory to reduce inventory Can you use the cancellation inventories for hammer upgrades?
I think as you've seen it's it will depend on the the uptake in demand in the house.
How fast the take off of that product as well I think it'll be.
Over the next couple of years it'll be as we've talked about you know roughly 35 to 40 million a year for that quarter to quarter. We are at a level of lumpiness, depending on Walt upgrades have pulled in and the timing of those investments.
Okay, Yeah, and then in order to position the fact to support the Hammer Ram any advice on how should we should be thinking about the inventories.
A key thing for us is to.
Long resolve the inventories around.
He ate system cancellations, that's a key aspects are focused.
And and as we look at actually building the business. We go to actually make sure we actually minimize the imagery.
Look at the best use of our cash.
Sure we can deploy that in Mr against those key hammer shipments as we get orders for them moving forward.
I think our inventory is sort of split.
Roughly a third a third a third of the month between H D D.
Video systems and the cancellations. So we got a little work to do on inventory to reduce inventory bank shall we actually turn that return inventory to our customers. So the cancellations.
And then deploy our inventory to maximize our business moving forward.
Can you use the cancellation inventories for hammer upgrade.
Nigel Hunton: One of the key things that happened last quarter, which we talked about in the prepared remarks, was to actually successfully negotiate an exchange of the system into Hammer Operators, and by using the relevant parts of those systems, we could actually move them into Hammer Operators pretty successfully. That's one of the reasons why it was a successful renegotiation to transfer those two systems into Hammer Upgrade. And actually, as you rightly point out, we can leverage and actually transfer a significant part of that into Hammond. I don't know whether you can answer this question, but can you indicate how many installed base units that received the hammer upgrade in Q3?
One of the key things that's happened last quarter.
What about in the prepared remarks was to actually successfully negotiate and exchange them.
Two of the systems into hammer upgrades and by using the relevant parts of those systems. We can actually then move them into hammer up rates pretty successfully.
It's one of the things why it was.
Successful renegotiation the transfer of those two systems into hammer upgrades.
She as you said rightly points out we can leverage and actually transfer a significant part of that into hammer.
Okay, and I don't know whether you can answer these questions I.
Can you indicate that caught me at Nee.
Installed base units debt. Please see if the hammer upgrades in Q3, and then I'm also wondering when into Factset like record sells off have more upgrades, whether you can quantify.
Nigel Hunton: And then I'm also wondering when Intevac's record sales of hammer upgrades are, whether you can quantify the magnitude of the hammer upgrade in dollar terms? And I think what we've said on parcels is, you know, 2023 stores, and previous brands; I've called it the 15 or 16 Hammer of Grace. And that was the amount we did through the year, and that's sort of the number we're giving for 2023. And as we've said on many occasions, the Hammer upgrade... The value of those depends on the upgrade of the system. Some systems need additional process modules, if it's going from a five process module to a seven process module, and then the addition of the cooling and heating stations, another key upgrade system.
What what the magnitude of the hammer upgrades are in dollar terms.
And I think we've always said on prior calls is you know 2023 Soros.
Fleet runs.
Oh 16 hammer upgrades.
And that was the amount we did through the year and that's that's the number we're giving for 2023 and then we've said on many occasions the hammer upgrades the.
The value of those depend on the upgrade of the system. Some systems need additional process modules. If it's come from a five process module to a seven process module.
And then the addition of the.
Cooling and heating stations another key T upgrade systems or some of already got seven process modules. I mean, it's just some of the key upgrades around heating and cooling. So the range of upgrades can between $1 million to $2 million. So it it's it changes depending on the mix of the system that we're upgrading which again adds to some of the lumpiness quarter to go.
Nigel Hunton: All of them have already got seven process modules and a system of key upgrades around heating and cooling. So the range of upgrades can be between one to two million dollars. It changes depending on the mix of the system that we're upgrading, which again adds to some of the lumpiness caused by the forces.
Uh huh.
Yep.
One last question for me.
