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spk10: It's now my pleasure to turn the call over to Claire McAdams, Investor Relations for Intivac. Please go ahead, Claire.
spk01: 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.
spk05: 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.
spk07: Thank you, Nigel. First, I will briefly summarize our fourth quarter results. Revenues came in a bit stronger than forecast at $11.3 million, compared to our guidance of $10 million. As expected, Q4 revenues were comprised of HDD upgrades, spares, and service. The primary reason for the upside in Q4 was our customers' prioritization and pull-in of certain upgrade investments, which resulted in a more favorable mix of revenue in the quarter. This resulted in Q4 gross margins of 44.3%, well above our guidance of 32 to 34%. The mix of lower margin business that was expected in Q4 is now spread across our full year 2023 forecast. So we expect to continue to maintain our quarterly gross margins of 40% or more for the forthcoming quarters. Q4 operating expenses were $8.3 million, slightly above our guidance of $8 million, due to the prioritization of certain R&D spending for TRIO, as well as an increase in variable compensation due to the exceptional work of the team in executing key milestones before year end. The Q4 net loss was $3.2 million, or 13 cents per diluted share, and better than our guidance of 17 to 21 cents per diluted share, primarily as a result of the favorable revenue profile in the quarter. With total new orders of $133 million in 2022, we ended the year with 12-year record high backlog of $122 million. As we have communicated throughout 2022, the strong level of order activity for both systems and upgrades resulted in quarterly increases in backlog during every quarter of 2022. Of the 11,200 lien HDD systems in backlog, we expect to deliver one in Q4 and multiple liens in each of the following three years. We ended the year with cash and investments, including restricted cash, of $113 million, equivalent to approximately $4.42 per share based on 25.5 million shares at year end. Our year end cash balance was stronger than our forecast of $105 to $110 million, primarily due to Q4's TRIO inventory purchases still residing in AP at the close of fiscal 2022. And we have since paid down that AP year to date. Cash flow used by operations was $11.3 million during the quarter and $7.4 million for the year. During Q4, we added $11.9 million in inventory to support the growing backlog and anticipated shipments of TRIO systems in 2023. Q4 capital expenditures were $493,000 and depreciation and amortization worth $383,000 for the quarter. Now moving to Q1 2023 guidance. We are projecting revenues to be between 10.5 and $11.5 million. Consistent with our commentary last quarter, we do not expect system revenues until the second half of 2023. But the level of upgrades in field service for the first half of 2023 is a bit stronger than we indicated last quarter. We expect first quarter gross margin to be between 40 and 42%. Q1 operating expenses are expected to be between $9 and $9.5 million, slightly higher than our expected run rate for the full year due to timing of investments in research and development, along with some typical seasonal increases. After Q1, we expect quarterly OPEX to be around the $9 million level for the remainder of 2023. We expect interest income of about $400,000 and gap tax expense of about $400,000 in the quarter. We are projecting a net loss in the range of 16 to 20 cents per share based on 26 million shares outstanding. As we look ahead to the full year's financial results, I'll recap some highlights from Nigel's remarks. We continue to expect approximately $40 million in HDD revenue in 2023, which will be relatively evenly weighted between the first half and second half, with upgrades driving most of the first half revenue and one system expected to revenue in the second half. The trio activity in the first half will be to build the production system and work with our customer to pass qualification in Q2 on that system. After we pass qualification, we expect to receive the purchase order for the initial unit. We are currently planning to deliver at least two additional trio systems within 12 months of successful qualification. On our May call, once we are well into the qualification process, we expect to be able to provide a range of how many systems could revenue in 2023. With this revenue profile, which is largely HDD driven, but should also include some level of TRIO systems revenue, we expect full year gross margins to be around 40%. And as I mentioned earlier, OPEX of approximately $36 to $37 million. We expect both interest income and taxes to be in the range of $1 million to $2 million in 2023. Finally, we will continue to closely manage cash to support the business strategy. This completes the formal part of our presentation. Kevin, we're ready for questions.
