Intevac, Inc.

It's now my pleasure to turn the call over to Claire McAdams, Investor Relations for Intivac. Please go ahead, Claire.

Thank you, and good afternoon, everyone. Thank you for joining us today to discuss Intivac's financial results for the fourth quarter and full year 2022, which ended on December 31st. In addition to discussing the company's recent results, we will provide financial guidance for the first quarter of 2023 and our outlook looking forward. Joining me on today's call are Nigel Hunton, President and Chief Executive Officer, and Jim Moniz, Chief Financial Officer. Nigel will start with a review of our business and our outlook. Then Jim will review fourth quarter results and discuss our financial outlook before turning the call over to Q&A. I'd like to remind everyone that today's conference call contains certain forward-looking statements, including but not limited to statements regarding financial results for the company's most recently completed fiscal quarter and year, which remain subject to adjustment in connection with the preparation of our Form 10-K, as well as comments regarding future events and projections about the future financial performance of Intivac. 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 1st 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.

Thanks, Claire, and good afternoon. I'm excited to share with all of you today our latest earnings results and to highlight the momentum we built and the achievements we had in 2022. 2022 was quite a year for Intervac. We set out with a bold ambition of transforming the business and laid out a clear vision of the future of the company. I'm pleased to say we have taken huge strides towards that vision over the past 12 months. It has been a year of significant change for the company. Intervac now feels and operates very differently to that of a year ago. We have transformed Intervac into a new company, the new Intervac as we refer to internally and with customers. Intervac will continue this journey in 2023. The goal of this journey is to return strong shareholder value with sustained profitable growth, and we are already creating this momentum. I'm immensely proud of the entire team, not only for the progress they have made in delivering on our ambitious aims, but how they have embraced the vast and rapid change I have tasked the company with through the past year. As I reflect upon our commitments to our shareholders, starting with my first earnings call one year ago, I'm pleased to share that our team has executed on every single one of the mandates that we laid out for 2022. We have refocused the business around a leaner product portfolio, streamlined our business, and strengthened and diversified the leadership team and the wider business as a whole. We've laid out a clear plan to return to profitability, built on our existing strong position in the hard disk drive market, and most excitedly of all, have developed a critical strategic partnership that is supporting Intervax expansion into a new growth market. We also delivered on each quarter's commitments and our financial targets for 2022. Looking briefly back on 2022, I'm pleased to share the following highlights with all of you. Each of these achievements has been a significant contributor to the change of direction, pace, energy, and momentum the company has gained recently and was a specific intent set out at the start of my tenure with Intervac. A primary goal for Intervac in reestablishing momentum and focus last year was to first assess the growth potential in each of our end markets. Intervac needed to refocus its business around a leaner product portfolio. As vaccines for COVID continued the global rollout and with the gradual reopening of travel, I took the opportunity to meet personally with each and every key customer in order to determine the correct direction and priorities for Intervac going forward. I'm pleased to share that I've traveled extensively each quarter of the year and met personally with all critical stakeholders that touch our business today and who have potential to impact it greatly in the future. These efforts not only resulted in strengthened relationships, but also led to the decision to cease development of multiple equipment initiatives in order to focus our innovation efforts on our flagship 200 lean and to enable the development and emergence of our game-changing TRIO platform. This proved to be a decision that has not only shifted energy and momentum for the company, but has changed its future growth trajectory and also the company's financial potential. It has also led to an early patent award for our TRIO platform, and a further nine patent applications have been submitted, key achievements as InterVap begins the process of strengthening and broadening its IP portfolio. Looking internally, we committed at the start of 2022 to streamlining the structure of the business, and doing so took action to align internal resource to genuine revenue growth prospects. 2022 saw us raise the bar for employee performance and also saw us dramatically enhance the capability of the organization. We introduced an internal development program within the business and recruited high caliber talent. We have taken steps to significantly strengthen and diversify the senior leadership team and unified the organization under one cohesive leadership group comprised of the best talent from both the U.S. and Asian teams. Further still today, we repeatedly measure and assess the strength of our organizational culture, having heightened emphasis on our company values of innovation and accountability. Our internal metrics and measurements are already showing strong evidence that our global team of employees feel invested in, energized, and excited for the future, and our customers and partners have also validated the strength the organizational culture plays in our ability to deliver outstanding engineering. This past year has not only seen Intervac invest in personal and professional development, but we've invested in our physical space too. We know the importance of having an environment that encourages collaboration, something that in turn enables innovation, and the changes made to our building to the creation of a dedicated collaboration space has been a key enabler of greater cohesion throughout the business and also led to the rapid development of our game-changing TRIO platform. 2022 was momentous from an organizational perspective. Our products, people, culture, and customers have been part of this positive change and have seen this all year. Today, our R&D, engineering, and operational teams are developing into world-class high-performing teams, and we have begun the process of enhancing and developing our commercial team. I believe we are beginning 2023 with a strong team and are poised for continued execution in the year ahead. In relation to returning the company to profitability, we are firmly on track to return Interact to profitability for the full year in 2024, and remain fully invested in preserving the strength of our balance sheet. I have personally met and engaged with dozens of investors, each of which have expressed their preference for our measured protection of our balance of cash and investments, whilst also showing the reassurance of how we have executed on these preferences to date. In 2022, we maintain the strength of the balance sheet and are committed to do the same in 2023. Turning to our existing hard disk drive market and our flagship 200 lean product, we believe firmly that we are