Nigel Hunton: Nigel, one last question for me, when it comes to negotiation for your system sales, any background on the likelihood of customers buying one, two, or three, in other words, what will drive customers to buy two instead of one or three instead of two? I think in the past you mentioned that your customers have multiple locations, but besides location, are there other factors that drive the decision? in terms of the number of systems that they want to purchase. I think the key message at the moment is the original JBA we completed, the TRIO system was qualified, and the critical next step is to finalize a formal agreement for TRIO toolship. As I said, we had hoped to conclude that by the end of December. However, negotiations are ongoing now, and we really can't send any more at this stage, other than to confirm we expect to ship multiple systems in 2024. Thank you very much.
When it comes to a negotiation, Florida two system sales any background on the likelihood of the customers buying one two or three in other words, what will drive customers to buy two instead of one or three and set off to I think in the past.
Mentioned that.
Customers have multiple locations, but besides location are there other factors.
Factors that drive our decisions.
In terms of the number of system that they want to protest.
And I think the key message at the moment was they saw the original J D E. We completed.
The system was qualified and a critical next step is to finalize a formal agreement for trio tool shipments.
And like I said, we had hope to conclude that for the end of December. However, they are in negotiation are ongoing now and we really counts anymore at this stage.
Other than to confirm we expect to ship multiple systems in 2024.
Okay.
Thank you Nigel Thank you Kevin.
Operator: Our next question is from Peter Wright with Partner Tax Security. Great, good afternoon guys, and thank you for taking my questions. I have three questions. The first one is on your shift to a long-term focus on the financial model, and I think that makes sense, just on the number of customers. It's easy to understand. But what I'm hoping you can do is kind of reflect on their comment.
Thank you.
Our next question is from Peter right with partner Cap Securities. Please proceed.
Great. Good afternoon, guys and thank you for taking my questions.
Thank you paid I.
I have three questions. The first one is on your your shift to a long term focus on the financial model and they I think that makes sense, just a number of customers and it's easy to understand but what I'm. Hoping you can do is kind of reflect on on this comment if I look at your backlog, helping to guide kind of surfaces and called out about four.
Peter Wright: If I look at your backlog, helping to guide the kind of services, and call that about 40 million, and across the four or five-year cycle, you're looking at about 10 hard disk drive tools and about 20 tools on the contract with your existing one customer there, it averages about 30 million a year. It's going to be lumpy, and it's tough to figure that out, but that's about a $70 million average cross-cycle revenue run rate. Given kind of where your expenses are now, that's suggesting to me about a $4 or $5 million free cash flow yield on an annualized basis, kind of on a cross cycle basis.
Million and across the four or five year cycle Youre looking at about 10 hard disk drive tools and about 20.
Tools on the contract with your existing one customer there.
The average is about $30 million a year, it's going to be lumpy and its tough to figure that out, but that's about a $70 million.
Average cross cycle revenue run rate.
Given kind of where your expenses are now that that's suggesting to me about a $4 million to $5 million free cash flow yield on an annualized basis kind of on a cross cycle is there anything that I'm missing there.
Nigel Hunton: Is there anything I'm missing here, you know, at a high level of what your long-term guidance and picture would look like? Yeah, I mean, for me, it's critical that we focus our time at the moment, ensuring we actually optimize the long term and get the right deals and the right negotiations and get the right forecast for the future. So I don't really want to comment on the detail here.
You know at a high level of what your long term.
Guidance and picture would look like.
Yeah, I think for me, it's critical that we focus our time at moment ensure me actually optimize the long term.
And get the right deals and the rent negotiation to get their forecast for the future.
So I don't really want to comment on the detail within.
Nigel Hunton: The agreements were actually in the middle of negotiations. But if you take the basis from prior announcements, I think that's probably a logical analysis of what we announced on prior earnings calls. I don't know whether Kevin, you want to add anything to that?
The agreements were actually in the Midland negotiating.
But if you take the base from prior announcements.
I think that's.
It's probably a logical analysis of what was announced on prior earnings calls I don't know, whether Kevin you want to add anything to that.
