Q2 2024 Intevac Inc Earnings Call
Speaker Change: Good afternoon and welcome to Intevac's second quarter 2024 financial results conference call.
Operator: All participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star 0 on your telephone keypad. Please note that this conference call is being recorded today, August 5, 2024. At this time, I would like to turn the call over to Claire McAdams, Investor Relations for Intevac. Please go ahead.
Speaker Change: At this time, all participants are in a listen-only mode.
Speaker Change: A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: Please note that this conference call is being recorded today, August 5, 2024. At this time, I would like to turn the call over to Claire McAdams, Investor Relations for Intevac. Please go ahead.
Claire McAdams: Thank you, Operator, and good afternoon to everyone on today's call. Thank you for joining us today to discuss Intevac's financial results for the second quarter of 2024, which ended on June 29. In addition to discussing the company's recent results, we will discuss our outlook going forward. Joining me on today's call are Nigel Hunton, President and Chief Executive Officer, Cameron McAulay, Chief Financial Officer, and Kevin Soulsby, Corporate Controller.
Claire McAdams: Thank you, Operator, and good afternoon to everyone on today's call. Thank you for joining us today to discuss Intevac's financial results for the second quarter of 2024, which ended on June 29.
Claire McAdams: 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, Cameron McCauley, Chief Financial Officer, and Kevin Soulsby, Corporate Controller.
Claire McAdams: Nigel will begin with an overview of our business and outlook, followed by Cameron's review of our financial results for the second quarter and additional details regarding our guidance, 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, 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 Intevac.
Speaker Change: Nigel will begin with an overview of our business and outlook followed by Cameron's review of our financial results for the second quarter and additional details regarding our guidance before turning the call over to Q&A.
Speaker Change: 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, which remains subject to
Speaker Change: 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 Intevac.
Claire McAdams: 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 August 5th 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.
Speaker Change: 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 Exchange Commission.
Speaker Change: including our annual report on Form 10-K and quarterly reports on Form 10-Q . The contents of this August 5th call include time-sensitive, forward-looking statements that represent our projections as of today.
Speaker Change: We undertake no obligation to update the forward-looking statements made during this conference call.
Nigel Hunton: Thanks Claire, and good afternoon to all of you on today's call. I'm very pleased to welcome Cameron McAulay, our new CFO, to his first earnings call with Intevac. Cameron joined Intevac in July after a successful exit at Transform, which just completed its roughly $340 million acquisition by Renesas. Kevin, who is here with us today for Q&A, now returns to his previous role as Corporate Controller, and we all greatly appreciate his stepping into the CFO role for the last year.
Speaker Change: I will now turn the call over to Nigel.
Nigel Hunton: Thanks Claire and good afternoon to all of you on today's call.
Nigel Hunton: I'm very pleased to welcome Cameron McCauley, our new CFO , to his first earnings call with Intevac.
Cameron Mccauley: Cameron joined Intevac in July after a successful exit at Transform, which just completed in June its roughly $340 million acquisition by Renesas.
Speaker Change: Kevin who is here with us today for Q&A now returns to his previous role as Corporate Controller and we all greatly appreciate his stepping into the CFO role for the last year.
Nigel Hunton: Turning to our Q2 results, total revenue of nearly $15 million was significantly stronger than our forecast entry in the quarter due to increased demand for HDD technology upgrades and solid execution from the team in Singapore. Given the revenue upside and the resulting mix of upgrades delivered in the quarter, gross margin exceeded 38%, and our net loss per share was also favourable to guidance at £12,000. With strong collections in the quarter, our accounts receivable balance declined by $7.5 million, and total cash and investments at quarter end surpassed $70 million, an increase of nearly $5 million from Q1.
Speaker Change: Turning to our Q2 results.
Speaker Change: Total revenue of nearly $15 million was significantly stronger than our forecast entry in the quarter due to increased demand for HDD technology upgrades and solid execution from the team in Singapore.
Speaker Change: Given the revenue upside and the resulting mix of upgrades delivered in the quarter, gross margin exceeded 38% and our net loss per share was also favourable to guidance at $0.12.
Speaker Change: With strong collections in the quarter, our accounts receivable balance declined by $7.5 million and total cash and investments at quarter end surpassed $70 million, an increase of nearly $5 million from Q1.
Nigel Hunton: The revenue upside reported for Q2 is also evident in our increased HDD revenue outlook for the full year, which we now expect will approach $45 million, up from $40 million at our last update. This reflects our HDD revenue forecast for the second half of 2024, remaining relatively consistent in the low $20 million range after a very strong first. HGD revenues year-to-date have now exceeded last year's first half by more than 10 percent, reflecting continued strong growth for Hammer Up.
Speaker Change: The revenue upside reported for Q2 is also evident in our increased HDD revenue outlook for the full year, which we now expect will approach $45 million, up from $40 million at our last update.
Speaker Change: This reflects our HDD revenue forecast for the second half of 2024, remaining relatively consistent in the low $20 million range after a very strong first half.
Speaker Change: HGD revenues year to date have now exceeded last year's first half by more than 10%, reflecting continued strong growth for Hammer upgrades.
Nigel Hunton: Given the strengthening in demand witnessed for upgrades during Q2, we now expect 2024's upgrade business to approach the record levels achieved in 2023. Even more importantly, our revenue forecast also reflects the initial installation of Hammer upgrades from a second major customer, which is a leading data storage company. We're pleased to report the successful delivery of our first Hammer upgrade for this additional customer earlier this quarter. Industry news of improving fundamentals for the hard drive industry continues to build and proliferate, driven primarily by strongly aligned cloud demand. Demand for cloud storage has increased significantly year-to-date in 2024 and is expected to continue growing through next year.