spk10: Certainly. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please, while we poll for questions. Our first question today is coming in from Hendy Susanto from Gabelli Fund. Your line is now live.
spk03: Good afternoon, Nigel and James.
spk00: Good afternoon.
spk03: So, Nigel, a big congratulation on the TRIO partnership. May I inquire more colors on what kind of profiles that we can expect? Let's say for the TRIO system, once the customer ramps up, Should we expect a linear sales profile, or it will resemble more like a step-up profile from, let's say, like one period to another?
spk05: Andy, thanks for the question. I mean, very clearly, and I hope it came across on the call, our focus absolutely has to be this month on completing the build of the first tool. We then move into the qualification. And we are optimistic and enthusiastic and excited about the process we're going through on this qualification. And that's a qualification of the production tool. I mean, the tool was qualified on the testbed and it now moves to a production tool. And really, that process is going to take the next couple of quarters. And that's the critical thing for me is to maintain this organization's focus on delivering and executing on that plan. If I look out way beyond that and the profile, I think it's too early to say. I mean, I think for me the opportunity, as we've said, is pretty compelling. It's a very significant opportunity. It's a very different market we're entering. It's one that is, you know, the partner and us are going to maintain a level of confidentiality, which is why I said we're going to have to be cautious what we actually share with people on these calls moving forward. because the key for me is to maintain our strength and maintain that technology advantage and then move forward. So really for this call, it's very much about we're absolutely on track with that first unit. We're on track with our partner to get that qualified. I think once we get through that, we'll have a much better view on what the market potential opportunity is. And the great thing for me is the commitment from that partner for the $100 million over five years as a minimum for that period. But I think it's too early to say that that's a linear or anything else. I think the excitement for me is to get the first tools completed into the market and actually start building success and securing some orders. So that's going to be my absolute focus. So it's really too early. We're so excited about it and the potential is huge. So I don't think it'll be linear, let's say. That's probably the only thing to say.
spk03: And then, Nigel, with regard to the TRIO system, what is the latest estimate of the production rate? And then I would like also to know, let's say, when there's an estimate for production rate, will be it's somewhat like semi-fixed, meaning that that's the run rate, and then there is no big window, let's say, from early into a full ramp up, whether there's a big range, like how many units they can produce. Yeah, would you share some color on that?
spk05: Yeah, I think probably one of the really exciting things about the product is this new platform, which is very different to anything we've done before. So people have got to start thinking about segregating in their minds the traditional business to this new platform. This platform has huge flexibility. Not only can it do two-dimensional coating, but it can do three-dimensional coating, which is a phenomenal step forward. But it also has the ability to actually do multiple size structures through the machine. So it's not like we're just putting through, if I go back to the HDD business, a machine that does billions of one size disc day in day out and so on. So it's this platform concept and the flexibility of the design is one of the key things that attracted us and this technology to our partner. And so the machine can have multiple sizes running on it. It can be running on different programs. So you can't really say it's going to be a fixed number. So I think that level of flexibility is probably one of the unique capabilities of the technology. And is it going into consumer electronics markets? I mean, again, that market is huge, has different components within it. And therefore, this flexibility of the tool is probably fundamentally one of the game changers and why we've been selected by the partner. Doesn't quite answer your question, but hopefully gives you some flavor that this machine can do. This isn't about one machine, it's about multiple machines supporting a very large industry that we're actually going to start entering.
spk03: And Nigel, with regard to the annual minimum commitment of that partnership, like When is the timing of the exclusivity? Will it start when the annual minimum commitment is met or whether now you can explore potential sales with other customers while waiting for the annual minimum commitment to be met sometime later in 2023?
spk05: The agreement, I think we were pretty clear when we announced it, does not restrict us from looking at other market opportunities. So the exclusivity is within the consumer electronic devices for glass and glass substrates. So that is very clearly documented and was in the sort of announcement. So outside of that, we can look for other opportunities from the starting point of the agreement. So the agreement that we announced was signed in December. That's the start date for the agreement. But for me, the real focus today is making sure we get the first production unit executed on, finished, that first unit qualified, and then move forward with that strategic partner.
