Yahoo Finance Intevac, Inc. (NASDAQ:IVAC) Q1 2024 Earnings Call Transcript
Intevac, Inc. (NASDAQ:IVAC) Q1 2024 Earnings Call Transcript April 26, 2024
Intevac, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Claire McAdams: Thank you, operator and good morning to everyone on today's call. Thank you for joining us today to discuss Intevac's financial results for the first quarter of 2024, which ended on March 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 Soulsby, Chief Financial Officer. Nigel will begin with an overview of our business and outlook, 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, which remains subject to adjustment in connection with the preparation of our Form 10-Q, as well as comments about 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 April 25 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'll now turn the call over to Nigel.
Nigel Hunton: Thanks, Claire and good morning to all of you on today's call. We appreciate you accommodating the early time this quarter, as I'm currently calling from the UK, before returning to Asia for additional customer meetings after several international trips during Q1. I am pleased to report solid results for the first quarter with revenues of nearly $10 million and strong gross margin performance driven by the favorable mix of HAMR technology upgrades in the quarter. Our results for the first quarter confirm that following our Q4 call in February, we arrived at an agreement with our largest customer regarding payment terms. This led to continued strength in the delivery and installation of HAMR. upgrades throughout Q1.
So while our total balance of cash and investments at quarter end was just over $65 million. As of today, our cash balance exceeds $75 million. We're also pleased to announce today a 25% increase in our total backlog since year-end reflecting continued strong bookings for HAMR technology upgrades. Total new orders for the first quarter exceeded $20 million and included HDD technology upgrade bookings from multiple customers including the initial HAMR upgrade orders placed by leading data storage companies. Next on our call today, I'm pleased to discuss the resolution of our joint development program for the TRIO platform. Looking back, the success of the platform's development and achieving qualification in 2023 was testament to the quality of engineering resources resident within Intevac, and decisively demonstrated the TRIO’s ability to deliver a multiple key performance metrics, which will enable Intevac to address very large market opportunities.
Achieving the successful co-location of the initial system by year end was a major milestone for Intevac. At the same time in our ongoing commercial negotiations with our JDA partner year-to-date, we have continued to navigate the complexities of the display cover glass ecosystem for consumer electronics. In evaluating our respective roles within a well-established supply chain, we and our partner have mutually determined that Intevac will now commence shipping TRIO systems directly to the existing cover glass manufacturers with our direct suppliers to the leading OEMs. And that is precisely what we've already done. The first TRIO system was delivered this month to an established cover best finisher for a leading smartphone OEM. We believe this supports our assertion over the past several earnings calls that we are seeing strong customer pull for the TRIO.
As soon as the system is fully installed, we will immediately begin the qualification process. Achieving customer qualification will trigger the formal purchase order. Therefore, our expectation is that this will be the first TRIO system to revenue in 2024 and that successful qualification with the customer will also lead to a follow-on order for multiple systems. As a reminder, we have the inventory on hand in order to deliver on multiple systems with a relatively short lead time. At the same time, our relationship with our JDA partner continues to be positive. We have mutually agreed that the characteristics of the existing supply chain for consumer devices, dictates that we must sell directly. And as a result, we have paused our commercial discussions.
We are grateful for the partnership and everything achieved over the past 15 months including, the many new customer relationships developed. As the industry continues to adopt more durable coatings, we believe we have future order opportunities with our JV with a partner. Beyond the recent customer shipment, we're also running samples with multiple additional companies, who are in various stages of evaluating the TRIO. In total, we have engaged with several leading companies expressing demand for the TRIO office. With our TRIO growth opportunities now extending to several potential customers, we are stepping up our investment in the organization especially in marketing and business development. Recent new additions to the leadership team including Dilan Fernando [ph] joining us as VP Business Development and Shannon Fogle SVP of HR.
For the first TRIO shipping early this month and multiple evaluations underway, the morale and excitement among the Intevac team of exceptional employees is the strongest, I've seen since joining the company. It is truly gratifying to see the smiles and excitement as we officially launched initial TRIO shipments. Yes, another major milestone for our company. Which brings me to our outlook for 2024. We have now successfully resolved negotiations, with our major partners in each of our primary end markets, which enables us to resume guidance and reiterate our prior expectations for full year revenues in the low $50 million range. This incorporates our consistent expectation for two to three TRIO systems to revenue this year, equating to potential revenues totaling over $10 million.