Speaker Change: Given the strengthening in demand witnessed for upgrades during Q2, we now expect 2024's upgrade business to approach the record levels achieved in 2023.
Speaker Change: Even more importantly, our revenue forecast also reflects the initial installation of Hammer upgrades from our second major customer, which is a leading data storage company.
Speaker Change: We're pleased to report the successful delivery of our first hammer upgrade for this additional customer earlier this quarter.
Speaker Change: Industry news of improving fundamentals for the hard drive industry continues to build and proliferate, driven primarily by strongly aligned cloud demand growth.
Speaker Change: Demand for cloud storage has increased significantly year-to-date in 2024 and is expected to continue growing through next year.
Nigel Hunton: There are also indications that growing demand now includes data center deployments related to AI. We're encouraged by the increased momentum for AI-related HTDs, which bodes well for the long-term strength of our primary served market. We continue to expect that the initiatives to upgrade the world's HDD media capacity to Hammer technology provide strong visibility for a solid base of HDD business for the next few years. The strength of our customer relationships and order activity data demonstrate that our flagship 200 lean is still the industry's leading platform for all advanced media production. An amazing achievement for a product launched 20 years ago that is still delivering new innovation at the forefront of HDD technology.
Speaker Change: There are also indications that growing demand now includes data center deployments related to AI. We are encouraged by the increased momentum for AI-related HTDs, which bodes well for the long-term strength of our primary SERB market.
Speaker Change: We continue to expect that the initiatives to upgrade the world's HDD media capacity to HAMR technology provide strong visibility for a solid base of HDD business for the next few years.
Speaker Change: The strength of our customer relationships and order activity date demonstrate that our flagship 200 lean is still the industry's leading platform for all advanced media production.
Speaker Change: An amazing achievement for a product launched 20 years ago that is still delivering new innovation at the forefront of HDD technology.
Nigel Hunton: Intevac is a critical enabler in the technology roadmap for the HDD industry, and we're only in the early stages of a multi-year upgrade cycle that supports a revenue opportunity exceeding 200 million dollars, and that's before any additional 200 lean system orders. The strengthening industry fundamentals are also encouraging, and we could very possibly be looking at a return to a modest amount of new system deliveries in the near future. Our critical role in the HG industry provides significant visibility for a continued, solid base of business and supports our expectations for near-record-level upgrades in 2024 and a strong growth year in 2025, a year in which we also expect meaningful incremental growth for our trio plants.
Speaker Change: Intevac is a critical enabler in the technology roadmap for the HGD industry and we're only in the early stages of a multi-year upgrade cycle that supports a revenue opportunity exceeding 200 million dollars and that's before any additional 200 lean system orders.
Speaker Change: The strengthening industry fundamentals are also encouraging and we could very possibly be looking at a return to a modest amount of new system deliveries in the near future.
Speaker Change: Our critical role in the HD industry provides significant visibility for a continued, solid base of business and supports our expectations for near record level upgrades in 2024 and a strong growth year in 2025.
Speaker Change: A year in which we also expect meaningful incremental growth for our TRIO platform.
Nigel Hunton: Which brings me to an update on our progress qualifying the first TRIO system, which was shipped in April to a top-tier cover glass finisher in Asia. As discussed on our last earnings call in April, we resolved our JDA partnership and immediately proceeded to ship our first TRIO system directly to a leading cover glass finisher, which is a direct supplier for leading smartphone OEMs. We completed the delivery installation on schedule, which is a credit to our teams from around the world working closely together, and we are proceeding well through the qualification process, which we expect will first conclude with the cover glass finisher before continuing towards end customer qualification.
Speaker Change: Which brings me to an update on our progress qualifying the first TRIO system which was shipped in April to a top-tier cover glass finisher in Asia.
Speaker Change: As discussed on our last earnings call in April , we resolved our JDA partnership and immediately proceeded to ship our first TRIO system directly to a leading cover glass finisher, which is a direct supplier for leading smartphone OEMs.
Speaker Change: We completed the delivery and installation on schedule, which is a credit to our teams from around the world working closely together and are proceeding well through the qualification process, which we expect will first conclude with the cover glass finisher before continuing towards end customer qualification.
Nigel Hunton: The three months that have passed since our last update have been a period of immense progress and iterations qualifying this trio system, while also processing samples from multiple additional customers on the TRIO, which resides at our Santa Clara headquarters. Critical members of our TRIO team, including myself, have spent the majority of the last few months on the ground in Asia, as we make TRIO success our number one priority. In addition, we have engaged Interlink to accelerate our expansion in Asia, whose teams specialize in identifying opportunities in many fast-growing sectors.
Speaker Change: The three months that have passed since our last update have been a period of immense progress and iterations qualifying this TRIO system, while also processing samples from multiple additional customers on the TRIO which resides at our Santa Clara headquarters.
Speaker Change: Critical members of our TRIO team, including myself, have spent the majority of the last few months on the ground in Asia, as we make the TRIO success our number one priority.
Speaker Change: In addition, we have engaged Interlink to accelerate our expansion in Asia, whose teams specialize in identifying opportunities in many fast-growing sectors.
Nigel Hunton: Together, we will build a broader market for the TRIO platform whilst we maintain our focus on securing an initial order in the consumer device space. Interlink are continuing to assess the automotive sector and have highlighted the introduction of glass panels for future advanced packaging, which will take a major share from the traditional silicon-based application.
Speaker Change: Together, we will build a broader market for the TRIO platform whilst we maintain our focus on securing an initial order in the consumer device space.
Speaker Change: Interlink are continuing to assess the automotive sector and have highlighted the introduction of glass panels for future advanced packaging which will take major share from the traditional silicon based applications.
