Intevac , Inc. (NASDAQ: NASDAQ:IVAC), a provider of vacuum deposition equipment for various thin-film applications, has reported robust financial results for the second quarter of 2024, surpassing revenue expectations with a total of nearly $15 million. The company also provided forward-looking statements about its HDD technology and TRIO platform, indicating a positive outlook for the remainder of the year.
Key Takeaways
- Intevac's Q2 revenue reached nearly $15 million, with a gross margin of over 38%.
- The net loss per share was reported at $0.12.
- HDD revenue forecast for the full year is increased to $45 million due to rising demand for technology upgrades.
- The company delivered its first HAMR upgrade to a major data storage company.
- Progress is being made on the TRIO platform, with 2 to 3 initial orders expected in the second half of 2024.
- Intevac ended Q2 with $70.4 million in cash and investments.
- Q3 revenue is projected to be between $10.5 million and $12 million, with a gross margin of 37% to 39%.
- The company anticipates a net loss per share of $0.14 to $0.18 for Q3.
- The order backlog stood at over $42 million at the end of June.
Company Outlook
- Intevac expects to exit 2024 with a similar level of cash and investments as Q2.
- The majority of upgrades are related to HAMR technology, with a stable level of upgrade business forecasted for the next 5 years.
- Gross margins are anticipated to remain stable throughout the year.
Bearish Highlights
- The company reported a negative cash flow of $1 million in the Profit & Loss statement for Q2.
- A net loss in the range of $0.14 to $0.18 per share is projected for Q3.
- Revenue from orders for TRIO systems is not expected in the next quarter.
Bullish Highlights
- Intevac has a strong order backlog of over $42 million.
- The company is making strides in qualifying the TRIO system for customer acceptance.
- There is potential for additional capacity expansion tool orders in the near future.
Misses
- The company experienced a negative cash flow from operations during Q2.
Q&A Highlights
- The focus for the next quarter is on the HDD business, with no immediate revenue from TRIO orders expected.
- The qualification process for the first TRIO tool is underway with a glass finisher and an end customer.
- Upcoming IR activities include a Benchmark conference in New York on September 4 and a Q3 earnings call in early November.
Intevac's financial performance in Q2 indicates a strong position in the market, with significant demand for its HDD technology upgrades. The company's strategic investments in the TRIO platform also suggest confidence in future growth opportunities. With a solid order backlog and stable gross margin projections, Intevac appears to be maintaining a steady course through 2024. The upcoming quarters will be pivotal as the company focuses on realizing the potential of its TRIO system and expanding its HDD upgrade business.
InvestingPro Insights
Intevac, Inc. (NASDAQ: IVAC) continues to navigate the market with a mix of challenges and strengths, as reflected in its financial metrics and strategic position. Let's delve into some key insights based on the latest data from InvestingPro:
- The company holds a market capitalization of approximately $95.7 million, indicating its size relative to industry peers.
- Despite not paying dividends, which may affect its attractiveness to income-focused investors, Intevac's balance sheet shows that its liquid assets exceed short-term obligations, suggesting a degree of financial flexibility in the near term.
- A significant InvestingPro Tip worth noting is that Intevac is not profitable over the last twelve months, with a negative P/E ratio of -9.42. This could raise concerns about its ability to generate earnings, a critical factor for long-term value creation.
InvestingPro also provides additional tips for those looking to dive deeper into Intevac's financial health and future prospects. Currently, there are 5 more tips available on InvestingPro, offering valuable insights for investors considering this stock.
For a comprehensive analysis of Intevac's financial performance and strategic outlook, visit https://www.investing.com/pro/IVAC, where you can access detailed metrics and further InvestingPro Tips to inform your investment decisions.