spk03: Got it. And then questions for James. James, would you be able to share how much... like cash consumption we can expect in 2023, especially considering that Interfact needs to build three systems. And then I also noticed that there is a long-term customer advances of $22 million on the balance sheet. I'm wondering whether the cash on the balance sheet got boosted by that $22 million, and that's why the cash balance is higher than the prior estimate.
spk07: Sure. I can answer a couple of questions. First, let me answer your second question first. The ending cash of $113 million was not influenced necessarily by the $22 million. That was known quarters ago. That is one of our customers who placed large orders that are in our backlog, customary for that customer to give us cash down payments or customer deposits. We use those customer deposits to secure inventory. So if you look at the inventory growth through the year, inventory went up by about $24 million from the beginning of the year to the end of the year. The majority of that was not TRIO. TRIO inventory started to build in earnest in the fourth quarter. So we were using the customer's down payments to support the backlog and to buy the inventory as the customer requested. But that number of the cash down payment, the $22 million, had been reflected in our estimations of 105 to 110 million, and when we ended at 113 million. The slightly higher 113 million above our last call guidance was we did secure the inventory for TRIO that we expected, but it came later in the quarter, so it's still, the payment was not made, did not draw down the cash. It was in accounts payable, we've since drawn that down. As far as the cash being used for the business, You know, I think if you look over the last number of years, and especially in 2022, we've been excellent stewards of the cash. We'll continue to use the cash strategically. And as Nigel said in his prepared remarks, we're building inventory beyond whatever the minimum order quantity is for 2023. So you'll likely see inventory continue to go up as we go through the year, but we will still manage cash. You won't see cash go down, let's say, to an 80% $90 million level right away. If you see cash go down, there'll be normally a corresponding increase with us building inventory to support customer requirements. Got it.
spk03: Thank you, James. Thank you, Nigel. You're welcome. Thank you.
spk10: Thank you for the questions. Thank you. Next question from Mark Miller with Benchmark. Your line is now live.
spk06: I'd like to congratulate you on your progress last year. I'm looking forward to the future. After listening to Seagate Western Digital over the last week, they are indicating that the customer inventory for hard drives is starting to deplete. And as a result, they're more optimistic about the outlook, at least for hard drives, for the remainder of the year. Have you sensed anything in terms of improvements in capacity utilization or anything in terms of maybe more demand than expected now that the customer inventories of hard drives have come down?
spk05: Yeah, I think the first thing to cover what we've seen is, and really excitement is, and as you say, listening to some of the calls, one in particular, and the emphasis and the level of Q&A around the HAMIP. I think what we've done in the last year, we have enabled the hammer technology to come through. That's been a key part of our last quarter's performance. And we're seeing that hammer focus and the hammer readiness and to ensure that actually the equipments are capable of supplying the equipment for their launch to be maintained. I think Jim said that will be maintained into Q1. So we're seeing, you know, continued focus around those technology upgrades. And again, like you, we are optimistic that demand is starting to come back. Some of those key markets in Asia will sort of start to get additional business for them. And we're confident that the positive outlooks are going to sort of start coming through. But really, under fundamentally is this technology shift to hammer, I think is actually also going to be a significant change in that sector, in that industry. And we're well positioned to maximize some of that. I don't know whether you want to add to that, Jim?
spk07: No, I think as Nigel mentioned, you can see some of that in the results in Q4. And some of our customers' calls, as you mentioned, Mark, they really are taking advantage of the lower capacity and trying to build down inventory to improve their technology. And we're a key component of them being able to do that. And they're helping, as you see in Q4, that's one of the main drivers why revenue was above guidance. And we'll continue, as I said in my prepared remarks, that the first half of the year will actually be stronger than what we implied on the last earnings call as it relates to the linearity of shipments, first half, second half, and most of that will be upgrades.