In the hard drive industry, we are currently forecasting full year sales approaching $40 million. Not surprisingly, the majority of our HDD revenues this year, up a HAMR upgrades and that was referenced earlier in 2024, we're now reporting an initial order for HAMR upgrades from an additional customer which are leading data storage company. Industry news of improving fundamentals for the hard drive industry, continues to build and proliferate. Data center spending strength is a highlight of many Q1 earnings calls and strong customer demand and strength in cloud CapEx leading to certain supply challenges as well as price increases for several HDD product categories. We continue to expect HAMR technology upgrades to dominate our HDD business for the next few years.
This is because boosting areal density results and tremendous efficiencies for the data center. Transitioning to higher-capacity drives without adding this is very positive for our upgrade business. And there is no doubt, that Intevac has emerged as the enabling technology partner for the adoption of HAMR. While improving HDD unit growth and capacity utilization also provides us with optimism for an eventual return to 200 Lean capacity additions. For the foreseeable future, our HDD business will be strongly supported by a multi-year upgrade cycle. Recent results and strong order activity have demonstrated once again, that we are a critical enabler of this transition and that all technology upgrade plans in the HDD industry are taking place on our flagship 200 Lean platform.
Our critical role in the HDD industry provides significant visibility for continued solid base of business. And so pause our expectation, for strong growth year in 2025, year which we currently expect meaningful incremental growth for our TRIO platform. Finally, protecting the balance sheet remains, a key priority for the company. We ended 2023 with over $72 million of total cash and investments, and that balance has now strengthened to over $75 million. Our expectation is to exit 2024, in a similar range, as year-end 2023. Our customers now paying to our agreed terms, and so we do not expect to have any delayed payments. And with, that I'll turn the call over to Kevin for his review of our results.
Kevin Soulsby: Thank you, Nigel. Turning to the first quarter results. First quarter revenues totaled $9.6 million and consisted of HDD upgrades, spares and service. Q1 gross margin was 43.7% in benefit -- benefited from favorable mix of upgrades during the quarter. Q1 operating expenses were $8.6 million, which exceeds our current run rate and included a small fixed asset write-off and higher-than-typical legal costs in addition to the seasonal increases in audit and payroll. The GAAP net loss for Q1 was $1.6 million or $0.06 per diluted share. This includes a $2.4 million benefit receivable on our claim from the COVID era employee retention credit program, of which $1.5 million was recorded in other income and $0.9 million was allocated to Photonics and recorded as income from discontinued operations.
The non-GAAP net loss was $2.7 million or $0.10 per diluted share. Total backlog increased to $53.1 million at quarter end, reflecting the $20.3 million of new orders booked in the quarter. Turning to the balance sheet. We ended the quarter with cash and investments, including restricted cash of $65.5 million, equivalent to $2.47 per share based on 26.5 million shares at quarter end. As Nigel mentioned, our cash has rebounded to over $75 million following more significant collections of receivables from the largest customer quarter-to-date. Total cash flow used by operations was $6.5 million during the quarter. Capital expenditures in Q1 were $0.6 million. Non-cash expenses for Q1 included $0.8 million for stock-based compensation and $0.6 million for depreciation and amortization as well as the $0.5 million fixed asset write-off.
Now, moving to Q2 guidance. We are projecting revenues to be in the range of $7.5 million to $8.5 million. We expect second quarter gross margins to be in the 34% to 37% range due to increased under absorption and a less favorable mix of higher-margin upgrades. Q2 operating expenses are expected to be in the range of $8.3 million to $8.5 million, reflecting a lower seasonal costs, but continued high LIVAR. We expect interest income of about $500,000 and GAAP tax expense of about $400,000 in the quarter. Most of the tax expense will be non-cash. We are projecting a net loss in the range of $0.20 to $0.22 per share based on 26.7 million shares out standing. For the full year, as Nigel mentioned, we expect total revenues in the low $50 million range.
This includes TRIO revenues potentially exceeding $10 million as well as HDD sales consisting of upgrades, spares and service approaching $40 million. As a reminder, our 2023 revenues included one 200 Lean system and one refurbished system, which we do not expect to repeat in 2024. Given this revenue profile and expected mix, we anticipate gross margins for the year to be in the low 30s. This is lower than our earlier expectations in the high 30s, given the change in customer composition and the expected additional cost to qualify the TRIO with both the cover glass finisher and the end customer OEM. We expect ongoing operating expenses will decline below $8 million level beyond Q2, but still be higher than our post-restructuring budget due to the incremental investments we are making in business development, marketing and other areas in order to address a broader potential customer opportunity for the TRIO.
We expect both interest income and taxes to continue to be in the range of $400,000 to $500,000 per quarter. Finally, our expectation is that we will end 2024 with a similar balance of cash and investments, as of year-end 2023.This completes the formal part of our presentation. Operator, we are ready for questions.
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