Intevac, Inc. (NASDAQ:IVAC) Q4 2023 Earnings Call Transcript
Intevac, Inc. (NASDAQ:IVAC) Q4 2023 Earnings Call Transcript February 5, 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).
Operator: Financial Results Conference Call. At this time, all participants are in a list-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference call is being recorded today, February 5th, 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, Sherry, and good afternoon to everyone on today's call. Thank you for joining us today to discuss Intevac’s financial results for the fourth quarter and full year 2023, which ended on December 30th. In addition to discussing the company's recent results, we will discuss our outlook looking forward. Joining me on today's call are Nigel Hunton, President and Chief Executive Officer, and Kevin Soulsby, Chief Financial Officer. Nigel will begin with an overview of our business and outlook, and then Kevin will review our financial results before turning the call over to Q&A. I'd like to remind everyone that today's conference call contains certain forward-looking statements, including but not limited to, statements regarding financial results for the company's most recently completed fiscal quarter and year, which remains subject to adjustment in connection with the preparation of our Form 10-K, as well as comments regarding future events and projections about the future financial performance of Intevac.
These forward-looking statements are based upon our current expectations, and actual results could differ materially as a result of various risks and uncertainties relating to these comments and other risk factors discussed in documents filed by us with the Securities and Exchange Commission, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The contents of this February 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. Nigel?
Nigel Hunton: Thanks, Claire, and good afternoon. Intevac posted strong results for the fourth quarter, marking a solid finish to what was a key year of growth and execution in 2023. Q4 revenues totaled nearly $13 million, well ahead of our expectations entering the quarter. As evident by our record level of upgrades in 2023, Intevac is a key technology enabler in the hard drive industry's transition to HAMR. The fourth quarter was another period of accelerated demand from our leading customer as they ramped to deliver production quantities of HAMR drives. The key role of Intevac in enabling this ramp resulted in very strong 47% growth in revenues for fiscal 2023 and we achieved a [four-year] (ph) record in annual sales for our equipment business.
The resulting favorable revenue mix drove strong gross margin performance exceeding our guidance at 46% for the fourth quarter and 38% for the full year. With continued dividends controlling discretionary spending, we sharply reduced our net losses both for Q4 and the full year compared to the prior year periods. Protecting the balance sheet remains a key priority for the company and we ended the year with over $72 million of total cash and investment. This will remain a key focus in 2024. The year-end balance was just below our previous guidance, solely due to the late payment of receivables by one customer. Total backlog at year-end was $42 million, reflecting the continued strong order activity for HAMR upgrades. In Q4, these orders included the successful rebooking of two 200 Leans in favor of additional HAMR process module upgrades.
As a reminder, these two systems have been in backlog for the past six quarters and were originally aimed at enhancing capacity as opposed to technology. We are pleased with the renegotiation of order backlog towards HAMR initiatives as these are clearly the priority in the industry right now and from a financial perspective, while upgrades carry less revenue compared to total sales, the rebooking is expected to have a minimal impact on our forecast for gross profit. Finally, as we reflect on fiscal 2023, it was a critical year for the technology development and commercial launch of our groundbreaking TRIO platform. We successfully completed the development phase of our JDA and achieved system qualification as promised by year-end. This is a key milestone in the growth trajectory of Intevac as the TRIO achieved key performance metrics as part of the evaluation process that will enable Intevac to address market opportunities far larger than our existing hard drive business.
We see the TRIO as having enormous potential with an estimated $1 billion dollar served market and the achievements in 2023 are key steps forward in our plan to diversify and grow our product portfolio and customer base, which brings me to a discussion of our perspectives on the future and our strategies to deliver consistent and profitable growth in the years ahead. The important developments that unfolded in fiscal 2023 within each of our primary markets have underscored two key attributes of our business. First and foremost is that Intevac plays a critical role in the global electronics manufacturing industry and that we are uniquely capable of producing equipment that addresses the needs of technologically challenging data driven processes in highly demanding, high volume manufacturing environments and within industries that require extremely low cost of ownership.
This is especially evident during the challenging macroeconomic environments of 2023, a year when our customers faced enormous headwinds financially and operationally, yet never diverted their attention from strategic manufacturing priorities in close partnership with Intevac. But it's these same headwinds that manifested in the second [reality] (ph) for Intevac’s leadership team in 2023. And that is the [underlying] (ph) influence that our large customers can exact on our short-term financial results, which is an issue that today we are addressing head on. As we enter the new year, we are steadfast in taking a long-term focus on improving the underlying financial performance of Intevac. We are always going to be focused on critical aspects of our financial performance such as revenue volumes and our cash position.