spk06: Okay. From what I gleaned from your comments about cash in 2023, there's going to be some drawdown as you, you know, build new tools. But you are talking about shipping, I believe, one lead total later in the year. Do you think by the fourth quarter it will be cash flow positive?
spk07: I think it all depends on what happens with the trio build. That's really going to be the driver of cash flow positive when you look at a combination of what the linearity of the revenue is in Q4. But I think the biggest – use of cash for us, which is just going to be a timing issue, is going to be building to support a large backlog should that happen once we pass qualification on TRIO.
spk06: In terms of the LEEM tools you'll be shipping later, late this year and beyond, these tools have more features such as more deposition chambers and prior tools or any new technology in these tools?
spk07: I think that the one that will ship It has an additional process module, but I don't think there's much additional technology other than some of it has some Hammer-enabled capability.
spk05: Yeah, I mean, the major focus is really, as we've talked on, is enabling the install base, putting in the Hammer upgrades for those tools, and ensuring our customers are ready and enabled to actually execute on their Hammer roadmaps. And that's a key thing we've done is ensuring our roadmaps are absolutely aligned with our key customers. And that's been a key success over the last 12 months, is having those regular technology review meetings and ensuring we're meeting their needs and actually helping, enabling them to actually move to that next generation of technology. So it's been an exciting year.
spk06: If all goes well with the first qualification of the TRIO tool, you're talking about delivering two more TRIOs after that. When could you think these tools be revenued, early 2024?
spk07: I think as customary with our RevRec responsibility and rules, we'll need a couple of tools on the field to be installed to go through full qualification on site. And once they do that and the customer signs off on the qualification, we'll take revenue. And then probably the third or fourth tool after that, we can take revenue. you know, we can take revenue at the time of shipment, but we have to first pass the qual. And we do expect revenue in 2023, as we've said. Absolutely. That first qualified tool that Nigel emphasized, and I think everybody should remember, is that's our focus right now. Our focus right now is building a production tool, getting through qualification, trying to get that qualification through Q2. Once we get qualification and sign off, that tool can take revenue. And then any tools we ship after that, if they go into the field, They'll have to get installed, qualified, signed off, and then we can take revenue there. And then it's after that point in time that we can probably take revenue at shipment. But revenue at shipment is likely going to happen in 2024, but we will see sign-offs and we will see revenue in 2023 from TRIO.
spk04: Absolutely.
spk06: Understood. Thank you.
spk04: Thank you, Mark. Thank you, Mark.
spk10: Thank you. Next question today is coming from Srini Sundar from Partner Capital. Your line is now live.
spk08: Hi, guys. Congratulations on a fantastic quarter. My first question is why was the accounts payable postponed?
spk09: The what? Under normal circumstances. Accounts payable postponed.
spk08: Why was the accounts payable? Yeah.
spk07: But I'm not sure if your question is why is accounts payable higher at the end of the year? Yeah.
spk09: Is that your question? Yeah.
spk07: So if I understand your question, although it was hard to understand that question, the accounts payable was higher at the end of the year because of the timing mostly of the delivery of the TRIO inventories. So it came in, it was received. but there are payment terms of when we have to pay our vendors. Those payment terms required us to pay the vendors in January, not December. So it was sitting in accounts payable. You'll see accounts payable went up from the September quarter to the December quarter. And that helped the cash because essentially it was in accounts payable, which has since been paid. And it was roughly around $5 million. Kind of coincided with the growth of the free inventory in this quarter.
spk08: Thanks. As a follow up, the lean 200 systems that you'll be shipping in the next two or three years, they will all be going out with Hammer updates, right?
spk05: Those were ordered around this time last year. Some of that technology innovation will be included in them, and there'll be some that's not. So there'll be further upgrades for those tools post-install. So there'll be some level of hammer readiness, but not the latest hammer upgrades that we've actually developed and executed and delivered on in 2022.
spk04: OK.
spk08: Also, on the subject of exclusivity, Explain what it exactly means, meaning that you cannot sell it to somebody else or you can sell it to somebody else.