Nigel Hunton: We continue to engage with new customers while deepening the collaboration with the key players involved in bringing ultra-durable, anti-reflective coatings to the smartphone cover glass market. The deepening level of collaboration and continued investment in research and development is paving multiple paths for commercial success for the trio, including a more compact footprint that can readily replace existing tool sets to provide more robust coating capabilities for the cover glass finish. The modular architecture of TRIO, which is a key characteristic of 200 LEAN, is enabling us to quickly adapt the TRIO platform. We're working with both our initial cover glass finisher and multiple additional customers to make modifications to the TRIO that will optimize their respective manufacturing capabilities and capacities.
Speaker Change: We continue to engage with new customers while deepening the collaboration with the key players involved in bringing ultra-durable, anti-reflective coatings to the smartphone cover glass market.
Speaker Change: The deepening level of collaboration and continued investment in research and development is uniting multiple paths for commercial success for the trio, including a more compact footprint that can readily replace existing tool sets to provide more robust coating capabilities for the cover glass finishes.
Speaker Change: The modular architecture of TRIO, which is a key characteristic of the 200 LEAN, is enabling us to quickly adapt the TRIO platform.
Speaker Change: We are working with both our initial cover glass finisher and multiple additional customers to make modifications to the Trio that will optimise their respective manufacturing capabilities and capacity.
Nigel Hunton: As the qualification process continues, we continue to expect 2-3 initial 302 orders in the second half of 2024. As we evaluate the steps towards final customer acceptance and revenue recognition, we will continue to update you on orders and revenue timing as we progress through the year. As a reminder, we have the inventory on hand in order to deliver on multiple systems with relatively short leaps. With the very serious engagements of some of the world's leading customers and partners well underway, the morale and excitement among the Intevac team of exceptional employees is the strongest I've seen since joining the company.
Speaker Change: As the qualification process continues, we continue to expect two to three initial 302 orders in the second half of 2024. As we evaluate the steps towards final customer acceptance and revenue recognition, we will continue to update you on orders and revenue timing as we progress through the year.
Speaker Change: As a reminder, we have the inventory on hand in order to deliver on multiple systems with relatively short lead times.
Speaker Change: With the very serious engagements of some of the world's leading customers and partners well underway, the morale and excitement among the Intevac team of exceptional employees is the strongest I've seen since joining the company.
Nigel Hunton: Which brings me to a summary of our outlook for 2024. We have now increased our HDD outlook to the $45 million level, with multiple HTTP customers now in the process of upgrading their media capacity to be hammer competitive. We believe this level of upgrade business is sustainable for several years, and any return to new system orders would be incremental to this level of HGD business. Our expectations for 2024 also continue to include multiple TRIO orders.
Speaker Change: Which brings me to a summary of our outlook for 2024.
Speaker Change: We have now increased our HTD Outlook to the $45 million level, with now multiple HTD customers in the process of upgrading their media capacity to be hammer-capable.
Speaker Change: We believe this level of upgrade business is sustainable for several years and any return to new system orders would be incremental to this level of HGD business.
Speaker Change: Our expectations for 2024 also continue to include multiple TRIO orders.
Nigel Hunton: At this stage, as with any new product launch, it is difficult to forecast the timing of revenues, and our focus is on securing multiple orders. Finally, protecting the balance sheet remains a key priority for the company, and we continue to expect to exit 2024 around the $70 million level. And with that, I'll turn the call over to...
Speaker Change: At this stage, as with any new product launch, it is difficult to forecast the timing of revenues and our focus is on securing multiple orders.
Speaker Change: Finally, protecting the balance sheet remains a key priority for the company, and we continue to expect to exit 2024 around the $70 million level.
Speaker Change: And with that, I'll turn the call over to Cameron.
Cameron McAulay: I'm quite pleased to see many familiar investor names listening to today's call, as well as Benchmark, which is one of the several firms who cover Transloss. And I look forward to building upon these relationships, both new and existing, as Intevac's CFPB.
Cameron: Thank you, Nigel. I'm quite pleased to see many familiar investor names listening to today's call, as well as Benchmark, which is one of the several firms who cover Transloss. And I look forward to building upon these relationships, both new and existing, as Intevac's CFO .
Cameron McAulay: Turning to the second quarter results, second quarter revenues totaled $14.5 million and consisted of HDB upgrades, spares, and services. Revenue upside for the quarter reflected over $5 million of additional technology upgrade demand during Q2. Q2 gross margin was 38.2%, above the guidance range, reflecting the higher revenue volume as well as the particular composition of the mix of upgrades during the quarter. Q2 operating expenses were $8.8 million, which exceeds our current run rate, reflecting higher than typical corporate, travel, and tool installation costs during the quarter.
Speaker Change: Turning to the second quarter results.
Speaker Change: Second quarter revenues totaled $14.5 million and consisted of HDB upgrades, spares and service. Revenue upside for the quarter reflected over $5 million of additional technology upgrade demand during Q2.
Speaker Change: Q2 Gross Margin was 38.2%, above the guidance range, reflecting the higher revenue volume as well as the particular composition of the mix of upgrades during the quarter.
Speaker Change: Q2 operating expenses were $8.8 million, which exceeds our current run rate, reflecting higher than typical corporate, travel and tool installation costs during the quarter.
Cameron McAulay: With strong AR collections during the quarter, we were able to move some of our cash to higher interest rate investments, and as a result, our quarterly interest income run rate now exceeds $700,000. The resulting net loss per share for Q2 was $0.12, significantly better than our forecast entering the quarter.
Speaker Change: With strong AR collections during the quarter, we were able to move some of our cash to higher interest rate investments, and as a result, our quarterly interest income run rate now exceeds $700,000.
Speaker Change: The resulting net loss per share for Q2 was $0.12, significantly better than our forecast entering the quarter.
