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II

INTEVAC INC (IVAC)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 revenue was $12.9M, up 14% year over year (vs. $11.3M in Q4’22) but down sequentially from Q3’s $17.9M; gross margin was 46.0%, above guidance (39–41%), and GAAP EPS was −$0.07; cash from operations was +$5.9M and year-end cash/investments totaled $72.2M .
  • Upside was driven by accelerated HAMR technology upgrades; management rebooked two 200 Lean HDD systems into HAMR process module upgrades, citing minimal gross profit impact despite lower revenue per upgrade .
  • TRIO platform achieved qualification; management is negotiating a commercial agreement and reiterated a ~$1B served market with an expectation to ship multiple systems in 2024 .
  • Management withdrew near‑term guidance and temporarily suspended fulfillment of HDD orders until receivables are collected, making receivables resolution and TRIO order signing key near‑term catalysts .

What Went Well and What Went Wrong

What Went Well

  • Q4 revenue exceeded prior expectations; gross margin reached 46% (above guidance) and net losses narrowed year over year; CFO noted Q4 revenues exceeded the midpoint of guidance by $2.7M due to HAMR upgrade acceleration .
  • Record HDD upgrade activity across FY23 supported the industry’s HAMR transition; management emphasized Intevac’s role as an enabling technology partner and leadership on the 200 Lean platform .
  • TRIO achieved qualification with performance metrics enabling entry into a ~$1B served market opportunity; management is focused on securing a commercial agreement and shipping multiple systems in 2024 .

What Went Wrong

  • Persistent receivables delays from a key customer pushed year-end cash modestly below prior expectations and led management to suspend HDD order fulfillment pending collections; near‑term guidance was withdrawn to prioritize long‑term value creation .
  • Backlog continued to decline: $42.4M at year-end vs. $46.5M at Q3 and $121.7M at year-end 2022; backlog no longer includes any 200 Lean HDD systems .
  • Sequential revenue down vs. Q3 (partly due to Q3 pull-ins from Q4), highlighting lumpiness in HAMR upgrade timing and customer scheduling .

Financial Results

Quarterly comparison vs prior periods

MetricQ4 2022Q3 2023Q4 2023
Revenue ($USD Millions)$11.3 $17.9 $12.9
Gross Margin (%)44.3% 39.1% 46.0%
Operating Expenses ($USD Millions)$8.252 $8.427 $7.848
Operating Income (Loss) ($USD Millions)$(3.266) $(1.428) $(1.910)
Net Income (Loss) ($USD Millions)$(3.166) $(1.576) $(1.845)
EPS (GAAP) ($)$(0.12) $(0.06) $(0.07)
EPS (Non-GAAP) ($)$(0.13) $0.00 $(0.07)

Revenue composition (Q4 2023)

SourceQ4 2023
HDD upgrades, spares and service ($USD Millions)$12.9

KPIs

KPIQ3 2023Q4 2023
Order Backlog ($USD Millions)$46.5 $42.4
Cash & Investments incl. restricted cash ($USD Millions)$66.2 $72.2
Cash Flow from Operations ($USD Millions)$(7.5) $5.9
Gross Profit ($USD Millions)$7.0 $5.9
Weighted Avg Shares (Millions)26.287 26.385

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4 2023$9.5–$11.0M Guidance withdrawn at Q4 call; actual results were $12.9M Beat vs prior guidance
Gross MarginQ4 202339–41% Guidance withdrawn at Q4 call; actual was 46.0% Beat vs prior guidance
OpExQ4 2023~$7.25M Guidance withdrawn at Q4 call; actual was $7.85M Slightly above guidance
Interest IncomeQ4 2023~$0.6M Not reiterated; actual Interest & other income (net) $0.534M Slightly below
GAAP Tax ExpenseQ4 2023~$0.5M Not reiterated; actual provision $0.524M In line
RevenueFY 2024Low–mid $50M “Around $50M”; end-2024 cash similar to year-end 2023; margins/profitability ranges not provided Lowered and ranges withdrawn
Near-term (Q1) guidanceQ1 2024Not previously setWithdrawn (no official ranges for margins/profitability or Q1 revenue) Withdrawn

