Intevac - Q2 2024
August 5, 2024
Executive Summary
- Q2 2024 revenue was $14.5M, gross margin 38.2%, and diluted EPS was -$0.12; results were well ahead of company guidance due to stronger-than-expected HDD upgrade demand and Singapore execution. Management raised full-year HDD revenue outlook to ~$45M from ~$40M, citing HAMR adoption across multiple customers.
- The quarter delivered a significant beat vs prior Q2 guidance: revenue guided to $7.5-$8.5M, gross margin 34%-37%, and EPS loss -$0.20 to -$0.22, but actuals were $14.5M, 38.2%, and -$0.12, respectively; cash and investments increased to $70.4M on strong AR collections.
- Q3 2024 guidance: revenue $10.5-$12.0M, gross margin 37%-39%, OpEx $8.6-$8.8M, interest income $0.70-$0.75M, GAAP tax ~$0.5M, EPS loss -$0.14 to -$0.18; exit-2024 cash expected around ~$70M.
- Strategic catalysts: HAMR upgrades broadened to a second major HDD customer; first TRIO system installed in Asia is undergoing field qualification with multiple additional customer sampling underway, with management targeting 2–3 TRIO initial orders in H2 2024.
What Went Well and What Went Wrong
What Went Well
- Revenue upside and margin outperformance: “Total revenue of nearly $15 million was significantly stronger than our forecast... gross margin exceeded 38%” driven by HDD technology upgrades and execution in Singapore; net loss per share favorable at -$0.12.
- Strategic progress in HAMR and TRIO: First HAMR upgrade delivered to an additional leading data storage customer; first TRIO system successfully installed at a cover glass finisher in Asia and progressing through qualification, with initial orders targeted in H2 2024.
- Balance sheet strengthening: Strong AR collections reduced receivables by ~$7.5M; cash and investments surpassed $70M at quarter-end and interest income run-rate rose above $700K per quarter.
What Went Wrong
- Backlog decline: Order backlog fell to $42.5M from $53.1M at Q1 and $58.2M in Q2 2023, reflecting deliveries and lower quarterly orders (~$4M booked in Q2).
- Elevated OpEx: Q2 operating expenses of $8.8M exceeded the current run-rate due to higher corporate, travel, and tool installation costs (expected to moderate in Q3).
- Ongoing net losses: Despite improvement, Q2 GAAP net loss was $3.3M; non-GAAP net loss was also $3.3M as there were no discontinued ops impacts in Q2 (vs Q1 benefited from ERC-related items).
Transcript
Operator (participant)
Good afternoon, and welcome to Intevac's second quarter 2024 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference call is being recorded today, August 5, 2024. At this time, I would like to turn the call over to Claire McAdams, Investor Relations for Intevac. Please go ahead.
Claire McAdams (Head of Investor Relations)
Thank you, operator, and good afternoon to everyone on today's call. Thank you for joining us today to discuss Intevac's financial results for the second quarter of 2024, which ended on June 29th. 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, Cameron Macaulay, Chief Financial Officer, and Kevin Soulsby, Corporate Controller. Nigel will begin with an overview of our business and outlook, followed by Cameron's review of our financial results for the second quarter and additional details regarding our guidance, 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 remains subject to adjustment in connection with the preparation of our Form 10-Q, as well as comments regarding future events and projections about the future financial performance of Intevac. These forward-looking statements are based upon our current expectations, and actual results could differ materially as a result of various risks and uncertainties relating to these comments and other risk factors discussed in documents filed by us with the Securities and Exchange Commission, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The contents of this August fifth call include time-sensitive, forward-looking statements that represent our projections as of today. We undertake no obligation to update the forward-looking statements made during this conference call.
I will now turn the call over to Nigel.
Nigel Hunton (CEO)
Thanks, Claire, and good afternoon to all of you on today's call. I'm very pleased to welcome Cameron Macaulay, our new CFO, to his first earnings call with Intevac. Cameron joined Intevac in July after a successful exit at Transphorm, which just completed in June, its roughly $340 million acquisition by Renesas. Kevin, who is here with us today for Q&A, now returns to his previous role as corporate controller, and we all greatly appreciate his stepping into the CFO role for the last year. Turning to our Q2 results, total revenue of nearly $15 million was significantly stronger than our forecast entering the quarter due to increased demand for HDD technology upgrades and solid execution from the team in Singapore.