Cameron McAulay: Coming now to the balance sheet, we ended the quarter with cash and investments, including restricted cash of $70.4 million. Equivalent to $2.63 per share based on 26.7 million shares a quarter. The net increase in cash was nearly $5 million, reflecting a positive cash flow from operations of $6 million and capex of just under $1 million. The strong cash flow from operations in Q2 reflects the significant collection of receivables during the quarter, with $7 million of positive cash flow from working capital offset by about $1 million of negative cash flow from the P&L. Non-cash expenses for Q2 included $1.1 million for stock-based compensation, $0.5 million for depreciation and amortization, and $0.5 million in deferred.
Speaker Change: Coming now to the balance sheet, we ended the quarter with cash and investments including restricted cash of $70.4 million, equivalent to $2.63 per share based on 26.7 million shares at quarter end.
Speaker Change: The net increase in cash was nearly $5 million, reflecting positive cash flow from operations of $6 million and capex of just under $1 million.
Speaker Change: The strong cash flow from operations in Q2 reflects the significant collection of receivables during the quarter, with $7 million of positive cash flow from working capital offset by about $1 million of negative cash flow from the P&L.
Speaker Change: Non-cash expenses for Q2 included $1.1 million for stock use compensation, $0.5 million for depreciation and amortization, and $0.5 million in deferred tax.
Cameron McAulay: Now, I'll provide further details regarding our outlook and QC guide. For the third quarter, we are projecting revenues to be in the range of $10.5 to $12 million. We expect the third quarter gross margin to be in the 37-39% range, reflecting the expected mix of upgrades and factory absorption levels during the quarter. Q3 operating expenses are expected to be in the range of $8.6-$8.8 million, reflecting an expected moderation in some G&A costs when compared to Q2.
Speaker Change: Now, I'll provide further details regarding our Outlook and Q3 guidance.
Speaker Change: For the third quarter, we are projecting revenues to be in the range of $10.5 to $12 million.
Speaker Change: We expect the third quarter gross margin to be in the 37-39% range, reflecting the expected mix of upgrades and factory absorption levels during the quarter.
Speaker Change: Q3 operating expenses are expected to be in the range of $8.6-$8.8 million, reflecting an expected moderation in some G&A costs when compared to Q2. This range also comprehends our continued investment in personnel across multiple functions as we continue to strengthen our overall organisation.
Cameron McAulay: This range also includes our continued investment in personnel across multiple functions as we continue to strengthen our overall organization. As detailed in my earlier comments, we expect a higher run rate of interest income on our strong cash balance for the foreseeable future. Our guidance is for interest income in the range of $700,000 to $750,000 for Q3. We expect GAAP tax expense of about $500,000, most of which will be non-tax. We are projecting a net loss in the range of $0.14 to $0.18 per share based on 26.9 million shares being outsold.
Speaker Change: As detailed in my earlier comments, we expect a higher run rate of interest income on our strong cash balance for the foreseeable future.
Speaker Change: Our guidance is for interest income in the range of $700,000 to $750,000 for Q3. We expect GAAP tax expense of about $500,000, most of which will be non-cash.
Speaker Change: We are projecting a net loss in the range of 14 to 18 cents per share based on 26.9 million shares outstanding.
Cameron McAulay: This completes the formal part of our presentation. Operator, we are ready for questions. Thank you.
Speaker Change: This completes the formal part of our presentation. Operator, we are ready for questions.
Operator: Thank you. We will now be conducting a question and answer session. 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 queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: Thank you. We will now be conducting a question and answer session. 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 queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Operator: One moment, please, while we poll for questions. The first question is from Peter Wright from Partner Cap Securities. Please go ahead. Great, thank you for taking my question.
Speaker Change: One moment, please, while we poll for questions.
Speaker Change: The first question is from Peter Wright from Partner Cap Securities. Please go ahead.
Nigel Hunton: Great, thank you for taking my questions and congratulations on the quarter. Thank you, Peter.
Peter Wright: Great, thank you for taking my questions and congratulations on the quarter.
Peter Wright: I have two questions for you. My first question is, looking at your installed base for Hammer now that you have an additional customer opened up, how are you looking at the rollout of your installed base? How should we think of how many are upgraded at this point and how many lie ahead of us, and Kevin, the cadence there, do you expect it to actually accelerate, or is it more kind of a stable number of hammer upgrade sales going forward?
Speaker Change: Thank you, Peter.
Peter Wright: I have two questions for you. My first question is looking at your installed base for Hammer now that you have an additional customer opened up, how are you looking about the rollout of your installed base? How should we think of how many are...
Speaker Change: Upgraded at this point and how many lie ahead of us.
Speaker Change: and cut into the cadence there. Do you expect it to actually accelerate or is it more kind of a stable number of hammer upgrade sales going forward? If you could shed some light on kind of the timing and magnitude of that.
Peter Wright: If you could shed some light on kind of the timing and magnitude of that. And then my follow-up question is on the TRIO side and specifically your relationship with Interlink. How are you providing sampling? Do you actually have a tool? Is there a way that you can actually put the sample in customers' hands? Or if you could explain a little more how that sampling is taking place, that would be appreciated.
Speaker Change: And then my follow-up question is on...
Speaker Change: the TRIO side and specifically your relationship with Interlink.
Speaker Change: How are you providing sampling? Do you actually have a tool? Is there a way that you can actually put the sample in customers' hands? Or if you could explain a little more how that sampling is taking place, that would be…
Nigel Hunton: Okay, well, thank you for those two questions. First, on the HAMR one, and as you know, with our industry, it's always difficult to get exact predictions on what's going to happen and timing, but the install base, I think we've said on prior calls that we've got, we've shipped, I think we've been more on the slides, over 180 systems. Some of those aren't in operation at the moment, so we've said use an average 140, 145 systems in the world that can be upgraded to HAMR. We've done about 20 to date, taken in last year and the start of this year.