No I would agree that that's that's consistent with what we said at the last couple of quarters.
Yep, Okay, fantastic and if I look at the one comment you made on end market. Paul can you give us a little more color of what it is that some of these <unk> and and market.
Kevin Solcey: No, I would agree that that's consistent with what we've said the last couple of quarters. Fantastic. And if I look at the one comment you made on the N Market poll, can you give us a little more color on what it is that some of these N Market customers are looking at and what they specifically like about your glass? I think there's a couple of key points there. One...
Customers are looking at what they specifically like about.
Your your glass.
I think this is it.
A couple of key points that one.
Nigel Hunton: The capability of the TRIO and the qualifications being completed have proven that we have a machine that has great capability. The ability to deliver hard, scratch-resistant, anti-reflective coatings on substrates is critical, and that has been proven. I think you look at the market opportunities, whether that be in the consumer device markets, it is very apparent the need for those sorts of coaching and those sorts of applications. If you sort of look beyond that and start to talk to some key automotive customers and some of the coaching people in that sector, in a similar way, the deployment of glass across the auto sector, whether it be touchscreens in cars, whether it be looking at applications externally, whether you have accurate and anti- We've seen sort of multiple applications now for the TRIO platform. We see it being able to be expanded beyond consumer devices into multiple other factors and the ability of the tool to put Specialized Coatings with a key actor. All of these tools are proven on multiple materials.
The capability of the trio and the qualification being completed has proven that we have a machine that has great capabilities.
Let's see.
Ability to deliver a scratch resistant anti reflective coatings on substrates is critical and that has been proven.
And if you look at the market opportunities whether that be in the consumer device market.
It's very apparent the need for those sorts of coaches and those sorts of applications.
So look beyond that and start to talk to.
Some key automotive customers and some of the coaching people in that sector in a similar way the deployments of glass across the auto sector, whether it be tough.
Touch screens in cars.
Whether it be looking at applications externally, what do you have to have accurate and anti chip coatings on some other substrates around it.
The cameras on the extra owns a car lidar et cetera et cetera.
Ah proving that the opportunities in auto are.
And they come through and come through over the next.
Three to five year period pretty strongly as well so we see multiple applications now because the trim platform.
We see it being able to be expanded.
The only consumer devices into multiple other sectors.
And the ability of the tool to put.
Specialized coatings with the key attributes.
But.
Onto multiple.
Materials is also gonna prove benefits long term as I think we've proven in a phenomenal tool that's it's taken us.
Nigel Hunton: They are also going to prove benefits in the long term, so I think it's proven to be a phenomenal tool. Thank you. It took over 18 months of development time and focus, but having got that tool to a point where it's now fully qualified, it's absolutely the right time to think about the long-term opportunities for that. And the feedback we've been getting about the quality of the coatings gives him more and more confidence about the future.
It was just over 18 months of development time, and focus them, but having gotten that tool to a point, where it's now fully qualified them. It is absolutely the right time and do you think about the long term opportunities for that and the feedback we've been getting about.
The quality of the coatings gives you more and more confidence on the future.
I could infer from your last press release and the naming of your partner in it that clearly they they see your value you know in this equation can you help us understand in these negotiations is there a certain element that you're more.
Peter Wright: I could infer from your last press release and the name of your partner in it that clearly they see your value, you know, in this equation. Can you help us understand, in these negotiations, is there a certain element that you're more excited about or has changed over the course of the last year, whether it be from consumer electronics to consumer electronics plus? Whether it be, you know, an evolution of the business model from equipment to equipment plus, or are the negotiations at this point on the TRIO side primarily about numbers? I think we've proven that we have great technology.
Excited about core has changed over the course of last year, whether it be from consumer electronics to consumer electronics, plus whether it be you know an evolution of the business model from equipment to equipment, plus or or the negotiations at this point on the trio side, primarily about numbers.
I think we've.
Proven that we have great technology.
