Intevac - Q1 2024
April 25, 2024
Executive Summary
- Q1 revenue was $9.631M with gross margin 43.7%, reflecting a favorable mix of HAMR technology upgrades; GAAP EPS was $(0.06), non-GAAP EPS $(0.10).
- Backlog rose 25% since year-end to $53.1M on new orders of $20.3M, including initial HAMR upgrade orders from a leading data storage company; cash and investments were $65.5M at quarter-end and rebounded to over $75M post quarter on receivable collections.
- Q2 guidance implies sequential revenue decline ($7.5M–$8.5M) and margin compression (34%–37%), and full-year gross margin outlook was lowered to “low 30s” (from prior “high 30s”) on mix and TRIO qualification costs; revenue outlook maintained in “low $50M” range with 2–3 TRIO systems to revenue.
- Stock reaction catalysts: confirmation of multi-customer HAMR adoption, first TRIO field shipment and timeline to revenue recognition upon successful qualification, and improvement in cash collections after resolving payment terms with a major HDD customer.
What Went Well and What Went Wrong
What Went Well
- Gross margin improved YoY to 43.7% (from 40.9%) on favorable upgrade mix; OpEx declined YoY to $8.650M; GAAP net loss narrowed to $(1.606)M vs $(3.891)M a year ago.
- New orders exceeded $20M in Q1 (bookings $20.3M), backlog increased to $53.1M, and initial HAMR upgrades were booked from multiple customers, expanding beyond the first HDD customer.
- Management resolved JDA structure and shipped the first TRIO system directly to a cover glass finisher for a leading smartphone OEM, with revenue recognition expected upon qualification: “We continue to believe the TRIO platform will be our major growth driver”.
What Went Wrong
- Revenue declined sequentially and year-over-year ($9.631M vs $12.906M in Q4 and $11.542M in Q1’23); operating loss widened sequentially to $(4.446)M.
- Q2 guide calls for lower revenue ($7.5M–$8.5M) and gross margin headwinds (34%–37%) due to underabsorption and less favorable mix, with projected GAAP EPS loss of $(0.20)–$(0.22).
- Full-year gross margin outlook was cut to “low 30s” from prior expectations in the high-30s, driven by change in customer composition and incremental TRIO qualification costs with both cover glass finisher and OEM.
Transcript
Operator (participant)
Good morning and welcome to Intevac's first quarter 2024 financial results conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, then zero on your telephone keypad. Please note that this conference call is being recorded today, April 25th, 2024. At this time, I would like to turn the call over to Claire McAdams, Investor Relations for Intevac. Please go ahead, ma'am.
Claire McAdams (Head of Investor Relations)
Thank you, operator, and good morning to everyone on today's call. Thank you for joining us today to discuss Intevac's financial results for the first quarter of 2024, which ended on March 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, 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, which remain subject to adjustment in connection with the preparation of our Form 10-Q, as well as comments about 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 April 25th 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'll now turn the call over to Nigel.
Nigel Hunton (CEO)
Thanks, Claire, and good morning to all of you on today's call. We appreciate you accommodating the early time this quarter, as I'm currently calling from the U.K. before returning to Asia for additional customer meetings after several international trips during Q1. I am pleased to report solid results for the first quarter, with revenues of nearly $10 million and strong gross margin performance driven by the favorable mix of HAMR technology upgrades in the quarter. Our results for the first quarter confirm that, following our Q4 call in February, we arrived at an agreement with our largest customer regarding payment terms. This led to continued strength in the delivery and installation of HAMR upgrades throughout Q1. So while our total balance of cash and investments at quarter end was just over $65 million, as of today, our cash balance exceeds $75 million.
We're also pleased to announce today a 25% increase in our total backlog since year-end, reflecting continued strong bookings for HAMR technology upgrades. Total new orders for the first quarter exceeded $20 million and included HDD technology upgrade bookings from multiple customers, including the initial HAMR upgrade orders placed by leading data storage companies. Next on our call today, I'm pleased to discuss the resolution of our joint development program for the TRIO platform. Looking back, the success of the platform's development and achieving qualification in 2023 was testament to the quality of engineering resources resident within Intevac and decisively demonstrated the TRIO's ability to deliver on multiple key performance metrics, which will enable Intevac to address very large market opportunities. Achieving the successful collocation of the initial system by year-end was a major milestone for Intevac.