Speaker Change: Appreciate it.
Speaker Change: OK, well, thank you for those two questions.
Speaker Change: Covering the Hammer one first.
Speaker Change: and as always it's as you know with our industry it's always difficult to get exact predictions on what's going to happen and timing.
Speaker Change: But the install base, I think we've said on prior calls, we've got, we've shipped, I think we've been on the slides, over 180 systems. Some of those aren't in operation at the moment. So we've said use an average 140, 145 systems in the world that can be upgraded to Hammer.
Speaker Change: We've done about...
Speaker Change: 20 to date, taken in last year and the start of this year, so there's a significant amount of opportunity to upgrade the rest of the install base. We don't share the split, we don't talk about the customer names as you know.
Nigel Hunton: So there's a significant amount of opportunity to upgrade the rest of the installed base. We don't share the split, we don't talk about the customer names, as you know, but I think it gives us confidence that over the next five years, we'll continue to run with a similar level of upgrade business as we have seen over the last two years. So I think it's as far as we can tell; that's the sort of forecast and shape of future Hammer Investments.
Speaker Change: but I think it gives us confidence that over the next five years we'll continue to run with a similar level of upgrade business as we've seen over the last two years. So I think it's as far as we can tell
Nigel Hunton: And it's great that now all the customers are talking about Hammer upgrades and that technology is critical as you move from sort of 30 terabytes up to 50 terabytes and actually keep maintaining this consistent cost advantage of drives in the market. So I hope that gives you a sort of range of answers there, but I think overall we're pretty confident that there will be a flow for the next five years at a similar level, and that will be across multiple customers, which is good for us. Moving on, to the trio questions.
Speaker Change: That's the sort of forecast and shape of the future HAMR investments.
Speaker Change: and it's great that now all the customers are talking about.
Speaker Change: Hammer upgrades, and that technology is critical as you move from sort of 30 terabytes up to 50 terabytes and actually keep maintaining this consistent cost advantage of drives in the market. So I hope that gives you a sort of
Speaker Change: range of answers there. But I think overall, we're pretty confident that there is going to be a flow for the next five years of a similar level, and that will be across multiple customers, which is good for us.
Nigel Hunton: I mean, trio sampling is a critical part of the strategy. Today, if a customer has an interest, whether that's through interlink or through our direct contacts with customers, we do that customer sampling and run those parts through our TRIOT1 testbed in Santa Clara. If you remember, we patented that tool.
Speaker Change: Moving on to the TRIO question.
Speaker Change: I mean trio sampling is a critical part of the strategy. Today we have, if a customer has interest, whether that's through interlink or through our direct contacts with customers
Speaker Change: We do that customer sampling and run those parts through our test triot one test bed
Speaker Change: in Santa Clara. If you remember we capitalized that tool, that enables us to do...
Nigel Hunton: That enables us to do fast turns of samples in a controlled environment in our headquarters where our R&D teams and process engineers, more importantly, reside. So the material science of running samples, putting the coatings down, putting those down either on glass we've purchased or customers' glass samples, which is very often the case, so they'll be shipped in from us, whether that into the facility. We do those coatings and the control. We actually then seal those back up in a natural environment, and then we ship those back to the customer.
Speaker Change: fast turns of samples in a controlled environment in our headquarters where our R&D teams and process engineers, more importantly, reside. So the material science about running samples, putting the coatings down.
Speaker Change: and putting those down either on glass we've purchased or customers glass samples which is very often the case so they'll be shipped in from us whether that be from any parts of Asia.
Speaker Change: into the facility. We do those coatings and the control, we actually then.
Nigel Hunton: They then do their testing and analysis. In parallel, we do testing analysis in our development and test lab in Santa Clara where we have instrumentation that can look at hardness and look at key features around optics, and those go back to customers and then typically that then goes through a process of they'll maybe want a slight tweak on the performance, they'll send us more samples, we'll go through that iteration and I'm really pleased to say that the number of samples being running and the number of customers we're sending in parts to us is increasing and not just for glass parts for consumer devices we're getting parts in for polymers for some unique applications and also we're seeing the start of some requests around advanced packaging so for me it's pretty exciting and it's a core capability that we've invested in and that's why we capitalized a tool last year for the Santa Clara facility.
Speaker Change: Seal those back up in a natural environment and then we ship those back across to the customer
Speaker Change: They then do their testing and analysis, in parallel we do testing analysis in our development and test lab in Santa Clara where we have instrumentation that can look at hardness and look at key features around optics.
Speaker Change: and those go back to customers and then typically that thing goes through a process of.
Speaker Change: They'll maybe want a slight tweak on the performance, they'll send us more samples, we'll go through that iteration. And I'm really pleased to say that the number of samples we're running and the number of customers we're sending in parts to us is increasing.
Speaker Change: and not just the glass parts.
Speaker Change: for Consumer Devices. We're getting parts in for polymers for some unique applications and also we're seeing the start of some requests around advanced packaging. So for me it's pretty exciting and it's a core capability that we've invested in and that's why we capitalized a tool last year for the Santa Clara facility.
Peter Wright: Can I have one more clarification? Can you define the end market that Polymer is servicing, and then also, how customized are these samples going out? How much back-and-forth customization is it versus you, you know, sending your specific SKUs to these different end markets? And that's the last one. Thank you.
Speaker Change: That's probably those two.
Speaker Change: Can you, can I, can...
Speaker Change: Can I have one more clarification, if you can define the end market that Polymer is servicing and then also how customized are these samples going out? How much back and forth customization is it versus you, you know, sending your specific SKUs to these different end markets?