Given the revenue upside and the resulting mix of upgrades delivered in the quarter, gross margin exceeded 38%, and our net loss per share was also favorable to guidance at $0.12. With strong collections in the quarter, our accounts receivable balance declined by $7.5 million, and total cash and investments at quarter end surpassed $70 million, an increase of nearly $5 million from Q1. The revenue upside reported for Q2 is also evident in our increased HDD revenue outlook for the full year, which we now expect will approach $45 million, up from $40 million at our last update. This reflects our HDD revenue forecast for the second half of 2024, remaining relatively consistent in the low $20 million range after a very strong first half.
HDD revenues year to date have now exceeded last year's first half by more than 10%, reflecting continued strong growth for HAMR upgrades. Given the strengthening in demand witnessed for upgrades during Q2, we now expect 2024's upgrade business to approach the record levels achieved in 2023. Even more importantly, our revenue forecast also reflects the initial installation of HAMR upgrades from a second major customer, which is a leading data storage company. We're pleased to report the successful delivery of our first HAMR upgrade for this additional customer earlier this quarter. Industry news of improving fundamentals for the hard drive industry continues to build and proliferate, driven primarily by strong nearline cloud demand growth. Demand for cloud storage has increased significantly year to date in 2024 and is expected to continue growing through next year.
There are also indications that growing demand now includes data center deployments related to AI. We are encouraged by the increased momentum for AI-related HDDs, which bodes well for the long-term strength of our primary served market. We continue to expect that the initiatives to upgrade the world's HDD media capacity to HAMR technology provide strong visibility for a solid base of HDD business for the next few years. The strength of our customer relationships and order activity to date demonstrate that our flagship 200 Lean is still the industry's leading platform for all advanced media production. An amazing achievement for a product launched 20 years ago that is still delivering new innovation at the forefront of HDD technology. Intevac is a critical enabler in the technology roadmap for the HDD industry....
We're only in the early stages of a multi-year upgrade cycle that supports a revenue opportunity exceeding $200 million, and that's before any additional 200 Lean system orders. The strengthening industry fundamentals are also encouraging, and we could very possibly be looking at a return to a modest amount of new system deliveries in the near future. Our critical role in the HDD industry provides significant visibility for a continued solid base of business, and supports our expectations for near record level upgrades in 2024, and a strong growth year in 2025. A year in which we also expect meaningful incremental growth for our TRIO platform. Which brings me to an update on our progress qualifying the first TRIO system, which was shipped in April to a top-tier cover glass finisher in Asia.
As discussed on our last earnings call in April, we resolved our JDA partnership and immediately proceeded to ship our first TRIO system directly to a leading cover glass finisher, which is a direct supplier to the leading smartphone OEMs. We completed the delivery and installation on schedule, which is a credit to our teams from around the world, working closely together, and are proceeding well through the qualification process, which we expect will first conclude with a cover glass finisher before continuing towards end customer qualification. The three months that have passed since our last update have been a period of immense progress and iterations qualifying this TRIO system, while also processing samples from multiple additional customers on the TRIO, which resides at our Santa Clara headquarters.
Critical members of our TRIO team, including myself, have spent the majority of the last few months on the ground in Asia, as we make the TRIO success our number one priority. In addition, we have engaged Interlink to accelerate our expansion in Asia, whose teams specialize in identifying opportunities in many fast-growing sectors. Together, we will build a broader market for the TRIO platform, while we maintain our focus on securing an initial order in the consumer device space. Interlink are continuing to assess the automotive sector and have highlighted the introduction of glass panels for future advanced packaging, which will take major share from the traditional silicon-based applications. We continue to engage with new customers while deepening the collaboration with the key players involved in bringing ultra-durable, anti-reflective coatings to the smartphone cover glass market.
The deepening level of collaboration and continued investment in research and development is yielding multiple paths for commercial success for the TRIO, including a more compact footprint that can readily replace existing tool sets to provide more robust coating capabilities for the cover glass finishers. The modular architecture of TRIO, which is a key characteristic of the 200 Lean, is enabling us to quickly adapt the TRIO platform. We're working with both our initial cover glass finisher and multiple additional customers to make modifications to the TRIO that will optimize their respective manufacturing capabilities and capacity. As the qualification process continues, we continue to expect 2-3 initial TRIO tool orders in the second half of 2024. As we evaluate the steps towards final customer acceptance and revenue recognition, we will continue to update you on orders and revenue timing as we progress through the year.