Nigel Hunton: And the work we've done around material science, the work we've done on developing the material platform to meet key market needs, has shown me that we have a capability to not just deliver high-quality coatings into consumer devices but into other sectors. So as we look to the negotiation, I do not want to get into the details of that today, because clearly... It's about making sure we do the right thing for the company, the right decisions, and end up with the right agreement for the long term that's going to maximize the value of green tobacco.
And the work we've done around the material science, what we've done at developing the tray a platform to meet the key market needs.
So me that we've got.
<unk> ability to not just deliver.
High quality coatings into consumer devices, but into other sectors. So as we speak.
And the negotiation I don't Wanna get I don't don't want against the details of that today.
Because clearly it's.
Very key time.
The negotiation, it's about making sure we do the right for the company the right decisions.
And it was the right agreement for the long term, it's going to maximize value for in tobacco and that's my key focus is how do we actually ensure that.
Peter Wright: And that's my key focus, is how do we actually ensure it? So we have an agreement that enables us to take Intevac forward on a much stronger trajectory. I'm with key partners, so I'm pretty excited about the opportunities with existing partners, but I'm also equally excited about the opportunities we're seeing outside of that. Fantastic. My last question is, it just seems that no matter what you do, the market is not giving you credit for your cash. What are the best uses of your cash when you look ahead? Is it organic or inorganic?
We have an agreement that enables us to take into that forward on a much stronger growth trajectory.
With key partners, so I'm pretty excited about the opportunities with existing partners, but I'm also equally excited about the opportunities you're seeing outside of that.
Fantastic. My last question is it just seems that no matter. What you do you know the market is not giving you credit for your cash.
Hmm.
What what are the best uses of your cash when you look forward here is it organic inorganic you know when you look at the balance sheet, even though it might be down a little bit on the collections. It's still an extremely large number on the balance sheet. What what is the uses in 24 that you'll be sharing with us that you're most excited about.
Nigel Hunton: You know, when you look at the balance sheet, even though it might be down a little bit on the collections, it's still an extremely large number on the balance sheet. What are the uses in 24 that you'll be sharing with us that you're most excited about? I think the opportunity to continue to protect this business and continue to protect the balance sheet is a key focus for me. We've done that pretty successfully through 2023.
I think the opportunity to continue to protect this business and continue to protect the balance sheet is a key focus for me we've done that pretty successfully through 2023.
Nigel Hunton: There are some minor uses we need to expand some of our capabilities around. Inspection and test equipment is one of the things that we've got to absolutely expedite. As we do world-class coatings, we have the capability in-house to do key testing and key understanding of the material. Whether that be into the optics, into the hardness, into the material science.
They're awesome man usage, we need to expand some of our capabilities around.
Inspection and test equipment, I think one of the things that we've got a absolutely big.
But.
He says we do World class coatings is have the capability in house to do key testing in Kay understandings with materials.
What does that mean to the optics into harmless instead of the material science. So there will be some use of that cash.
Nigel Hunton: So there will be some use of that cash, but not significantly, around enhancing our capability for in-house metrology. If you look at other feedback, our customers see the strength of our balance sheet as a key asset, and therefore, a company our size maintaining a strong balance sheet is critical to protect the company moving forward. Um, we've got to look at how we actually grow the company, and as we actually think through what the key strategic moves we have to do to take the company forward, then we'll think about how we actually optimize that cash and use it effectively. But the first focus at the moment is absolutely protecting the balance sheet and protecting that cash position. Fantastic Thank you for the call. Our next question is from Dan Westin with West Capitol Medicine. Yeah, I thank you very much for taking the questions, most of which have been answered.
Difficult.
Around enhancing our capability in house metrology.
As we look at other feedback in our customers see the strength of our balance sheet is a key asset and therefore a company our size is maintaining that strong balance sheet is critical.
To protect the company moving forward.
We're going to look to how we actually grow the company.
And as we actually think through what the key strategic moves we have to do to take the company forward. Then we will think about how we actually optimize that cash and use it effectively.
But the first focus at the moment is absolutely protecting the balance sheet and protecting that cash position.
Fantastic. Thank you for the call.
Thanks, Peter Thank you.