At the same time, in our ongoing commercial negotiations with our JDA partner year to date, we have continued to navigate the complexities of the display cover glass ecosystem for consumer electronics. In evaluating our respective roles within a well-established supply chain, we and our partner have mutually determined that Intevac will now commence shipping TRIO systems directly to the existing cover glass manufacturers that are direct suppliers to the leading OEMs. That is precisely what we've already done. The first TRIO system was delivered this month to an established cover glass finisher for a leading smartphone OEM. We believe this supports our assertion over the past several earnings calls that we are seeing strong customer pull for the TRIO. As soon as the system is fully installed, we will immediately begin the qualification process. Achieving customer qualification will trigger the formal purchase order.
Therefore, our expectation is that this will be the first TRIO system to revenue in 2024 and that successful qualification with the customer will also lead to a follow-on order for multiple systems. As a reminder, we have the inventory on hand in order to deliver on multiple systems with relatively short lead times. At the same time, our relationship with our JDA partner continues to be positive. We have mutually agreed that the characteristics of the existing supply chain for consumer devices dictate that we must sell directly, and as a result, we have paused our commercial discussions. We are grateful for the partnership and everything achieved over the past 15 months, including the many new customer relationships developed. As the industry continues to adopt more durable coatings, we believe we have future order opportunities with our JDA partner.
Beyond the recent customer shipment, we're also running samples with multiple additional companies who are in various stages of evaluating the TRIO. In total, we have engaged with several leading companies expressing demand for the TRIO office. With our TRIO growth opportunities now extending to several potential customers, we are stepping up our investment in the organization, especially in marketing and business development. Recent new additions to the leadership team include Dilan Fernando joining us as VP Business Development and Shannon Fogle as VP of HR. With the first TRIO shipping early this month and multiple evaluations underway, the morale and excitement among the Intevac team of exceptional employees is the strongest I've seen since joining the company. It is truly gratifying to see the smiles and excitement as we officially launch initial TRIO shipments, yet another major milestone for our company. Which brings me to our outlook for 2024.
We have now successfully resolved negotiations with our major partners in each of our primary end markets, which enables us to resume guidance and reiterate our prior expectations for full-year revenues in the low $50 million range. This incorporates our consistent expectation for two to three TRIO systems to revenue this year, equating to potential revenues totaling over $10 million. In the hard drive industry, we are currently forecasting full-year sales approaching $40 million. Not surprisingly, the majority of our HDD revenues this year are for HAMR upgrades. And as referenced earlier, in 2024, we are now reporting an initial order for HAMR upgrades from an additional customer, which is a leading data storage company. Industry news of improving fundamentals for the hard drive industry continues to build and proliferate.
Data center spending strength is a highlight of many Q1 earnings calls, and strong customer demand and strengthening cloud CapEx are leading to certain supply challenges, as well as pricing increases for several HDD product categories. We continue to expect HAMR technology upgrades to dominate our HDD business for the next few years. This is because boosting areal density results in tremendous efficiencies for the data center. Transitioning to higher capacity drives without adding disks is very positive for our upgrade business, and there is no doubt that Intevac has emerged as the enabling technology partner for the adoption of HAMR. While improving HDD unit growth and capacity utilization also provides us with optimism for an eventual return to 200 Lean capacity additions. For the foreseeable future, our HDD business will be strongly supported by a multi-year upgrade cycle.
Recent results and strong order activity have demonstrated once again that we are a critical enabler of this transition and that all technology upgrade plans in the HDD industry are taking place on our flagship 200 Lean platform. Our critical role in the HDD industry provides significant visibility for a continued solid base of business and supports our expectation for a strong growth year in 2025, a year in which we currently expect meaningful incremental growth for our TRIO platform. Finally, protecting the balance sheet remains a key priority for the company. We ended 2023 with over $72 million of total cash and investments, and that balance has now strengthened to over $75 million. Our expectation is to exit 2024 in a similar range as year-end 2023. Our customer is now paying to our agreed terms, and so we do not expect to have any delayed payments.