As a reminder, we have the inventory on hand in order to deliver on multiple systems with relatively short lead times. With the very serious engagements of some of the world's leading customers and partners well underway, the morale and excitement among the Intevac team of exceptional employees is the strongest I've seen since joining the company. Which brings me to a summary of our outlook for 2024. We have now increased our HDD outlook to the $45 million level, with now multiple HDD customers in the process of upgrading their media capacity to be HAMR compatible. We believe this level of upgrade business is sustainable for several years, and any return to new system orders will be incremental to this level of HDD business. Our expectations for the 2024 also continue to include multiple TRIO orders.
At this stage, as with any new product launch, it is difficult to forecast the timing of revenues, and our focus is on securing multiple orders. Finally, protecting the balance sheet remains a key priority for the company, and we continue to expect to exit 2024 around the $70 million level. And with that, I'll turn the call over to Cameron.
Cameron McAulay (CFO)
Thank you, Nigel. I'm quite pleased to see many familiar investor names listening to today's call, as well as Benchmark, which is one of the several firms who cover Intevac, and I look forward to building upon these relationships, both new and existing, as Intevac's CFO. Turning to the second quarter results. Second quarter revenues totaled $14.5 million and consisted of HDD upgrades, spares, and service. Revenue upside for the quarter reflected over $5 million of additional technology upgrade demand during Q2. Q2 gross margin was 38.2%, above the guidance range, reflecting the higher revenue volume, as well as the particular composition of the mix of upgrades during the quarter. Q2 operating expenses were $8.8 million, which exceeds our current run rate, reflecting higher than typical corporate, travel, and tool installation costs during the quarter.
With strong AR collections during the quarter, we were able to move some of our cash to higher interest rate investments, and as a result, our quarterly interest income run rate now exceeds $700,000. The resulting net loss per share for Q2 was $0.12, significantly better than our forecast entering the quarter. Turning now to the balance sheet. We ended the quarter with cash and investments, including restricted cash of $70.4 million, equivalent to $2.63 per share, based on 26.7 million shares at quarter end. The net increase in cash was nearly $5 million, reflecting positive cash flow from operations of $6 million and CapEx of just under $1 million.
The strong cash flow from operations in Q2 reflects the significant collection of receivables during the quarter, with $7 million of positive cash flow from working capital, offset by about $1 million of negative cash flow from the PNL. Non-cash expenses for Q2, including $1.1 million for stock-based compensation, $0.5 million for depreciation and amortization, and $0.5 million in deferred tax. Now, I'll provide further details regarding our outlook and Q3 guidance. For the third quarter, we are projecting revenues to be in the range of $10.5 million-$12 million. We expect third quarter gross margin to be in the 37%-39% range, reflecting the expected mix of upgrades and factory absorption levels during the quarter.
Q3 operating expenses are expected to be in the range of $8.6 million-$8.8 million, reflecting an expected moderation in some G&A costs when compared to Q2. This range also comprehends our continued investment in personnel across multiple functions as we continue to strengthen our overall organization. As detailed in my earlier comments, we expect a higher run rate of interest income on our strong cash balance for the foreseeable future. Our guidance is for interest income in the range of $700,000-$750,000 for Q3. We expect GAAP tax expense of about $500,000, most of which will be non-cash. We are projecting a net loss in the range of 14-18 cents per share based on 26.9 million shares outstanding. This completes the formal part of our presentation.
Operator, we are ready for questions.
Operator (participant)
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 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. One moment, please, while we pull for questions. The first question is from Peter Wright, from PartnerCap Securities. Please go ahead.
Peter Wright (Managing Director and Partner)
Great, thank you for taking my questions, and congratulations on the quarter.
Cameron McAulay (CFO)
Thank you, Peter.
Peter Wright (Managing Director and Partner)
I have two questions for you. My first question is looking at your installed base for HAMR, now that you have an additional customer opened up, how are you looking about the rollout of your installed base? How should we think of how many are upgraded at this point, and how many lie ahead of us? And kind of the cadence there, do you expect it to actually accelerate, or is it more of kind of a stable number of HAMR upgrade sales going forward? If you could shed some light on kind of the timing and the magnitude of that. And then my follow-up question is on the TRIO side and specifically your relationship with Interlink. How are you providing sampling?
Do you actually have a tool, and is it – is there a way that you can actually put the sample in customers' hands? Or how is... If you could explain a little more how that sampling is taking place, that would be appreciated.