Nigel Hunton: I think if you think about it, if you see the machine in operation, the capability of the TRIO platform is not just for two-dimensional shapes; it actually goes towards three-dimensional shapes. Clearly, we can't give you the customer name or specific application, but if you can imagine these polymer pieces are on a curved platform, I'm going to give you some sort of idea as you look at optical lenses and other areas where polymers and non-glasses are used in extremely high volume applications.
Speaker Change: [inaudible]
Speaker Change: Clearly we can't give you the customer name or specific application, but if you can imagine these polymer pieces are in curved platforms.
Speaker Change: I'll probably give you some sort of idea if you look at optical lenses and other areas where polymers and non-glass is used in extremely high volume applications.
Nigel Hunton: So for me, there's a lot of excitement around the opportunities beyond the consumer devices for some of these polymers. And even within consumer devices, some of the headsets and things are looking at polymers and other organic, inorganic compounds for future technologies. So for me, it's the versatility of the TRIO platform that enables us to do multiple applications. And one of the critical things in the tool, the way we actually manage the temperature inside that processing, so it's a high plasma environment.
Speaker Change: So for me, there's a lot of excitement around the opportunities beyond the consumer devices for some of these polymers and even within consumer devices Some of the headsets and things are looking at polymers and other
Speaker Change: Organic, inorganic compounds for the future technologies. So for me, it's the versatility of the TRIO platform enables us to do multiple.
Speaker Change: applications. And one of the critical things in the tool, the way we actually manage the temperature inside that processing, so it's a high plasma environment.
Nigel Hunton: It's like lightning, you know, being controlled within a plasma operating environment. And actually, our ability to control the temperature means that we can actually put polymers through the machine. So it's a critical part of our design technique to allow us to run polymers as well as glass. So we're pretty excited about the flexibility and versatility of the platform. I hope that answers the question. Thank you very much. Thank you, guys.
Speaker Change: It's like lightning, you know, being controlled within a plasma operating environment and actually our ability to control the temperature means that we can actually put polymers through the machine. So it's a critical part of our design technique.
Speaker Change: is allowing us to run polymers as well as glass. So we're pretty excited about the flexibility and versatility of the platform.
Speaker Change: Hopefully that answers the question.
Speaker Change: Thank you very much. Thank you guys.
Operator: As a reminder, 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 queue. The next question is from Mark Miller from Benchmark. Please go ahead. I'm sorry.
Speaker Change: Pleasure, Peter.
Speaker Change: As a reminder, 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 queue.
Speaker Change: The next question is from Mark Miller from Benchmark. Please go ahead.
Mark Miller: I'm sorry I got on a little late. I just was wondering whether the upside in revenues this quarter was pull-ins or orders you didn't expect.
Mark Miller: I'm sorry I got on a little late. I just was wondering, the upside in revenues this quarter, was that pull-ins or orders you didn't expect?
Nigel Hunton: Yeah, it's just fine, that's fine, it's, um... Hold on, something's... I've got music coming in... Oh, it's fine. Music coming into my line... I don't know what was in that music.
Speaker Change: Yeah, that's fine. I've got music coming into my line.
Operator: In one moment, I'll mute that line.
Speaker Change: I don't know what was in that music. One moment, I'll mute that line.
Nigel Hunton: Apologies for that Mark, I'm not sure what caused that. Southern music wasn't my taste, and it wasn't my taste in music either.
Speaker Change: Apologies for that Mark, I'm not sure what caused that southern music, it wasn't my taste in music either.
Nigel Hunton: The question is, so the pull-ins for the quarter, so as you know, you've been covering the space for a long time, and each quarter can have different fundamentals depending on budgets and cycles for the customers we specifically have. I mean, this was pull-ins of hammer and other upgrades into the quarter from the second half of the year, so those are, I'd say, probably at least half of the pull-ins and, as we've said on the call, that we now believe.
Speaker Change: Well the question is, so the pull-ins for the quarter, so as you know you've been covering the space for a long time and and each quarter can have different fundamentals depending on budgets and cycles for the customers we specifically have. I mean this was pull-ins of hammer and other upgrades.
Speaker Change: into the quarter from the second half of the year. So those are, I'd say,
Speaker Change: Probably at least half were pull-ins and as we've said on the call...
Nigel Hunton: The full-year number is going to be nearer 45 million than 40 million, so overall, it's a strong year, but those were pull-ins from the second half to get some more upgrades done, and those upgrades covered both PMR and HAMR.
Speaker Change: that we now believe
Speaker Change: that the full year number is going to be nearer 45 than 40 million. So overall it's a strong year but those were absolutely pull-ins from the second half.
Speaker Change: to get some more upgrades done and those upgrades covered both PMR and HAMR. And again, it's testament to the team in Singapore that we could respond quickly. We have a very, very, as you know, professional team in Singapore that's been able to respond very fast over the last
Nigel Hunton: So it was, and again, it's testament to the team in Singapore that we could respond quickly. We have a very, very, as you know, professional team in Singapore that's been able to respond very fast over the last two years, plus I've been in this role. And every time we've thrown a challenge at them, they've delivered and performed and stepped up to meet the demand. So these are meeting real customer demands, and it was great to be able to achieve that.
Speaker Change: two years plus that I've been in this role and every time we've thrown a challenge and they've delivered and performed and stepped up to meet the demand. So these are meeting real custom demands and it was great to be able to achieve that and beat my guidance.
Mark Miller: I'm just wondering, I apologize again. What were your orders during the quarter?
Speaker Change: I'm just wondering, I apologize again, what were your orders during the quarter?
