Intevac, Inc.

as the TRIO achieved key performance metrics as part of the evaluation process that will enable Intervac 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 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 unfolded in fiscal 2023 within each of our primary markets have underscored two key attributes of our business. First and foremost is that Intervac 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 in-film 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 environment of 2023, a year when our customers faced enormous headwinds financially and operationally, yet never diverted their attention from their strategic manufacturing priorities in close partnership with Intervac. But it's these same headwinds that manifested in the second reality for Intervac's leadership team in 2023, and that is the undue 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 a new year, we are steadfast in taking a long-term focus on improving the underlying financial performance of Intervac. We're always going to be focused on critical aspects of our financial performance, such as revenue volumes and our cash position. At this juncture, however, we have made the determination to temporarily redirect our focus away from short-term metrics, such as 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 hammer upgrades. Even more importantly, Intervac has emerged as the enabling technology partner for the adoption of Hammer, 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've supported the strength of our customers' financial position at the expense of our own. Our cash conversion cycle has slowed to historical lows and collection 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 the decision to temporarily suspend our fulfillment of HDD orders until that customer fulfills 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 Intervac'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 Intervac and our ability to meet key performance specifications for a very demanding and exacting customer. Upon achieving qualification and the successful completion of our joint development agreement, we engaged with our JDA partner in negotiations for a commercial agreement for multiple systems. While we were not able to complete such agreement by year end as we had originally had 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 is also quite apparent to us there is a 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 at 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'll 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 change in the demand we've indicated when 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 Intervax'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.

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 hammer 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 HDV upgrades, as well as one new 200 lien and one refurbished 200 lien 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 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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