Nigel Hunton (CEO)
Okay. Well, thank you for those two questions. Covering the HAMR one first. And as always, it's, as you know, with our industry, it's always difficult to get exact predictions on what's gonna happen and timing. But the install base, I think, and we've said on prior calls, we've shipped, I think it may be more on the slides, over 180 systems. Some of those aren't in operation at the moment. So we've said, use an average of 140, 145 systems in the world that can be upgraded to HAMR. We've done about 20 to date, taking in last year and the start of this year. So there's a significant amount of opportunity to upgrade the rest of the install base. We don't share the split.
We don't talk about the customer names, as you know. But I think it gives us confidence that over the next five years, we'll continue to run with a similar level of upgrade business as we've seen over the last two years. So I think it's, as far as we can tell, that's the sort of forecast and shape of the future HAMR investments. And it's great that now all the customers are talking about HAMR upgrades, and that technology is critical as you move from sort of 30 TB up to 50 TB, and actually keep maintaining this consistent cost advantage of drives in the market.
So I hope that gives you a sort of range of answers there, but I think overall, we're pretty confident that there is gonna be a flow for the next five years at a similar level, and that will be across multiple customers, which is good for us. Moving on to the TRIO question. I mean, TRIO sampling is a critical part of the strategy. Today, we have... If a customer has interest, whether that's through Interlink or through our direct contacts with customers, we do that customer sampling and run those parts through our-
... test TRIO one test bed in Santa Clara. If you remember, we capitalized that tool. That enables us to do fast turns of samples in a controlled environment in our headquarters, where our R&D teams and process engineers, more importantly, reside. So the material science about running samples, putting the coatings down, and putting those down either on glass we purchased or customer's glass samples, which is very often the case. So they'll be shipped in from us, whether that be from any parts of Asia, into the facility. We do those coatings and the control. We actually then seal those back up in a natural environment, and then we ship those back across to the customer. They then do their testing and analysis.
In parallel, we do testing analysis in our development and test lab in Santa Clara, where we have instrumentation that can look at hardness and look at key features around optics. And those go back to the customers, and then typically that then goes through a process of they maybe want a slight tweak on the performance. They'll send us more samples. We'll go through that iteration. And I'm really pleased to say that the number of samples we've been running and the number of customers who are sending in parts to us is increasing, and not just for glass parts, for consumer devices. We're getting parts in of for polymers, for some unique applications, and also we're seeing the start of some requests around advanced packaging.
It's, for me, it's pretty exciting, and it's a core capability that we've invested in, and that's why we capitalized the tool last year for the Santa Clara facility.
Peter Wright (Managing Director and Partner)
That's very-
Nigel Hunton (CEO)
Hopefully, those are
Peter Wright (Managing Director and Partner)
Can I have one more clarification? If you can define the end market that polymer is servicing, and then also, how customized are these samples going out? How much back and forth customization is it versus you, you know, sending your specific SKUs to these different end markets? And that's the last one. Thank you.
Nigel Hunton (CEO)
I think if you think about it, if you see the machine operation, it's the capability of the TRIO platform is not just for two-dimensional, it actually goes towards three-dimensional shapes. Clearly, we can't give you the customer name or specific application, but if you can imagine, these polymer pieces are in curved platforms, that probably give you some sort of idea as you look at optical lenses and other sort of areas where polymers and non-glass is used in extremely high volume applications. So for me, there's a lot of excitement around the opportunities beyond the consumer devices for some of these polymers. And even within consumer devices, some of the headsets and things are looking at polymers and other organic, inorganic compounds for the future technologies.
So for me, it's the versatility of the TRIO platform enables us to do multiple applications. And one of the critical things in the tool, the way we actually manage the temperature inside that processing, so it's a high plasma environment. It's like lightning, you know, being controlled within a plasma operating environment. And actually, our ability to control the temperature means that we can actually put polymers through the machine. So it's a critical part of our design technique is allowing us to run polymers as well as glass. So we're pretty excited about the flexibility and versatility of the platform. Hopefully, that answers the question.
Peter Wright (Managing Director and Partner)
Very much. Thank you, guys.
Nigel Hunton (CEO)
A pleasure, Peter.
Operator (participant)
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. The next question is from Mark Miller, from Benchmark. Please go ahead.
Mark Miller (Equity Research Analyst)
I'm sorry, I got on a little, a little late. I just was wondering, the upside in revenues this quarter, was that pull-ins or orders you didn't expect?
Nigel Hunton (CEO)
Yeah, that's fine. It's... Hold on. Somebody, I've got music coming on my—music coming into my line. I don't know what was in that music.