Nigel Hunton: The orders were mixed. The exact number of those orders, I'll pass that over to Kevin just to confirm the number, but a lot of that was about timing of orders, and so I think we're going to see. I think for the full year, for this year, the orders are already in place. I know that for now. Kevin, what was the final order number for this quarter?
Speaker Change: So the orders were mixed. The exact number of those orders, I'll just pass that over to Kevin just to confirm the number, but a lot of that was about timing of orders, and so I think we're going to see...
Operator: So it looks like Kevin's line is currently playing music.
Speaker Change: So it looks like Kevin's line currently is playing music.
Mark Miller: I'm sorry. How much was that?
Kevin Soulsby: Just under $4 million for the quarter, Mark. The backlog, as we said here, is just over $42 million at the end of June as well, so a solid backlog to allow us to project the $45 million that Nigel was articulating.
Kevin Soulsby: I'm sorry, how much was that?
Kevin Soulsby: Just under $4 million for the quarter. The backlog is just over $42 million at the end of June as well. So a solid backlog to allow us to project the $45 million that Nigel was articulating.
Mark Miller: That's for the year now. $45 million is your sales goal. What percent of sales upgrades are Hammer related?
Mark Miller: That's for the year now, $45 million is your sales goal. What percent of sales upgrades are Hammer related?
Nigel Hunton: We don't give that exact number away, but the majority have been hammer over the last two years, but more recently, we've seen some PMR coming through as well. So the good news is there are some enhancements going on around PMR as well as hammer. Both technologies run in parallel. Both technologies did a level of upgrades, but the majority have been around hammer upgrades.
Speaker Change: We don't give that exact number away, but the majority have been Hammer over the last two years, but more recently we've seen some PMR coming through as well. So the good news is there is some enhancements going on around PMR as well as Hammer.
Speaker Change: as both technologies run in parallel.
Speaker Change: Both technologies do a good level of upgrades, but the majority have been around hammer upgrades.
Mark Miller: And What about gross margins for this quarter?
Nigel Hunton: I mean, gross margins again. Gross margins were strong again for the quarter. And again, a lot of the gross margin is linked to the mix of the upgrades. Some of the upgrades we have have competitive offerings, some of them don't, so some of the margins mix and change each quarter. I don't know whether Cameron, you want to add anything on the margin comment, but there's a good mix of upgrades.
Speaker Change: And what about gross margins for this quarter?
Speaker Change: I mean, gross margins, again.
Speaker Change: So gross margins were strong again for the quarter. And again, a lot of the gross margins is linked to the mix of the upgrades.
Speaker Change: Some of the upgrades we have have competitive offerings, some of them don't, so there's some of the margins.
Speaker Change: Mix and change each quarter. I don't know whether Cameron you want to add anything on the margin comment But there's a good mix of upgrades in the quarter
Mark Miller: Margins will be similar, Mark, yes. We're forecasting 37 to 39, similar for September . 37 to 39 against the 38.2 we did in the June quarter. So any variability to those margins is really a...
Cameron McAulay: [inaudible] mix of the different characteristics of the upgrades that Nigel has done. Did you provide cash from operations? Your cash went up, I know.
Nigel Hunton: mix of the different characteristics of the upgrades that Nigel mentioned.
Speaker Change: Did you provide cash from operations?
Cameron McAulay: Yes, we did. It was in the prepared remarks. So we had $7 million of positive cash flow from working capital and about a million dollars of negative cash flow from that strong, strong quarter. We ended up with just over $70 million. So $6 million net in cash from operations.
Speaker Change: Your cash went up I know
Speaker Change: We had $7 million of positive cash flow from working capital and about $1 million of negative cash flow from the P&L.
Mark Miller: So we had six million net cash from operations.
Speaker Change: but strong, strong quarter. We agitated with just over 70 million dollars in cash.
Speaker Change: So six million net in cash from operations.
Speaker Change: Yes.
Speaker Change: Thank you.
Operator: There are no further questions at this time. I will now turn the call back over to Nigel Hunton for his closing remarks. Oh, pardon me. There is one more question just now from Peter Wright from Partner Cap Securities. You can go ahead.
Speaker Change: Thank you, Ma.
Speaker Change: There are no further questions at this time. I will now turn the call back over to Nigel Hunton for his closing remarks. Oh, pardon me, there is one more question just now from Peter Wright from Partner Cap Securities. You can go ahead.
Peter Wright: Wonderful. So, I'm sorry, one clarification on gross margin, if you can, just building on Mark's question. Gross margin is the guidance that is reflective of the HDB business, or that is reflective of inclusive of any trio systems that would sell you think it's going to remain stable?
Speaker Change: Wonderful. So, I'm sorry, one clarification on gross margin, if you can, just building on Mark's question. So, gross margin is, the guidance is reflective of the HDD business, or that is reflective of, inclusive of any TRIO systems that would sell, you think it's going to remain stable?
Nigel Hunton: Yes, so the gross margin of the next quarter is assuming HDD, as we've said.
Speaker Change: Yes, so the gross margin for the next quarter is assuming HDD, which we've said that.
Peter Wright: Yes, and I'm sorry. Did I mishear you? Did you say you're expecting margins to remain flat through the course of the year?
Speaker Change: Yes, and I'm sorry, did I mishear you? Did you say you're expecting margins to remain flat through the course of the year?
Nigel Hunton: Yes, so we've given margin guidance for the quarter coming up, and again, we've arranged for that, and that is predominantly 100% made out of HDD business. We've talked about it, focused on getting orders for TRIO, and then the revenue will not be in this next quarter, so it'll be 100% HDD business in the next quarter.
Speaker Change: Yes, so we've given margin guidance for the quarter coming up and again we've set, we've arranged for that and that is predominantly, it's 100% made out of HDD business.
Speaker Change: We've talked about it, focused on getting orders for TRIO, and then the revenue will not be in this next quarter, so it'll be...