Our next question is from Dan Weston with less capital.
Please proceed.
Yes, hi, Thank you very much for taking the questions.
Most of which have been answered.
Dan Westin: Just some clarification relating to the receivables that you discussed. In that collection process, is there any dispute with your customer on what the receivable number is? I don't think there is absolute clarity on what the number is. And we have a long-term relationship.
Just some clarity relating to the receivables that you discussed.
And that the collection process is there any dispute with your customer on what the receivable number is.
No no that's the base.
[laughter] salute clarity on what the number is.
Yeah.
Oh, we have a long term relationship.
Nigel Hunton: This is something that we will definitely work through with them. They've been a key part of ours. We've helped enable and the successful evolution of the hammer.
This was something that we will this will be worked through with them.
They've been a key partner of ours, we've helped enable a successful evolution to hammer them.
Nigel Hunton: There's no dispute about the receivables. Okay, so this is what you would classify as more of a timing issue as opposed to a dispute about the numbers. Correct. I appreciate that. Also, Nigel, just to get some additional clarity, not to belabor the point, but I think you mentioned on your last call that the successful completion of the evaluation would then trigger the shipment of the first system. So I assume that did not trigger the shipment of the first system. Maybe you can just add a little color for us in terms of... What took place? In other words, weren't the terms already outlined in the JDA that would define exactly what the numbers were once the qualification was completed? and the original JDA.
There's no dispute on the receivables.
Okay. So this is what you would classify as more of a timing issue as opposed to a dispute of the number.
Correct.
Alright, I appreciate that.
Also Nigel just just to get some additional clarity not to belabor the point, but I think you mentioned on your last call that the successful completion of the valuation would then trigger the shipment of the first system.
So I assume that did not trigger the shipment of the first system.
Maybe you can just add a little color for us in terms of.
What took place so in other words weren't the terms already outlined in the J D. A that would define exactly what the numbers were once the qualification was completed.
At the regional J D a.
Nigel Hunton: The way that was written, and that was completed successfully by the end of December. The next step within the JDA is once successful completion of the JDA is done. The next step is to then complete a formal agreement for triage or shipment. We had hoped to conclude that as well before the end of December; however, those negotiations are still ongoing. Probably, I cannot say any more at this stage other than to confirm that we expect to still ship multiple trios in 2024. But the process goes from JDA, there's qualification, JDA completion, then we go into a formal agreement for sales and purchase. So that's the key step. Okay, okay, fine.
It's the way that was written and that was completed successfully by the end of December.
The next step within the J D. A is one successful completion of the J D. A was done.
Next step is to then complete a formal agreement the trio tool shipments.
We had hope to conclude that as well, but before the end of December. However, those negotiations are still ongoing.
Probably I cannot say anything more at this stage of the confirmed to be expect you still ship multiple trailers in 2024, but the process was goes it goes from J D. A qualification JJ completion that'd be going through a formal.
Agreement for sales and purchase.
That's the key steps.
Okay, Okay fine and then back to your H D. D brings us just to make sure I'm very clear here since there's no our guidance that you're offering for the quarter.
Dan Westin: And then back to your HDD business, just to make sure I'm very clear here, since there's no guidance that you're offering for the quarter. Did I hear you right in that your company will not be providing any upgrades until the receivables are collected? Just some clarification on that, please.
Did I hear you right in that.
The company will not be providing any upgrades and told the receivables are collected just some clarity on that please.
Nigel Hunton: Correct. So we will not be supplying any materials until we've actually got resolution on the receivable. Okay, got it. And I guess, I mean, is there a way that you can predict what the timing would be to resolve that payable issue?
Right. So we will not be.
Flying any materials until we've actually got resolution.
On the receivables.
Okay got it I guess.
Is there a way that you can predict what the timing would be to resolve that receivable issue.
Dan Westin: I think it's best if we actually leave that for me to resolve the feeble issue without putting a timeline against that. Okay, okay, fair enough. I appreciate your candor and best of luck. Thank you. Our next question is a follow-up from Hendy, so Sandra, what's the belly button?