With that, I'll turn the call over to Kevin for his review of our results.
Kevin Soulsby (CFO)
Thank you, Nigel. Turning to the first quarter results. First quarter revenue has totaled $9.6 million and consisted of HDD upgrades, spares, and service. Q1 gross margin was 43.7% and benefited from a favorable mix of upgrades during the quarter. Q1 operating expenses were $8.6 million, which exceeds our current run rate and included a small fixed asset write-off and higher than typical legal costs, in addition to the seasonal increases in audit and payroll. The GAAP net loss for Q1 was $1.6 million or $0.06 per diluted share. This includes a $2.4 million benefit receivable on our claim from the COVID-era Employee Retention Credit Program, of which $1.5 million was recorded in other income and $0.9 million was allocated to Photonics and recorded as income from discontinued operations. The non-GAAP net loss was $2.7 million or $0.10 per diluted share.
Total backlog increased to $53.1 million at quarter end, reflecting the $20.3 million of new orders booked in the quarter. Turning to the balance sheet. We ended the quarter with cash and investments, including restricted cash of $65.5 million, equivalent to $2.47 per share based on 26.5 million shares at quarter end. As Nigel mentioned, our cash has rebounded to over $75 million following more significant collections of receivables from our largest customer quarter to date. Total cash flow used by operations was $6.5 million during the quarter. Capital expenditures in Q1 were $0.6 million. Non-cash expenses for Q1 included $0.8 million for stock-based compensation and $0.6 million for depreciation and amortization, as well as the $0.5 million fixed asset write-off. Now moving to Q2 guidance. We are projecting revenues to be in the range of $7.5-$8.5 million.
We expect second quarter gross margins to be in the 34%-37% range due to increased underabsorption and a less favorable mix of higher margin upgrades. Q2 operating expenses are expected to be in the range of $8.3-$8.5 million, reflecting a lower seasonal cost but continued high legal. We expect interest income of about $500,000 and GAAP tax expense of about $400,000 in the quarter. Most of the tax expense will be non-cash. We are projecting a net loss in the range of $0.20-$0.22 per share based on 26.7 million shares outstanding. For the full year, as Nigel mentioned, we expect total revenues in the low $50 million range. This includes TRIO revenues potentially exceeding $10 million, as well as HDD sales consisting of upgrades, spares, and service approaching $40 million.
As a reminder, our 2023 revenues included one 200 Lean system and one refurbished system, which we do not expect to repeat in 2024. Given this revenue profile and expected mix, we anticipate gross margins for the year will be in the low 30s. This is lower than our earlier expectations in the high 30s, given the change in customer composition and the expected additional cost to qualify the TRIO with both the cover glass finisher and the end customer OEM. We expect ongoing operating expenses will decline to the low $8 million level beyond Q2, but still be higher than our post-restructuring budget due to the incremental investments we are making in business development, marketing, and other areas in order to address a broader potential customer opportunity for the TRIO.
We expect both interest income and taxes to continue to be in the range of $400,000-$500,000 per quarter. Finally, our expectation is that we will end 2024 with a similar balance of cash and investments as of year-end 2023. This completes the formal part of our presentation. Operator, we are ready for questions.
Operator (participant)
Thank you, Sal. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, if you would like to ask a question, please press star and then one now. The first question we have comes from Peter Wright from Intro-act. Please go ahead.
Peter Wright (Analyst)
Great. Thank you for taking my question and congratulations on the TRIO shipment.
Nigel Hunton (CEO)
Thank you, Peter.
Peter Wright (Analyst)
Wonderful. My first question is, if we look into your R&D spend and specifically your focus on TRIO, what are the main operations there? Is it more development of the existing product with your large customer, or is it more expanding into new end markets and new applications? Or if you could give us some color on kind of your thoughts there on the meaning of the TRIO platform for investors going forward?