Full transcript - Intevac Inc (IVAC) Q2 2024:
Operator: Good afternoon and welcome to Intevac's Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] 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 looking 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. 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. 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 5 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 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 Transphorm which just completed in June 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 will greatly appreciate his stepping into the CFO role for the last year. Turning to our Q2 results. Total revenue of nearly $15 million was significantly stronger than our forecast entering 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 favorable to guidance at $0.12. With strong collections in the quarter, our accounts receivable balance declined by $7.5 million and total cash and investments at corporate end surpassed $70 million, an increase of nearly $5 million from Q1. 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 half. HDD revenues year-to-date have now exceeded last year's first half by more than 10%, reflecting continued strong growth for HAMR upgrades. 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 HAMR upgrades from a second major customer which is a leading data storage company. We're pleased to report the successful delivery of our first HAMR 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 growth. Demand for cloud storage has increased significantly year-to-date in 2024 and is expected to continue growing through next year. 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 HDDs which bodes well for the long-term strength of our primary served market. We continue to expect the initiatives to upgrade the world's HDD media capacity to HAMR technology provides strong visibility for a solid base of HDD business for the next few years. The strength of our customer relationships and order activity to date demonstrate that our flagship 200 Lean is still the industry-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. Intevac is a critical enabler in the technology road map for the HDD industry and we're only in the early stages of a multiyear upgrade cycle that supports a revenue opportunity exceeding $200 million and that's before any additional 200 Lean system orders. The strengthening industry fundamentals are also encouraging and we've been very positively looking at to return to a modest amount of new system deliveries in the near future. Our critical role in the HDD industry provides significant visibility for 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 platform 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 to leading smartphone OEMs. We completed the delivery installation on schedule which is a credit to our teams from around the world who are 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. The 3 months that have passed into 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 the TRIO success, our number 1 priority. In addition, we have engaged Intralink to accelerate our expansion in Asia, whose team specialized in identifying opportunities in many fast-growing sectors. 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. Intralink 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. 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 using 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 finishers. The modular architecture of TRIO which is a key characteristic of the 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 capacity. As the qualification process continues, we continue to expect 2 to 3 initial 3 or 2 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 multiple systems with relatively short lead times. With very serious engagements with 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 which brings me to a summary of our outlook for 2024. We have now increased our HDD outlook to the $45 million level with now multiple HDD customers in the process of creating their media capacity to be HAMR compatible. We believe this level of upgrade business is sustainable for several years and any return to new system orders will be incremental to this level of HDD business. Our expectations for 2024 also continue to include multiple TRIO orders. 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 Cameron.
Cameron McAulay: 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 Transphorm and I look forward to building upon these relationships both new and existing as Intevac's CFO. Turning to the second quarter results. Second quarter revenues totaled $14.5 million and consisted of HDD upgrades, spares and service. 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. 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. Turning 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. The net increase in cash was nearly $5 million, reflecting positive cash flow from operations of $6 million with 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 in 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 tax. Now, I'll provide further details regarding our outlook and Q3 guidance. For the third quarter, we are projecting revenues to be in the range of $10.5 million to $12 million. We expect third quarter gross margin to be in the 37% to 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 million to $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 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 on 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. We are projecting a net loss in the range of $0.14 to $0.18 per share based on 26.9 million shares outstanding. This completes the formal part of our presentation. Operator, we are ready for questions.
Operator: We will now be conducting a question-and-answer session. [Operator Instructions] The first question is from Peter Wright from PartnerCap Securities.
Peter Wright: And congratulations on the quarter. I have 2 questions for you. My first question is looking at your installed base for HAMR 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 upgraded at this point and how many lie ahead of us and cut in the cadence there, do you expect it to actually accelerate? Or is it more kind of a stable number of HAMR upgrade sales going forward? If you could shed some light on kind of the timing and the magnitude of that. And then my follow-up question is on the TRIO side and specifically your relationship with Intralink. 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.
Nigel Hunton: Covering the HAMR one first. And as always, as you know, with our industry, it's always difficult to get exact predictions on what's going to happen in timing. But the installed base, I think as we've said on prior calls, we've shipped more on the slide, over 180 systems. Some of those aren't in operation at the moment. So we've said use an average 140 to 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. 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 5 years, we'll continue to run with a similar level of upgrade business as we've seen over the last 2 years. So I think as far as we can tell, that's sort of forecast and shape of the future HAMR investments. And it's great that now all the customers are talking about HAMR 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 is going to be a flow over the next 5 years at a similar level and that will be across multiple customers which is good for us. Moving on to the TRIO question. I mean, TRIO sampling is a critical part of the strategy. Today, if a customer has interest, whether that's through Intralink or through our direct contacts with customers, we do that customer sampling and run those parts through our 301 test bed in Santa Clara. If you remember, we capitalized that tool 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 about running samples, putting the coatings down, putting those down either on glass we 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 into the facility. We do those coatings under control. We actually then see those back up in a natural environment. I mean, when we ship those back across to the customer, 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 some of the key features around optics. And those go back to customers. And then typically, that thing goes through a process of there may be on 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 been 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 with some unique applications and also we're seeing the style 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 the tool last year for the Santa Clara facility.
Peter Wright: 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 sending your specific SKUs to these different end markets? And that's the last one.
Nigel Hunton: Maybe if you think about, you've seen the machine in operation, the capability of the TRIO platform is not just for 2-dimensional, it actually goes towards 3-dimensional shapes, Clearly, we can't give you the customer name or specific application. But if you can imagine, these polymer pieces are in curved platforms, probably give you some sort of idea as you look at optical lens and other sort of areas where polymers and non-glass is used in extremely high volume applications. 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 the future technologies. So for me, it's the versatility of the TRIO platform 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, it's like lightning 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 is allowing us to run polymers as well as glass. So we're pretty excited about the flexibility and versatility of the platform. Hopefully that answers the question.