Peter Wright: Fantastic. Great. Thank you, guys.
Speaker Change: 100% HGV business in the next quarter.
Speaker Change: Fantastic. Great. Thank you, guys.
Operator: The next question is from Dan Weston from West Capital Management. Please go ahead.
Speaker Change: [inaudible]
Speaker Change: The next question is from Dan Weston from West Capital Management. Please go ahead.
Dan Weston: Yeah, hi, good afternoon, everybody. Nigel, just a couple of quick points of clarification, if you would. On the TRIO front, is the trajectory to get the first tool qualified by the glass finishing customer, and is there a second qualification period for their end customers?
Dan Weston: Yeah, hi good afternoon everybody Nigel just a couple of quick points of clarification if you would
Dan Weston: On the TRIO front, is the trajectory to get the first tool qualified by the glass finishing customer? And is there a second qualification period to their end customer?
Nigel Hunton: Correct. I mean, the key process is And, you know, as we highlighted, it's great to get that product into the market quickly. That goes through a process and qualification with the glass finisher. Then, it goes through a process with the final product before launch. So you have to go, I think we said this on the previous floor as well, any product evaluation in the market goes through proving the technology, getting the tool-qualified glass finisher, and they then take that and put the actual customer finished product so it gets that qualified prior to launch. So we have to go through that second level of qualification.
Speaker Change: Correct. I'm going to show them the board. So the key process is...
Speaker Change: And as we highlighted, it's great to get that product into the market quickly.
Speaker Change: That goes through a process and qualification with the glass finisher. That then goes through a process with the final product before launch. So you have to go, I think we said that on the previous floor as well.
Speaker Change: Any product evaluation into the market, one goes through proving the technology, getting the tool qualified last finisher, they then take that and put the actual customer finished product so it gets that qualified prior to launch. So we have to go through that second level of qualification.
Dan Weston: Great, yeah, thanks for the clarification there. And then, finally, I want to make sure I heard you correctly in your prepared remarks. On the lean side, did you say that there is a possibility to have additional capacity expansion tool orders in the near future?
Speaker Change: Great, yeah thanks for the clarification there. And then finally, I want to make sure I heard you correctly in your prepared remarks. On the lean side, did you say that there's a possibility to have additional capacity expansion tool orders in the near future?
Nigel Hunton: I think as we look at what's going on in the industry, and we're seeing some of the AI driving demand, and we're seeing demand start to go up, I think we're going to maintain the focus around upgrades, and that will predominantly be part of the business. But I think over the next couple of years, there is potential for, like I said, a small number of systems. I think there will be some incremental changes.
Speaker Change: I think as we look at what's going on in the industry and we're seeing some of the AI driving demand and we're seeing demand start to go up.
Speaker Change: I think we're going to maintain the focus around upgrades and that'll predominantly be part of the business but I think over the next couple of years I think there is potential for I think I said a small number of systems.
Nigel Hunton: I think the majority of focus on getting the capacity up to hammer readiness is going to be the key investments from our customers. But there's always room. I think there's going to be potential for some additional
Speaker Change: I think there will be some incremental. I think the majority of focus on getting the capacity up to hammer readiness is going to be the key investments from our customers but there's always room. I think there's going to be potential for some additional but it's going to be a small number if it happens.
Dan Weston: Understandable. Yeah, no, I appreciate that clarity. Thank you very much, Nigel and the gang. I appreciate it.
Speaker Change: Understood, yeah, no, I appreciate that clarity. Thank you very much, Nigel and again, and congratulations on the excellent quarter.
Nigel Hunton: No, thank you Dan; I appreciate your support.
Operator: There are no further questions at this time. I'll turn the call back over to Nigel Hunton for his closing remarks.
Speaker Change: Thank you Dan, appreciate your support.
Speaker Change: There are no further questions at this time. I will turn the call back over to Nigel Hunton for his closing remarks.
Nigel Hunton: Thank you and thank you for all of the questions, and I also want to thank all of our employees, a lot of those who are sort of working closely with me in Asia at the moment and all their counterparts with our industry partners, for all the hard work and dedication to deliver another strong upgrade quarter and, equally importantly, work towards qualifying our first tool in the field, the first trio. I'd also like to thank all the investors on the call for their ongoing support.
Nigel Hunton: Thank you and thank you for all of the questions and I also want to thank all of our employees a lot of those in sort of working closely with me in Asia at the moment and all their counterparts with our industry partners
Nigel Hunton: for all the hard work and dedication to deliver another strong upgrade quarter and equally importantly work towards qualifying our first tool in the field, first trio.
Nigel Hunton: I would also like to thank all the investors on the call for their ongoing support.
Nigel Hunton: And just to remind people, our IR activities are going to include the Benchmark Conference in New York on September 4th. And, as always, please reach out to Claire directly to arrange a follow-up. And I look forward to updating you all on our Q3 call in early November. So at that point, thank you, and we can close the call. Thank you. This concludes today's conference. You may disconnect now, and more. I'll see you next time.
Nigel Hunton: And just to remind people, our IR activities are going to include the Benchmark Conference in New York on September the 4th. And as always, please reach out to Claire directly to arrange a follow up. And I look forward to updating you all on our Q3 call in early November . So at that point, so thank you. And we can close the call.
Operator: Thank you. This concludes today's conference. You may disconnect now.
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Speaker Change: Thank you. This concludes today's conference. You may disconnect now.
Speaker Change: A film by William Shatner Directed by William Shatner Screenplay by William Shatner Cinematography by William Shatner Editing by William Shatner Music by William Shatner Produced by William Shatner Directed by William Shatner Cinematography by William Shatner Editing by William Shatner Music by William Shatner