Nigel Hunton (CEO)
Okay. Yep. Thank you for the question. I mean, very clearly, the TRIO platform has had significant investment, and we've progressed pretty effectively to qualification. Great to see us putting the first system now into the field. There'll be quite a lot of cost around supporting the field installation, developing that, getting it through qualification. Really, beyond that as well, some of the customer feedback we've been getting is around how do we look at automation of an anti-fingerprint spray coating on the end of the machine. One of the things we've done is we've designed a capability that can put a high-throughput machine into an existing facility for consumer devices. Within that, there are some process steps that we want to be integrated into the machine. There'll be some R&D work around integration of additional process steps.
We've also, as we've talked on prior calls, thought about this is a modular platform. One of the real excitements for me about how we've designed it and the way that the design concept has this modularity capability enables us to add additional features. So, for example, we can add additional features in future years around an implant. We can look at additional features around a cleaning step. That enables the product in the future to actually be expanded into not just the automotive, but into advanced packaging. Now, those are multi-years ahead. That's why it's important for us to maintain this level of investment in R&D, because we believe that the TRIO platform has multiple opportunities going forward. So hopefully, you'll see some of that investment in the current product, which will be the majority for this year.
And then as we move into 2025 and beyond, we'll maintain that level of investment as we expand into other market applications. Hopefully, that answers your question.
Peter Wright (Analyst)
That's wonderful. And if you could help me understand in the conversations, I think that there's a slight pull-in maybe of expectations on TRIO if it's north of $10, if I'm reading that right, maybe one incremental system from prior expectation. Number one, if you could clarify, is that right? And what is that? Is that just operationally, you guys are ready for it, or is it a demand-driven pull-in of demand there?
Nigel Hunton (CEO)
We've always said this year it would be 2 or 3 TRIO revenues. And that's consistent with that number of around the $10 million. So we believe, again, as we've said very strongly now as well, this pull to get a machine into the field and running and actually going direct to the key finishes, I think, is a key step forward. It does require the qualification. We've been pretty open about that. That machine will now start qualification in May. So it's going to be and our team will support that. So we'll have a pretty extensive team in Asia supporting that qualification. But from a pricing point of view and unit numbers, it's pretty consistent to the prior calls. There'll be 2-3 systems and around $10 million.
Peter Wright (Analyst)
Fantastic. And very last question, and then I'll go back into queue. On the hard drive side, I have to think your customers need you potentially more than you need them in this business supporting their upgrades. How are conversations taking place with your customer base on a year where we don't have any 200 Lean sales? To continue to kind of support that infrastructure, how do your customers kind of continue to feel comfortable securing you enough to continue to be there for them?
Nigel Hunton (CEO)
I think we said on prior calls as well, we believe this sort of level of HAMR upgrades is going to be at this similar level for the next 4-5 years, which seems to be a nice base level for the business. And we have very, very strong partnerships. I mean, that's key. And you think of the HAMR importance of the HAMR success. I mean, whether you read in the press or you pick up some key underlying trends, I mean, the HAMR technology enables a data center to take its existing capability out, replace it with HAMR. That boosts their capacity dramatically in the same footprint without building a new data center. It also gives them a step change in electricity and power consumption because the HAMR upgrades and these new systems give lower power.
So it really is going to drive for the next couple of years an investment in upgrades, which will ensure that all of the 200 Leans become HAMR capable. That's the key focus. And it's about making sure we're there to support those customers as they grow and ramp their HAMR demand. If I look out beyond 3 to 5 years, I mean, you've got to believe very much, as we've seen, that the HDD industry requires and demands this drives. And therefore, as we do HAMR and as things grow, it's going to have, I think, an increasingly scope and opportunity for the business. And I think that will eventually lead to some 200 Lean orders. But I don't see that in this sort of near-term horizon.
But that, for me, is about let's focus on the HAMR upgrades, the strong margins, the consistent revenue throughout the next couple of years, and have that as a base as we build TRIO on top of it.
Peter Wright (Analyst)
Thank you for taking my questions.
Nigel Hunton (CEO)
Thank you, Peter.
Operator (participant)
Thank you. Next question we have comes from Mark Miller of the Benchmark Company. Please go ahead. Mark, your line is live, Sir.
Nigel Hunton (CEO)
Yeah, I can't hear anything here at the moment. Have you unmuted, Mark? Mark had problems last time.
Operator (participant)
Yes, Sir.
Mark Miller (Analyst)
I'm here. I'm here. Sorry.