At this junction however, we have made a determination to temporarily redirect our focus away from short term metrics to just quarterly revenue and cash targets in order to set up a stronger long-term value proposition for our stakeholders. Which means we have made the decision to temporarily withdraw near-term financial guidance in order to enable our focus to reside primarily on the long-term and specifically on improving our longer-term growth, profitability and cash flow profile. This has implications for each of our served markets. First, in our primary HDD market, the revenue ramp we achieved in 2023 demonstrates our operational agility and our ability to execute to meet customer timelines for HAMR upgrades. Even more importantly, Intevac has emerged as the enabling technology partner for the adoption of HAMR, and our revenue results in 2023 demonstrate that we are a direct beneficiary of the HDD media technology upgrade initiatives currently underway.
We have demonstrated our critical role for the hard disk drive industry at the same time as we support the strength of our customer's financial position at the expense of our own. Our cash conversion cycle has slowed to historical lows and [collection] (ph) delays have become pervasive or a quarterly norm. We encountered an unprecedented order cancellation more than eight months ago, but still have yet to resolve the transfer of inventory and material receipts off our balance sheet. For this quarter, we have made a decision to temporarily suspend our fulfillment of HDD orders and to let customers fulfill their obligations regarding payables and inventory. We are confident that we can get the business back in alignment with our standard terms but we are not using Intevac’s cash to fund our customers.
I know our investors will understand the position we have taken. Next, turning to the actions we are taking in the display market. The recently completed qualification of our TRIO system is testament to the quality of engineering resources resident within Intevac, and our ability to meet key performance specifications for a very demanding and exciting customer. Upon achieving qualification and the successful completion of our joint development agreement, we engage with our JDA partner in negotiations for a commercial agreement for multiple systems. While we are not able to complete such agreement by year end as we'd originally hoped, we expect such negotiations to conclude by the end of the first quarter. As we said before, the supply chain for display cover glass for high-volume consumer device applications is highly complex, to say the least.
Meanwhile, conditions in the display market have become more challenging in the face of slowing customer demand, which is manifesting itself in conservative financial planning by our JDA partner in the short term. It’s also quite apparent to us there is significant customer pull coming from the end devices OEMs to rapidly deploy TRIO systems into volume manufacturing environments that the benefits of our tool can be realized on multiple device types. Whether through the originally contemplated exclusive arrangement with our current partner which is tied to a minimum purchase of multiple systems, estimated approximately $100 million over a five year period or through other customer sales, we will work towards maximizing the long-term potential of TRIO.
Which means, by withdrawing near-term guidance, we will be firm in our negotiations regarding any commercial terms for the TRIO that have long-range implications. While we work through this process within each of our markets, I will also note there's been no material changes [in demand] (ph) we’ve indicated from previously providing our preliminary outlook for 2024 which we shared on the last two earnings calls. For purposes of annual revenue guidance, our outlook for the full year is largely unchanged at the $50 million level. Furthermore, we expect to end 2024 with a similar balance of cash and investments as year-end 2023. However, given our decision to halt the deployment of certain of Intevac's resources in the short term in favor of maximizing the company's longer term potential, we're not providing official guidance ranges for margins or profitability or a specific revenue range for Q1.
And with that, I'll turn the call over to Kevin for his Q4 review.
Kevin Soulsby: Thank you, Nigel. Turning to our results, Q4 revenues totaled $12.9 million, which exceeded the midpoint of guidance by $2.7 million due to the acceleration of HAMR upgrades during the quarter. For the full year, revenues grew to $52.7 million, up 47% from 2022 sales of $35.8 million. 2023 sales included a record level of HDD upgrades as well as one new 200 Lean and one refurbished 200 Lean system. Q4 gross margin benefited from favorable mix and exceeded our forecast at 46%. For the full year, gross margin was 38.4%. Q4 operating expenses were $7.8 million, down both sequentially and year-over-year, reflecting the restructuring of our business and leaner operating structure. As a result, we were able to reduce our operating and net loss both for Q4 and the full year compared to the year ago periods.
Turning to the balance sheet. We ended the quarter with cash and investments, including restricted cash of $72.2 million, equivalent to $2.74 per share based on 26.4 million shares at quarter-end. As Nigel mentioned, we would have ended the year with total cash in the range of $75 million to $80 million, if not for the persistent delay in collections from one large customer. Cash flow from operations was a positive $5.9 million during the quarter. Q4 capital expenditures were $500,000 and our non-cash costs for the quarter included $1 million of stock based compensation and $400,000 of depreciation and amortization. This completes the formal part of our presentation. Operator, we are ready for questions.
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