Operator (participant)
One moment.
Nigel Hunton (CEO)
Can anyone else hear that?
Operator (participant)
Yes, one moment, I'll mute that line. There we go. You can go ahead.
Nigel Hunton (CEO)
Apologies for that. I'm not sure. Apologies for that, Mark. I'm not sure what caused that sudden music.
Mark Miller (Equity Research Analyst)
No problem.
Nigel Hunton (CEO)
It wasn't my taste, wasn't my taste in music either. So the question is, so the pull-ins for the quarter. So as you, as you know, you've been covering the space for a long time, and each quarter can have different fundamentals depending on budgets and cycles for the customers we specifically have. I mean, this was pull-ins of hammer and other upgrades into the quarter from the second half of the year. So those are... I'd say probably at least half were pull-ins, and as we've said on the call, that we now believe that the full year number is gonna be nearer $45 million and $40 million. So overall, it's a strong year, but the those were absolutely pull-ins from the second half to get some more upgrades done, and those upgrades covered both PMR and HAMR. So it was...
And again, it's testament to the team in Singapore that we could respond quickly. We have a very, very, as you know, professional team in Singapore that's been able to respond very fast over the last two years, plus, as I've been in this role. And every time we've thrown a challenge to them, they've delivered and performed and stepped up to meet the demand. So these are meeting real customer demands, and it was great to be able to achieve that and beat my guidance.
Mark Miller (Equity Research Analyst)
I'm just wondering, I apologize again.
Nigel Hunton (CEO)
Okay.
Mark Miller (Equity Research Analyst)
What were your orders?
Nigel Hunton (CEO)
That's okay
Mark Miller (Equity Research Analyst)
- during the quarter?
Nigel Hunton (CEO)
... So the orders were mixed. The exact number of those orders, I'll just pass that over to Kevin just to confirm the number. But, a lot of that was about timing of orders, and so I think we're gonna see, I think it was the full year for this year, the orders are already in place. I know that for now. I think, Kevin, what was the final order number for this quarter?
Operator (participant)
So it looks like Kevin's line, currently playing music.
Kevin Soulsby (Corporate Controller)
Under $4 million for the quarter.
Mark Miller (Equity Research Analyst)
I'm sorry, how much was that?
Kevin Soulsby (Corporate Controller)
Just under $4 million for the quarter, Mark.
Nigel Hunton (CEO)
Can you-
Kevin Soulsby (Corporate Controller)
The backlog, as we sit here, is just over $42 million at the end of June as well. So a solid backlog to allow us to project the $45 million that Nigel was articulating.
Mark Miller (Equity Research Analyst)
That's for the year now, $45 million is your sales goal?
Kevin Soulsby (Corporate Controller)
Right.
Mark Miller (Equity Research Analyst)
Okay. What % of sales upgrades are HAMR related?
Nigel Hunton (CEO)
We don't give that exact number away, but the majority have been HAMR over the last two years. But more recently, we've seen some PMR coming through as well. So the good news is there is some enhancements going on around PMR as well as HAMR. So as both technologies run in parallel, both technologies level of upgrades, but the majority have been around HAMR upgrades.
Mark Miller (Equity Research Analyst)
What about gross margins for this quarter?
Nigel Hunton (CEO)
I mean, gross margins, again... So gross margins were strong, again, for the quarter. And again, a lot of the gross margins is linked to the mix of the upgrades. I mean, some of the upgrades we have have competitive offerings, some of them don't. So some of the margins mix and change each quarter. I don't know whether, Cameron, you want to add anything on the margin comment, but there's a good mix of upgrades in the quarter.
Mark Miller (Equity Research Analyst)
And margins will be-
Cameron McAulay (CFO)
Yeah, I think that's-
Mark Miller (Equity Research Analyst)
I'm sorry.
Cameron McAulay (CFO)
The margins will be similar, Mark. Yes, we're forecasting-
Mark Miller (Equity Research Analyst)
Similar for September.
Cameron McAulay (CFO)
39. Yeah, similar for September. 37-39 against the 38.2 we did in the June quarter. So any variability to those, the margins is really a mix of the different characteristics of the upgrades that Nigel mentioned.
Mark Miller (Equity Research Analyst)
Did you provide cash from operations? Your cash went up, I know.
Cameron McAulay (CFO)
Yes, we did. It was in the prepared remarks. So we had $7 million of, of positive cash flow from working capital and about $1 million of, of negative cash flow from the P&L. But strong, strong quarter, we exited with just over $70 million in cash.