Nigel Hunton (CEO)
Great. Good to hear from you, Mark. Always good to hear your voice. That's good.
Mark Miller (Analyst)
I'm just wondering, in terms of the tool that shipped in April, do you expect revenue recognition in the third quarter?
Nigel Hunton (CEO)
Yeah. Maybe Kevin can add to this. But clearly, that is our first tool shipped that has to go through qualification. The revenue recognition, I think the first step for me, as Kevin will cover me on the GAAP requirements, the tool needs to be fully approved.
Mark Miller (Analyst)
The tool has to be yeah, can you carry on, Kevin?
Kevin Soulsby (CFO)
It has to be accepted by the customer and fully signed off before we can take revenue, being the first time we shipped one of these. That'll be the case for the first couple of tools until we prove that the installation is, they say, perfunctory, and we can take revenue on shipment in the future.
Nigel Hunton (CEO)
I mean, clearly, from our perspective with that installed unit, the customer where it's going is excited about it, wants to accelerate and do that as fast as we can. So I would like to hope that we can get that completed and the qualification done within the quarter. But certainly, within 2024, that will absolutely be revenue.
Mark Miller (Analyst)
Now, based on your revenue guidance for this quarter and for the year, it looks like you're leaning towards maybe three TRIO tools being recognized this year. Is that off base?
Nigel Hunton (CEO)
No, that is absolutely correct. We're looking to 2-3 tools, and that'll be in the second half of the year. Yeah.
Mark Miller (Analyst)
You mentioned there were several multiple evals away for TRIO. Any more color you can provide there in terms of timing or anything else?
Nigel Hunton (CEO)
I mean, the key for me is the exact I'd say over the last quarter, we've shipped multiple samples out in the field. They've gone through initial evaluations. That then leads to further meetings. So I think we'll have strong, positive interactions on those coatings over the next couple of quarters. And I think they will start to deliver. I think that we will get maybe one of those 2-3 additional leans will be driving hard to come from a separate customer.
Mark Miller (Analyst)
Okay. Thank you very much.
Nigel Hunton (CEO)
Cheers, Mark.
Operator (participant)
Thank you. Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one now. The next question we have comes from Hendi Susanto of the Gabelli Funds. Please go ahead.
Hendi Susanto (Analyst)
Good morning, Nigel, Kevin, and Claire. Congratulations on winning initial HAMR upgrade from a new major data storage company.
Nigel Hunton (CEO)
Thank you, Kevin.
Hendi Susanto (Analyst)
Yeah. So Nigel, my first question, with the new HAMR upgrade customers, I think they lag behind your leading first major customers. So how we envision the timeline, how quickly they can accelerate, let's say, their work on HAMR, that can open up more opportunity in the near term?
Nigel Hunton (CEO)
Yeah. Just to be clear, the customers we have, as you know, we can't mention their names or talk about what their specific development plans are. But again, for me, it's a fantastic achievement, and it's a great step forward. And that really does give credibility to HAMR in the market. We believe the first one will always take a bit of time. It's got to go through the company. It's got to evaluate it, see the benefits, and then put that into their own strategy. So we can't comment on what their strategy or roll-up plans are. But the great news for us is we have another customer evaluating it. We don't comment whether they're ahead or behind anyone else. That's up to them to comment on. But for me, it's a fantastic opportunity for Intevac.
It really does give testament to our being the key driver and enabler of HAMR in this market. I think HAMR is going to drive and maintain the competitive nature of this drives for the data centers. It's a great position to be in. So no, we're very excited.
Hendi Susanto (Analyst)
I see. Yep. And then, Nigel, the TRIO system sales expectation for 2 or 3 tools. So we know that the first 1 will go toward qualification. What do the other 1-2 additional systems represent?
Nigel Hunton (CEO)
Yeah. So I think, as we've said on prior calls, we've made as a company, we have backed the TRIO platform, and we've made a significant sort of investment in inventory, in parts, in capability. So we've shipped one unit. We have another shipment in final assembly as we speak, so we can very quickly put another unit into the market. So therefore, having that inventory allows us to respond very quickly. Our initial focus is still around the consumer devices. And I sense that will be the focus for 2024. As we look beyond that, then we start looking at getting some evaluations in the automotive sector as well. But the primary focus for this year, the primary focus for the tool that's gone, the primary focus for the additional tools, which have the inventory so we can respond very quickly, will be the consumer device market.