I think it's best if we actually leave that for me to resolve the receivable issue without some pretty good timeline against that.
Okay, Okay fair enough and I appreciate your candor and best of luck.
Thank you.
Thank you.
Our next question is a follow up from Hendi <unk> with Gabelli funds. Please proceed.
Hendy Susanto: Hi Nigel. So, Nigel, when, let's say, the negotiation of the system has been concluded, and you have the agreement, how soon can the stealth of the TRIO system take place? And then I'm also wondering, upon the completion of the negotiations, whether or not Intevac will file, like, an FCC filing? And I think if you... As you say, we are in the middle of those negotiations. We're confident those negotiations will get concluded. We're pretty clear that as we move forward, we have to Timing to do updates on revenues and performance on a quarterly basis, and therefore, the next earnings report will hopefully show a lot more progress we've made. We have a very clear policy when it comes to orders and system orders when we get system orders. Normally, we would actually do press releases against orders when they are received in the company, and that is our basic company policy that we've been following for many years.
Hi, again, Nigel so Nigel when let's say the negotiation of three a system has.
Has been concluded and you have to agreements Ah House soon Kansas House off to your system take place and then I'm also wondering upon the completion of the negotiation whether or not in the fact, we'll we'll falls like on our SEC filing.
So I think if you well.
We actually we said we are in the middle of those negotiations with confidence.
Negotiations will get concluded.
It was pretty clear that as we move forward we have.
Pardon me has to do updates on.
Revenues in performance on a quarterly basis and therefore.
The next earnings call hopefully being shed a lot more.
Progress we've made.
We have a very clear policy when it comes to the old isn't in system orders.
Wait let me get system Otis.
Normally we would actually do press releases against orders when received and the company and that is our basic policy that we've been following for many years. So I don't see any change to that happening. So you know.
Nigel Hunton: So I don't see any change to that happening, so my aim is to conclude these negotiations, secure orders for this company, and drive Intevac forward.
Our aim is to conclude negotiations.
Secure orders for this company.
Drive into that forward.
Nigel Hunton: Profitably into the future, and as we get orders to announce them under the sort of existing practice we have as a company, as we did with all the 200 million orders. I don't see any change to that as a practice. Thank you, Nigel, and all the rest. Thank you. There are no further questions at this time. I would like to turn the call back over to Nigel Henson for closing.
Comfortably.
Into the future.
And what as we get oldest to announce them under the existing.
Existing practice, we have as a company as we did with all the 200 lean order. So I don't see any change to that as a practice.
Yeah. Thank you Nigel.
Thank you.
Okay.
Thank you.
With no further questions at this time I would like to turn the call back over to Nigel Hudson.
No remarks.
Thank you Jim and thank you for all the questions I wish to thank all of our employees.
Nigel Hunton: Thank you. And thank you for all the questions. I wish to thank all of our employees, as well as their counterparts who are industry partners, for all the hard work and dedication as we proceeded through a critical milestone in 2023, which was achieving qualification for the TRIO, while at the same time achieving a significant growth year as a key technology enabler in the AECD industry's transition to HAMR. It's an amazing achievement. I also wish to thank our investors for their ongoing support, and, as always, please reach out to Claire directly if you would like to follow up with us. I look forward to updating you all on our Q1 call in early May. With that, I will conclude today's call. Thank you. This does conclude today's conference. You may now either click on one or all of them. I might get a Set.
As well as their counterparts with other industry partners.
For all the hard work and dedication as we proceed through a critical milestone in 2023.
Was achieving qualification for the trail.
Well at the same time, achieving a significant growth yeah as a key technology enabler in the HDD industry transition to hammer, it's overall, an amazing achievement.
I also wish to thank our investors for their ongoing support.
And as always please reach out to Claire directly do want to follow up with us.
And look forward to updating you on our Q1 call in early May.
With that I will conclude today's call.
Thank you. This does conclude today's conference you may now disconnect.
Okay.
[music].
Okay.
Uh huh.