increasing our share of worldwide media capacity and our customer partnerships have resulted in us rapidly advancing business opportunities through hammer upgrade initiatives and the securing of $70 million in 200 lien orders, which will be delivered over the next four years. We continue to believe in the future of the hard drive business, and our efforts in 2022 have kept us in a prime position to continue to be at the forefront of the market and its development. Finally, in what is now highly regarded internally with Intervac, as well as externally as a game-changing development, 2022 saw us deliver on our commitment to develop a meaningful partnership relating to a new product craft category. Intervax development of the TRIO platform, a new product that supports consumer electronics and other applications, has the potential to provide a runway of compelling and sustainable long-term growth opportunities and revenue for Intervax far into the future. It is by far and away the most important development achieved by the company since the launch of the 200 lean product 20 years ago. The recently announced partnership on December 30th is a key milestone in our growth strategy. It broadens our product line and dramatically increases the total addressable markets we can now reach. As we sit today, we have a stronger, leaner, more diverse team delivering world-class products to the forefront of the markets we are operating in and pursuing. Our objective on this call today is to ensure that our investors, analysts, employees, suppliers, customers, and all stakeholders recognize the achievements of the past year and our confidence and commitment in our strategy to deliver strong growth and financial performance for years to come. Now turning towards the trio. In late December, we completed our joint development agreement with a leading provider of glass and glass ceramic materials. The completion of this definitive agreement was a transformational event for Intervac. The agreement includes a minimum revenue requirement of approximately $100 million over five years in order for our customer to maintain exclusive access to the TRIO platform for consumer electronics applications. The agreement also includes a minimal annual commitment to maintain exclusivity. We are currently completing the first TRIO system, which will begin qualification later this quarter. We anticipate that once the first TRIO completes qualification, we will receive a purchase order for the qualified unit. At this time, we are planning to deliver at least two additional TRIO systems within 12 months of qualification. We will be building several additional tools this year in advance of 2024 shipments so we can be ready for some upside to support our key partner. I would like to point out at this time that going forward, we'll be limited to what we can communicate about our work with this customer. However, I can share with you a bit of what makes the TRIO such a compelling manufacturing platform for the coating of glass on consumer electronic devices, which is what excited this customer to engage with us and seek a level of exclusivity which we granted. And it can also share why we see the potential for this partnership to be well in excess of $100 million over the next five years. The TRIO offers three primary advantages over current coating options. First, it offers tremendous flexibility compared to existing coating equipment, as the platform can accommodate almost limitless configurations of device form factors, including both 2D and 3D shapes. Building upon our 20-year history of leadership in the hard disk drive market, our systems have a proven track record of depositing highly uniform and defect-free films at the highest quality standards for durability and precision, executed with very high yields over a long operating life. And lastly, also critical to our TRIO customer, is its productivity, throughput, and competitive cost of ownership in a compact footprint. So the compelling advantages of the TRIO platform are flexibility, cost competitiveness, and providing one platform for many different applications. Our plans for 2023 will be focused on qualifying the initial TRIO system for our customers' thin film technologies by mid-year, delivering the initial systems, and working with our customers to ramp in the field. As our customer gains confidence in the value of TRIO, We expect that many additional systems will be deployed, potentially beyond the minimum contractual volume required to maintain exclusivity. The investments in inventory that we are making today, and which began in earnest during Q4, support the build of multiple trio systems. These include not only the systems we expect to deliver this year, but substantially more systems to ship in the following 12 months. In the short term, these investments will be enabled by a strong cash balance. It is worth noting that the strength of our balance sheet is critically important to each of our customers, not just for the TRIO partnership, but also for our HDT business. And the investments we are making in 2023 will set us up for a profitable year in 2024 and consistent positive cash flows and returns on invested capital beginning next year. As I mentioned earlier, The $100 million revenue level is merely the minimum required to maintain exclusivity with our first customer. We will continue to pursue additional customers to the TRIO outside of consumer devices. Once successful with the first few tool deployments, we continue to expect our TRIO opportunity will be very significant. In summary, the development of this innovative and game-changing platform will make a significant contribution to our growth plans. which brings me to an update on our HDD business. Recent news indicates encouraging signs on the horizon, setting up a return to growth in data center investments and mass capacity derives. In the meantime, as we discussed last quarter, we're seeing a greater level of customer investments in new technology during this period of reduced factory utilization. We're very proud to be a critical technology partner in the industry's transition to Hammer, which is proceeding ahead of schedule, testament to our strong upgrade revenues in Q4 and another strong quarter expected ahead for upgrades in Q1. A fundamental part of our strategy is to maintain a focus on innovation in collaboration with key partners. As such, our roadmaps are aligned with them. Our HDD guidance for 2023, as well as the five-year revenue forecast, remains consistent with what we communicated last quarter. We continue to see an extended investment cycle in both capacity and technology upgrades that is providing visibility for at least $300 million of HDD revenues from 2022 through 2026. We expect this strong revenue growth in the next few years will be driven by upgrades in support of the installed base of over 150 systems that will require additional process modules to be HAMR capable, as well as a system backlog today of about $70 million. In summary, 2022 was a transformational year for Intervac. We are very excited about the year ahead and our new partnership for our TRIO platform. I will take this moment to emphasize just how committed we are as a company to increasing stockholder value and protecting the strength of the balance sheet as we grow the business and transform Intervac into a consistently growing and profitable cash generating company with a leading position in each of its key markets. That completes my prepared remarks. And with that, I will now turn the call over to Jim.