Hendi Susanto (Analyst)
Any update, whether it will go towards smartphones or wearables?
Nigel Hunton (CEO)
At this point, we'll say it'll be consumer devices.
Hendi Susanto (Analyst)
Okay. Fair enough, Nigel. And then one question for Kevin. With regard to the payment terms with your major HDD customers, when did exactly it get resolved? And then you indicated the quarter to date you received $10 million. How much more beyond that $10 million that Intevac has not yet received?
Nigel Hunton (CEO)
If Kevin can add to that, I will add to that just initially, and then you can add to it, Kevin, if you want. We received the agreement in the quarter, and that is the amount of clarity we're going to give. We have a great partner there, and we've resolved the differences around that. We now have a great position with them from cash. But it was resolved within the quarter. And that's really the sort of guidance we're giving about the timing of that. Kevin, anyone want to add to that, Kevin?
Kevin Soulsby (CFO)
I mean, they've caught up. We are now, our receivables are at terms with them currently.
Hendi Susanto (Analyst)
Any remaining payment term associated with the cancelled orders?
Nigel Hunton (CEO)
The canceled orders still have.
Kevin Soulsby (CFO)
We still have all that inventory. It's being worked with Seagate, but there's been no progress on that.
Nigel Hunton (CEO)
Yeah. Just to add to that, one, we don't talk about customer names. So apologies for mentioning that one.
Kevin Soulsby (CFO)
Sorry.
Nigel Hunton (CEO)
We have no exposure to the company. We've said many, many times. So the customer gave a cash deposit that covers all the inventory. We're working very diligently with them. We've made some great progress this quarter on identifying what level of those parts can be moved either to them or elsewhere. But there is no exposure for Intevac. The cash is there to cover all that inventory. And we will get that resolved over time. Clearly, everyone has different priorities at the moment. A key priority is ramping and making sure the HAMR gets delivered on time, and we've hit their on-time delivery, which we're doing. So over time, that will get resolved. But it clearly is not critical because we have their cash covering that inventory.
Hendi Susanto (Analyst)
Okay. Yeah. Thank you. And then any insights on the income from discontinued operations in the income statement?
Kevin Soulsby (CFO)
That was a result of the employee retention credit claim that we filed in the quarter. Part of that was related to Photonics wages in 2021. So that piece of it was allocated to discontinued operations.
Hendi Susanto (Analyst)
Got it. Yeah. Okay. Yep. I think thank you so much for your time and for taking my questions, Nigel and Kevin.
Kevin Soulsby (CFO)
You're welcome.
Nigel Hunton (CEO)
Thank you. We always hear your questions, and we appreciate your support for the company. Thank you, Hendi.
Operator (participant)
Thank you. The last question we have is a follow-up from Peter Wright. Please go ahead, Sir.
Peter Wright (Analyst)
Great. Thank you for taking my follow-ups. If I look to 2025 and I just focus on the TRIO part of your business, if I could ask a 3-part question and help me with these assumptions. So I understand that there's some delay in kind of the revenue recognition from the stack in 2024 into the back half just as you're recognizing your first tool. But on a run-rate basis, it would suggest that you could be at about 6 tools in 2025 if we're looking at potentially 3 systems in the second half of 2024. Is that a good assumption on it? And then the second part to that, is there any capacity constraints to be able to deliver on that, or kind of what is your capacity capability of developing TRIO systems?
And then the third part of that question is, is there other sources of revenue other than equipment revenue that could hit the TRIO part of the model?
Nigel Hunton (CEO)
Okay. Great questions, Peter. We appreciate that. We're not giving guidance for 2025 on the number of TRIOs. But I would assume we're going to be. This product is a game-changing technology. We have to get that momentum. We have to get the product qualified in 2024. And it is great to have a product now in the market starting that qualification. If those go through and we get the 2-3 this year, I would like to believe we will be at 6 in 2025, if not higher. But we're not going to give an actual number against that. I mean, for me, we've got to start 2025 being a substantial growth year. And as we've talked about, with the HAMR being a base load, it really is all around the TRIO.
