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II

INTEVAC INC (IVAC)·Q2 2024 Earnings Summary

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) .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Revenue ($USD Millions)$10.301 $9.631 $14.526
Gross Margin (%)24.9% 43.7% 38.2%
Operating Expenses ($USD Millions)$8.022 $8.650 $8.819
Operating Loss ($USD Millions)-$5.452 -$4.446 -$3.271
Net Loss ($USD Millions)-$4.878 -$1.606 -$3.263
Diluted EPS (GAAP) ($USD)-$0.19 -$0.06 -$0.12
KPIQ2 2023Q1 2024Q2 2024
Backlog ($USD Millions)$58.2 $53.1 $42.5
Cash, Restricted Cash & Investments ($USD Millions)—$65.5 $70.4
Orders Booked ($USD Millions)—$20.3 ~$4.0
Cash Flow from Operations ($USD Millions)—-$6.5 +$6.0

Notes:

  • Q2 beat vs prior company guidance: Revenue $14.5M vs $7.5–$8.5M guided; gross margin 38.2% vs 34%–37%; EPS -$0.12 vs -$0.20 to -$0.22 .
  • Revenue composition: HDD upgrades, spares, and service (no segment breakout disclosed) .
  • Non-GAAP: Q2 non-GAAP equals GAAP given no discontinued ops; Q1 non-GAAP net loss -$2.701M vs GAAP -$1.606M due to ERC allocation and discontinued ops adjustment .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ2 2024$7.5M–$8.5M Actual $14.5M Beat vs guidance
Gross Margin %Q2 202434%–37% Actual 38.2% Beat vs guidance
Diluted EPS (GAAP)Q2 2024-$0.20 to -$0.22 Actual -$0.12 Beat vs guidance
RevenueQ3 2024—$10.5M–$12.0M New
Gross Margin %Q3 2024—37%–39% New
Operating ExpensesQ3 2024—$8.6M–$8.8M New
Interest IncomeQ3 2024—$0.70M–$0.75M New
GAAP Tax ExpenseQ3 2024—~$0.5M New
EPS (GAAP)Q3 2024—-$0.14 to -$0.18 New
HDD RevenueFY 2024~ $40M ~ $45M Raised
Total RevenueFY 2024Low $50M range Not reiterated—
Exit CashFY 2024Similar to YE 2023 Around ~$70M Maintained
TRIO OrdersFY 20242–3 systems; >$10M potential 2–3 initial orders H2 2024 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023 and Q1 2024)Current Period (Q2 2024)Trend
HAMR upgrades & HDD demandRecord HDD upgrades in FY23; focus on HAMR; temporarily paused shipments in Q4 call to resolve receivables; FY24 HDD guidance ~ $40M Strengthening HAMR demand; broadened to second major HDD customer; FY24 HDD outlook raised to ~$45M Improving demand; broader customer adoption
AI/data center pullCloud demand strengthening; industry optimism on HDD fundamentals AI-related HDD demand emerging; supportive long-term trend Positive momentum
TRIO platformAchieved qualification in Q4 2023; negotiations ongoing; target multiple systems in 2024 First TRIO installed at Asian cover glass finisher; field qualification underway; aiming 2–3 initial orders in H2 2024; sampling with multiple customers Transition from qualification to commercialization
Supply chain/receivablesReceivables delays at one customer; cash protection priority Strong AR collections; receivables down ~$7.5M; cash/investments $70.4M Improving collections; stronger cash
Margins/OpExFY24 GM guided low-30s given mix and TRIO qualification costs; OpEx >$8M in Q2 then moderating Q2 GM 38.2% (beat); Q3 GM guide 37%–39%; Q2 OpEx elevated (corp/travel/installation); Q3 OpEx moderating Healthy GM with mix; OpEx normalization
Backlog/ordersBacklog $42.4M at YE2023; new orders $20.3M in Q1 Backlog $42.5M at Q2-end; Q2 orders just under $4M Stable backlog; orders slower in Q2

Management Commentary

  • CEO Nigel Hunton: “We witnessed strengthening demand for hard disk drive (HDD) media technology upgrades… revenues well ahead of expectations… 200 Lean is the world’s leading platform for media production… focus is now on completing the [TRIO] field qualification and securing initial orders” .
  • CEO Nigel Hunton: “Total revenue of nearly $15 million was significantly stronger than our forecast… gross margin exceeded 38%… total cash and investments surpassed $70 million… HDD revenue outlook for the full year… now expect will approach $45 million” .
  • CFO Cameron McAulay: “Q2 revenues totaled $14.5 million… Q2 gross margin was 38.2%… quarterly interest income run rate now exceeds $700,000… net loss per share… -$0.12” .
  • CEO Nigel Hunton (on TRIO): “We are now in the process of qualifying our first TRIO system… successfully installed at a new customer facility in Asia… our focus is now on completing the field qualification and securing initial orders” .

Q&A Highlights

  • Installed base and HAMR upgrade cadence: ~140–145 systems can be upgraded; ~20 upgrades done to date; expectation for similar level of upgrade business over next 5 years across multiple customers .
  • Orders and backlog: Q2 orders were just under $4M; backlog was just over $42M at June-end .
  • Q3 margin guidance: 37%–39%; variability driven by upgrade mix and factory absorption .
  • TRIO revenue timing: Q3 revenue expected to be 100% HDD; TRIO revenues not expected in Q3; qualification process at cover glass finisher and then end-customer .
  • Potential for new 200 Lean systems: Management sees potential for a small number of incremental new systems in the near future as AI demand drives data storage needs, but upgrades remain the focus .

Estimates Context

  • S&P Global consensus estimates were unavailable for IVAC this quarter due to a missing CIQ mapping, so a formal comparison to Wall Street consensus could not be performed. Values retrieved from S&P Global were unavailable due to mapping limitations.
  • Implications: Given the magnitude of the beat vs company guidance (revenue, gross margin, EPS), near-term sell-side models likely need to adjust upward for Q3 revenue, margin assumptions, and full-year HDD revenue trajectory to reflect raised HDD outlook and sustained upgrade demand .

Key Takeaways for Investors

  • Q2 delivered a material upside surprise vs guidance on revenue, margins, and EPS, driven by HAMR upgrades and execution—this is a positive trading catalyst and supports higher near-term expectations for the HDD upgrade run-rate .
  • Management raised FY24 HDD revenue outlook to ~$45M, now reflecting multiple customers migrating to HAMR; this broadening adoption reduces single-customer risk and supports multi-year visibility .
  • TRIO commercialization is progressing: first system installed and in qualification; multiple customer sampling underway; management targets 2–3 initial orders in H2—successful qualification and order wins would be a medium-term multiple-expansion catalyst .
  • Backlog declined as deliveries accelerated and orders slowed in Q2; watch Q3 bookings for sustainability of the HDD upgrade cadence and signals of TRIO order conversion .
  • Cash/investments strengthened to $70.4M; interest income is now a meaningful P&L offset; exit-2024 cash expected around ~$70M—supports optionality and reduces downside financial risk .
  • Q3 guide implies normalization post-Q2 pull-ins; traders should watch the HDD mix and factory absorption impacts on margins (37%–39% guided) and any TRIO timing updates as potential sentiment drivers .
  • Non-GAAP nuances: Q1 benefitted from ERC-related items in discontinued ops; Q2 non-GAAP equals GAAP; monitor future non-GAAP disclosures for TRIO qualification costs and mix effects .