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2023)Previous Mentions (Q3 2023)Current Period (Q4 2023)Trend
HAMR upgrades momentumExpected ~$40M HDD upgrades/services in 2024; cancellation of a large tool; focus on technology upgrades Record Q3 upgrade activity; ~10% of installed base HAMR-ready by YE; sustained multi-year upgrades; pull-ins from Q4 to Q3 Continued acceleration drove Q4 upside; temporarily suspending shipments until receivables collected Positive tech momentum; near-term cash discipline
TRIO platformBegin qualification with JDA; expect 2–3 systems revenue in 2024 Final stages of qualification; initial orders expected before YE; 2–3 systems in 2024 Qualification achieved; negotiating commercial agreement; expect to ship multiple systems in 2024; ~$1B served market Advancing to commercialization
Cash/receivablesAnticipated collections in 2H23; YE cash $75–$80M $13M AR collected post-Q3; YE cash guided at $75–$80M YE cash $72.2M due to delayed collections; suspend HDD fulfillment until payments; end-2024 cash targeted similar to YE 2023 Cash stability focus amid AR timing
Backlog mixDe-booking of canceled system; 2 systems remained Backlog $46.5M incl. two 200 Lean systems Backlog $42.4M; no 200 Lean systems; rebooked two 200 Leans to upgrades Shift to upgrades over capacity tools
Industry adoptionHAMR adoption broadening beyond one customer Early 2024 ramp expected; 10% HAMR-ready by YE WD seen following into HAMR; broader industry adoption Strengthening adoption narrative

Management Commentary

  • “Q4 revenues totaled nearly $13 million, well ahead of our expectations… gross margin performance… 46% for the fourth quarter” — CEO Nigel Hunton .
  • “We have made the determination to temporarily redirect our focus away from short-term metrics… we have made the decision to temporarily withdraw near‑term financial guidance” — CEO .
  • “For this quarter, we have made the decision to temporarily suspend our fulfillment of HDD orders… we are not using Intevac cash to fund our customers” — CEO .
  • “Our first [TRIO] system achieved qualification in the fourth quarter… key performance metrics… enable Intevac to address an estimated $1 billion served market” — CEO .
  • “Q4 revenues exceeded the midpoint of guidance by $2.7 million due to the acceleration of HAMR upgrades… cash flow from operations was a positive $5.9 million” — CFO Kevin Soulsby .

Q&A Highlights

  • TRIO commercialization: Negotiating a sales and purchase agreement post-JDA/qualification; expectation to ship multiple systems in 2024; customers value hard scratch‑resistant and anti‑reflective coatings for consumer devices and potentially auto use‑cases .
  • HDD receivables: No dispute on receivable amounts; timing issue; company will not supply materials until receivables are resolved .
  • HAMR upgrades scale: ~15–16 upgrades completed in 2023; upgrade value ~$1–$2M depending on configuration; activity can be lumpy quarter to quarter .
  • WD HAMR adoption: Management views WD’s stance as positive; broader industry following HAMR roadmap .
  • Cash deployment: Maintain strong balance sheet; limited near‑term CapEx to enhance metrology/inspection; protect cash while positioning for growth .

Estimates Context

  • S&P Global consensus estimates for IVAC were unavailable; comparison to Wall Street consensus cannot be provided at this time (S&P Global data unavailable for IVAC mapping).
  • In absence of consensus, management’s guidance context: Q4 revenue/gross margin beat prior guidance ranges; near‑term guidance withdrawn; FY2024 directional commentary shifted to “around $50M” revenue and similar year‑end cash, implying potential downward estimate revisions for near‑term revenue/margin until receivables and TRIO orders are resolved .

Key Takeaways for Investors

  • Near‑term overhang: Guidance withdrawal and suspended HDD shipments until receivables are collected introduce timing uncertainty; watch for AR resolution updates and potential Q1 impact .
  • Positive structural trend: HAMR transition is broadening; IVAC’s upgrade leadership on 200 Lean positions the company as an essential enabler, supporting multi‑year upgrade revenues .
  • TRIO commercialization is the medium‑term catalyst: Qualification achieved; commercial agreement negotiation underway; multiple system shipments expected in 2024; track booking announcements and customer disclosures .
  • Q4 execution: Beat on revenue/gross margin versus guidance with improved cost control; cash generation in Q4 and strong cash/investments support optionality .
  • Backlog quality shift: Rebooking from capacity tools to HAMR upgrades aligns with industry priorities and may sustain margins despite lower revenue per upgrade .
  • Estimate posture: With guidance withdrawn and receivables timing uncertain, consensus may need to reset near‑term; medium‑term thesis hinges on TRIO orders and continued HAMR adoption .
  • Tactical watch items: AR collection milestones, TRIO commercial agreement signing and initial orders, upgrade pacing and customer mix, and any 8‑K updates on backlog or strategic alternatives .

Sources

  • Q4 2023 8‑K earnings press release and exhibits: revenues/margins/EPS, backlog/cash, non‑GAAP reconciliations .
  • Q4 2023 earnings call transcript: strategy, guidance withdrawal, HDD fulfillment suspension, TRIO commercialization, Q4 cash flow .
  • Q3 2023 8‑K earnings press release: revenue/margins/EPS, backlog/cash .
  • Q3 2023 earnings call transcript: TRIO/hamr momentum, pull-ins, FY2024 directional guidance .
  • Q2 2023 earnings call transcript: early TRIO qualification commentary, HDD upgrade/service baseline, cost structure/right-sizing .