Operator: [Operator Instructions] The next question is from Mark Miller from Benchmark.
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: Hold on, I’ve got music coming into my line. I don’t know what was in that music.
Operator: One moment, I will mute that line. There we go.
Nigel Hunton: Apologies for that. I am not sure what caused that sudden music. It wasn’t my taste in music either. So the question is sort of pull-ins for the quarter. So as you know, you've been covering this 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 HAMR and other upgrades into the quarter from the second half of the year. So those are, I'd say, probably at least half were pull-ins. And as we've said on the call, we now believe the full year number is going to be near $45 million and $40 million. So overall, it's a strong year but those were absolutely pull-ins from the second half to get some more upgrades done and those upgrades which covered both PMR and HAMR and again, it's a 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 2 years plus as 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 demand and it was great to be to achieve that and beat my guidance.
Mark Miller: I'm just wondering, I apologize again, what were your orders during the quarter?
Nigel Hunton: So the orders are mixed. The exact number of those orders, I'll pass it 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 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?
Kevin Soulsby: It's just under $4 million for the quarter, Mark. The backlog as we sit here is just over $42 million at the end of June as well. So 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.
Kevin Soulsby: Correct.
Mark Miller: What percent of sales upgrades are HAMR-related?
Nigel Hunton: We don't give that exact number away but the majority have been HAMR over the last 2 years but more recently, we've seen some PMR coming through as well. So the good news is there'll be some enhancements going on around PMR as well as HAMR. So as both technologies run in parallel, both technology need level of upgrades but the majority have been around HAMR upgrades.
Mark Miller: And what about gross margins for this quarter?
Kevin Soulsby: So gross margins were strong again through the quarter. And again, a lot of the gross margin is linked to the mix of the upgrades. I mean some of the upgrades we have competitive offerings, some of them don't, sort of some of the margins, mix and change each quarter. I don't know whether Cameron, do you want to add anything on the margin comment but there's a good mix of upgrades in the quarter.
Cameron McAulay: The margins will be similar, Mark. Yes, turnout for [ph] September; 37% to 39% against the 38.2% [ph] we did in the June quarter. So any variability to those, the margins is really a mix of the different characteristics of the upgrades that Nigel mentioned.
Mark Miller: Did you provide cash from operations, your cash went up I know.
Cameron McAulay: Yes. We did in the prepared remarks. So we had $7 million of positive cash flow from working capital and about $1 million of negative cash flow from the P&L. Strong quarter. We exited with just over $70 million in cash.
Mark Miller: So $6 million net cash from operations.
Cameron McAulay: Yes.
Operator: There are no further questions at this time. I will now turn the call back over to Nigel Hunton for his closing remarks. Pardon me, there is one more question just now from Peter Wright from PartnerCap Securities.
Peter Wright: Wonderful. So I'm sorry, one clarification on gross margin, if you can, just building on Mark's question. So gross margin, the guidance is reflective of the HDD business or that is inclusive of any TRIO systems that would sell you think it's going to remain stable.
Nigel Hunton: 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 you say you're expecting margins to remain flat through the course of the year?
Nigel Hunton: Yes. So we've given the margin guidance for the quarter coming up. And again, we were going to arrange for that and that is predominantly 100% made out of HDD business because we've talked about a focus on getting orders for TRIO and then the revenue will not be in this next quarter. So it will be 100% HDD business in the next quarter.
Operator: The next question is from Dan Weston from West Capital Management.
Dan Weston: 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 to their end customer?
Nigel Hunton: Correct. I mean some of them also [ph] -- the key processes -- and 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. That then goes through a process with the final products before launch. I think we said this on the previous fall as well. Any product evaluation into the market, one goes through proving the technology, getting the tool qualified glass finisher, they then take that and put the actual customer finished products through it gets that qualified prior to launch. So we have to go through that second level of qualification.
Dan Weston: Great. Yes, 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 that we're seeing demand started 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, I think there is potential for, I think I said a small number of systems. I think there will be some incremental, I think the majority of focus on getting the capacity up to HAMR 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 that happens.
Dan Weston: Yes. No, I appreciate that clarity. And congratulations on the excellent quarter.
Nigel Hunton: Appreciate your support.
Operator: 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 sort of working closely with me in Asia at the moment and all the counterparts of 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, first TRIO. I'd also like to thank all the investors on the call for their ongoing support. And just to remind people, our IR activities scope include a Benchmark conference in New York on September 4. And as always, please reach out to Clair directly to arrange of 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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