spk05: So the exclusivity is very clearly for consumer electronic devices, for glass and glass ceramic substrate. So it is a very clear definition of the market and the substrates. So in that, again, what that means, that exclusivity means we cannot sell to anyone for those applications. So that's why you have exclusivity. It is absolutely exclusive to them for that application.
spk08: And this is actually a show of my ignorance. But I want to know what is the market share of your trio partner in the cell phone market?
spk05: Information on our partner's market share is not really for us to comment on. The market share of our partner is probably on their website, but they are clearly the market leader. an absolute number one. So they are market leader in that sector.
spk07: And I would say anybody that has paid attention over the last four or five months as to what we're doing.
spk09: Yeah. Okay.
spk08: And there's a trend towards putting tempered glass on top of the display. Would that tempered glass stick to your TRIO film?
spk05: I mean, I think if you look at what we announced at the press release, the TRIO is for coating glass and glass ceramic substrates. any glass and glass ceramic substrate is covered in that agreement. So it doesn't matter if it's tempered or not tempered. I think it will cover, it covers any substrate. And that's why, I mean, it's a game-changing technology that really has the flexibility and everything about it is why our partner is so excited about it and why we've given the exclusivity.
spk08: Okay. I think... Those were all of my questions. Thank you very much. Congratulations on a good execution.
spk04: Thank you. We appreciate that, Sweeney.
spk10: Thank you. Next question today is a follow-up from Hendy Susanto from Gubelli Fund. Your line is now live.
spk05: We can't hear you, Hendy. I know it's just me. Can...
spk03: Operator, can you hear handy? Yes. Hi again, Nigel and James. May I ask, I think 2024 is still far away, but with regard to the first full year of profitable results, do you have insight into what revenue level and what kind of revenue mix is the underlying assumptions among, let's say, like hard disk drive market, Lean 200, Hammer, and TRIO?
spk07: Yeah, I would say at this time, we're not prepared to talk about what the revenue mix could be, how much between the two, but what we look at internally is if you look at the investments we'll make in R&D this year, and as we said in our prepared remarks, our OPEX being somewhere between 36 and 37 million, if you just did simple math and assumed a 40% gross margin, you need to be somewhere around 90 million in revenue to break even.
spk03: So that is very encouraging, James. And the second question is, I saw on your website, Ballistic Coating, is that the commercial name for trios and products? And then outside of consumer electronic devices, Do you see any low-hanging fruit applications?
spk05: Yeah, just to cover that first. I mean, as you know, when I joined a year ago, we had the InterVac ballistic coating and the IBC as a potential route forward and a potential technology. And some of that has been developed into the TRIO tool. So the website, as it says, is under development. And we will actually address that in 2023. My focus in 2022 has not been about trying to put nice things onto a website. It's been absolutely about creating a new technology platform, getting these business fundamentals correct. But you're right, this year is the time to get the website upgraded, put some additional material on there and actually bring TRIO to life on the website. So that will be one of my actions for this year, but last year was very much about getting the technology launched, focused, and making this company a success. But you're right, the website still does stay under development for IBC, and we will change that to TRIO and our current platform and the future growth.
spk03: I see. And Nigel, my second question is about potential target application outside of consumer electronic devices for TRIO.
spk05: Yeah, I mean, at the moment, as we've said, very much the focus is getting this tool built, qualified and out there, and making that a success. Beyond that, I see other opportunities. I think we talked in one of the announcements about this potential around the automotive and other sectors. There's market opportunities. I mean, but for me at the moment is let's get this thing built, qualified into the market and keep updating you as investors every single quarter by saying, this is what we've done. This is what we're going to do next quarter and keep building that story and building that success. So I think I've got enough to do to focus on that one exciting market opportunity of electronic devices first. Yeah.
spk03: Thank you, Nigel, and then all the best for winning 3.0 sales in the production environment. Thank you, Andy.
spk05: Appreciate that.