From a capacity point of view, we are absolutely investing in the capability to manufacture the TRIO platform, not just in Santa Clara in the U.S., but in our Singapore facility in Asia. Asia is going to be key to the strategy. And as John Dickinson's building in his operational plan, we're building a base capacity around our facilities. He's building and looking at a contract manufacturing model, which will also help within the cash flow to expand beyond that. And as we look at how we actually build a system from a modularity, it gives us a unique way of actually building capacity across multiple contract manufacturers. So I think from a capacity point of view, and that was a key question from some of our potential customers, is we have an ability to ramp very quickly.
We have an ability to expand our capability into both Singapore and contract manufacturers. So for us, we've got really no constraints moving forward, and we'll invest and build this business to meet the demands and requires. So hopefully, that answers the first two questions. If I look at the business model, one of the opportunities we have within this system is an ability to start looking at the service model. The machine runs very effectively. The machine has consumable parts such as the silicon sources. It has parts that need sort of maintenance. As you think about running this business and running this tool very effectively and efficiently, then there are parts of that machine that need maintenance every sort of couple of weeks, maybe a month, or 4-6 weeks.
So therefore, there's an opportunity for us to actually deliver from this platform some level of service revenue and consumable business. It's early days yet, and the key priority is to get the first tool in the field, learn from that, understand the service and consumable needs, and then put in place an efficient organization and model that helps us build and capture some of that ongoing revenue because that will be an ongoing source of revenue for the company. So if I compare that to going back 20 years on the 200 Lean, it really wasn't part of the strategy then. It was just a pure-play equipment sale. I think we've got an opportunity here to actually start building out a level of service and parts for this. So hopefully, that answers your question that we are looking to actually build it beyond just equipment.
We are building capacity and capability, and we do want to get a run rate that's ahead of 2024's numbers.
Peter Wright (Analyst)
That's amazing. One note I didn't make is congratulations on being such a good steward of capital, being cash neutral in a year of bringing such a significant platform to market is quite a success. Congratulations on that. Very last question. If I look at 2025 and I just look at your TRIO business, do you think that that business on a standalone basis has the possibility to be cash-generating?
Nigel Hunton (CEO)
I think Kevin can always answer this. I think that the business has to be absolutely cash-generating. And we've talked for many times, this business has to build towards profitability. It's not just about protecting the cash. The cash has been fundamental and a key focus for me to retain and actually protect that core cash in the company. But we also have to think about how do we actually get the business back towards profitability? How do we get this business cash-generating? And therefore, I'm very excited about the future and the opportunities ahead of us. I don't know whether Kevin, you want to add to that?
Kevin Soulsby (CFO)
No, I agree with what you said, Nigel. The product should start generating cash as we go through 2025.
Hendi Susanto (Analyst)
Thank you, Kevin.
Operator (participant)
Thank you, Sir. Ladies and gentlemen, there are no further questions at this time. I will now turn the call back over to Nigel Hunton for his closing remarks. Please go ahead, Sir.
Nigel Hunton (CEO)
Thank you. And again, I really appreciate the flexibility of everyone to allow me to pull this call forward. It's actually a very sensible hour here in the UK, being in the afternoon. But for many people, it's been pulled forward to a very early hour in California, for example. But no, I appreciate that and especially appreciate all the questions we get. So I think they do help, and hopefully, everyone understands how we're taking this company forward. I do want to wish and thank all of our employees and their counterparts, our industry partners, for all the hard work and dedication. This has been a very, very lot of hard work over the last couple of years. It's not just one quarter. But we've delivered a strong quarter in Q1.
We're now going to really flip and really focus on growth, and it's exciting to focus on the customer qualification for TRIO. And of course, as always, I'd like to thank our investors for their ongoing support and backing. And as always, anyone can reach out to Claire directly, and I look forward to updating you on TRIO progress on our Q2 call. So thanks again, and that closes the call.
Operator (participant)
Thank you, Sir. That then concludes today's conference. Thank you for joining us. You may now disconnect your lines.