Mark Miller (Equity Research Analyst)
$6 million net in cash from operations?
Cameron McAulay (CFO)
Yes.
Mark Miller (Equity Research Analyst)
Okay, thank you.
Cameron McAulay (CFO)
Thank you, Mark.
Operator (participant)
There are no further questions at this time. I will now turn the call back over to Nigel Hunton for his closing remarks. Oh, pardon me, there is one more question just now from Peter Wright, from PartnerCap Securities. So you can go ahead.
Peter Wright (Managing Director and Partner)
Wonderful. So I'm sorry, one clarification on gross margin, if you can. So, just building on Mark's question. So, gross margin is the guidance is reflective of the HDD business, or that is reflective of inclusive of any TRIO systems that would sell, you think it's gonna remain stable?
Nigel Hunton (CEO)
Yes. So the gross margin for the next quarter is assuming HDD, and we've said that.
Peter Wright (Managing Director and Partner)
Yes. And I'm sorry, did I mishear you? Did you say you're expecting margins to remain flat through the course of the year?
Nigel Hunton (CEO)
Yes. So we've given margin guidance for the quarter coming up, and, and again, we've set within a range for that, and that is predominantly made out of HDD business. Because we've talked about a focus on getting orders for TRIO, and then the revenue will not be in next, in this next quarter, so it'll be 100% HDD business in the next quarter.
Peter Wright (Managing Director and Partner)
Fantastic. Great. Thank you, guys.
Nigel Hunton (CEO)
Okay.
Operator (participant)
The next question is from Dan Weston, from West Capital Management. Please go ahead.
Dan Weston (Research Analyst)
Yeah. Hi, good afternoon, everybody. Nigel, just a couple of quick points of clarification, if you would. The, on the TRIO front, is the trajectory to get the first tool qualified by the glass finishing customer, and then is there a second qualification period to their end customer?
Nigel Hunton (CEO)
Correct. So the key processes, and, you know, as we highlighted, it's great to get that product into the market quickly. That goes through a process and qualification with the glass finisher. That then goes through a process with the final products before launch. So you have to go, I think we said this on the previous call as well. Any product evaluation into the market, one goes through proving the technology, getting the tool qualified, glass finisher. They then take that and put the actual customer finished product, so it gets that qualified prior to launch. So we have to go through that second level of qualification.
Dan Weston (Research Analyst)
Great. Yeah, thanks for the clarification there. And then finally, I wanna make sure I heard you correctly in your prepared remarks, on the Lean side, did you say that there's a possibility to have additional capacity expansion tool orders in the near future?
Nigel Hunton (CEO)
I think as we look at what's going on in the industry, and we're seeing some of the AI driving demand, and we're seeing demand start to go up, I think we're gonna maintain the focus around upgrades, and, and that will predominantly be part of the business. But, but I think over the next couple of years, I think there is potential for HAMR—I think I said a small number of systems. I think there will be some incremental. I think the majority of focus on getting the capacity up to HAMR readiness is gonna be the key investments from our customers. But there's always room. I think there's gonna be potential for some additional, but it's gonna be a small number if it happens.
Dan Weston (Research Analyst)
Understood. Yeah, no, I appreciate that clarity. Thank you very much.
Nigel Hunton (CEO)
Okay.
Dan Weston (Research Analyst)
Nigel and the gang.
Nigel Hunton (CEO)
No, appreciate it.
Dan Weston (Research Analyst)
Congratulations on the excellent quarter.
Nigel Hunton (CEO)
No, thank you, Dan. Appreciate your support.
Operator (participant)
There are no further questions at this time. I'll turn the call back over to Nigel Hunton for his closing remarks.
Nigel Hunton (CEO)
Thank you, and thank you for all of the questions. I also want to thank all of our employees, a lot of those in, sort of working closely with me in Asia at the moment, and all their counterparts with our industry partners, for all the hard work and dedication to deliver another strong upgrade quarter, and equally importantly, work towards qualifying our first tool in the field, first TRIO. I'd also like to thank all the investors on the call for their ongoing support. Just to remind people, our IR activities call to include the Benchmark Conference in New York on September the fourth. As always, please reach out to Claire directly to arrange a follow-up, and I look forward to updating you all on our Q3 call in early November.
At that point, so thank you, and we can close the call.
Operator (participant)
Thank you. This concludes today's conference. You may disconnect now.