spk10: Thank you, Andy. Thank you. Next question is coming from Dan Weston from Westcap Management. Your line is now live.
spk02: Yeah, hi. Good afternoon, guys. Thanks for taking the questions, and congratulations on all the progress. Most of the questions have been answered. Just a few more, if you don't mind. In terms of the trio, could you share with us what you think your internal capacity is for build and ship per year for that product?
spk05: I mean, that's highly confidential, as you can imagine. What we're really doing now is building the plan around it. We're executing on the first bills. We're going to get the full qualification done. And then we're going to ensure we have capacity to meet whatever demand is out there. So it's hard. I mean, The market size and what we're going to do and how we're going to deliver against that is clearly within internal plans. And we are planning and scaling and building for success. You don't enter something like this without saying we're going to be successful. We know what we need to do. We have to have capacity to do it. We have to be able to actually manage our way through the industry with some still supply chain challenges. We've got the strength of the balance sheet to actually help us leverage with some inventory so we can be ready to ramp and build whatever the market needs. But I don't want to put numbers in there for people at the moment. But we know what we have to do, and as we've said, we actually plan things out, we think it through, and then we execute. So we are... Okay, no, I think I get your point. Yeah, we've just got to get the first one built.
spk02: Sorry to cut you off.
spk05: No, no, it's fine. It's great, but we are going to move forward. We're going to be successful, and it's about getting this first one qualified and then moving forward successfully with our partner.
spk02: Totally understood. Thank you for that, Nigel. Let me ask it this way. Just given the minimum commitments on this particular customer for TRIO assumes, I'm guessing, using a roundabout figure of about four units per year to build and ship in revenue, let's say that customer exceeded this minimum commitments and he required eight or 10 units to be built and shipped to him in a particular year. Are you saying that you could successfully build and ship 10 units per year?
spk05: Yeah, I'm not committing to any number, but I'm saying we're planning for success and whatever our customer needs, we will deliver. So you've got to read into that what we're doing. Yeah.
spk02: Okay, fine. Let me ask you a question. In terms of the evaluations that Corning was doing initially on the TRIO platform, did they have any of their end customers involved in that evaluation as well?
spk05: I mean, clearly I can't answer that question. What I can say to you is, and we've covered it on the last couple of calls, when you launch a new product, you align it with a key partner. you have them to be successful in launching products through my 30 years of experience in many different companies. It's when you have a customer who's working with you, it's feeding and working with your development teams, and you're producing product. And we talked on a call a couple of quarters ago, we gave them some samples. They came in, they ran their own samples. We've done coupons for multiple different potential applications and so on. We've had other people come in and run. And the qualification success is, And the real performance of the TRIO and its flexibility and adaptability has been superb. And on the back of that, that's why they wanted exclusivity.
spk04: So you should be able to read into that what we've been doing.
spk02: Good enough. That's all I had for you. Thank you, Nigel, for answering those questions. I appreciate it.
spk04: I appreciate it.
spk02: Thanks, Dan.
spk10: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.
spk05: Thank you. As I look at where we are today compared to my first earnings call one year ago, I feel we've executed on a complete transformation of the company. We've created a new intervac, an outstanding achievement. We are now squarely on a path towards consistent annual revenue growth, and a 2024 outlook supporting significant revenue growth, positive cash flow from operations, and a profitable year for the company. Overall, I'm extremely enthusiastic about the future of Intervac, and we will continue to leverage our collective expertise and strong balance sheet to ensure the company is positioned for growth well into the future. In the final, I want to thank all of our employees as well as their counterparts with our industry partners for their hard work and dedication as we progress with our partnership with the new TRIO platform, as well as the HDD's industry transition to Hammer. And that's been, for me, it's been a fantastic achievement all round. We've also been steadily ramping up our investor outreach over the last year, and we're eager to continue meeting with as many industry investors as possible. So if anyone wants to reach out to Claire, please do that directly, and we'll organize follow-ups with us. And with that, I will conclude today's call. So thank you.
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