Intevac Inc (IVAC) 2022 Q4 法說會逐字稿

Hello, and welcome to the Intevac Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded today, February 1, 2023.

It's now my pleasure to turn the call over to Claire McAdams, Investor Relations for Intevac. Please go ahead, Claire.

Thank you, and good afternoon, everyone. Thank you for joining us today to discuss Intevac's financial results for the fourth quarter and full year 2022, which ended on December 31. In addition to discussing the company's recent results, we will provide financial guidance for the first quarter of 2023 and our outlook looking forward.

Joining me on today's call are Nigel Hunton, President and Chief Executive Officer; and Jim Moniz, Chief Financial Officer. Nigel will start with a review of our business and our outlook, then Jim will review fourth quarter results and discuss our financial outlook 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 and year, which remains subject to adjustment in connection with the preparation of our Form 10-K 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 February 1 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.

Thanks, Claire, and good afternoon. I'm excited to share with all of you today our latest earnings results and to highlight the momentum we built and the achievements we had in 2022. 2022 was quite a year for Intevac. We set out with a bold ambition of transforming the business and laid out a clear vision of the future of the company.

I'm pleased to say we have taken huge strides towards that vision over the past 12 months. It has been a year of significant change for the company. Intevac now feels and operates very differently to that of a year ago. We have transformed Intevac into a new company, the new Intevac as we refer to internally and with customers.

Intevac will continue this journey in 2023. The goal of this journey is to return strong shareholder value with sustained profitable growth, and we are already creating this momentum. I'm immensely proud of the entire team, not only for the progress they have made in delivering on our ambitious aims by how they have embraced the vast and rapid change I have test the company with through the past year.

As I reflect upon our commitments to our shareholders, starting with my first earnings call one year ago. I am pleased to share that our team has executed on every single 1 of the mandates that we laid out for 2022. We have refocused the business around a leaner product portfolio streamlined our business and strengthened and diversified the leadership team and the wider business as a whole. We've laid out a clear plan to return to profitability. Built on our existing strong position in the hard disk drive market, and most excitedly of all have developed a critical strategic partnership that is supporting Intevac's expansion into a new growth market. We also delivered on each quarter's commitments and our financial targets for 2022.

Looking briefly back on 2022, I am pleased to share the following highlights with all of you. Each of these achievements has been a significant contributor to the change of direction, pace, energy and momentum the company has gained recently and was a specific intent set out at the start of my tenure with Intevac.

A prior regard for Intevac in reestablishing momentum and focus last year was to first assess the growth potential in each of our end markets. Intevac needed to refocus its business around a leaner product portfolio. As vaccines for COVID continued the global rollout and with the gradual reopening of travel, I took the opportunity to meet personally with each and every key customer in order to determine the correct direction and priorities for Intevac going forward.

I'm pleased to share that I've traveled extensively each quarter of the year and met personally with all critical stakeholders that touch our business today and have potential to impact it greatly in the future. These efforts not only resulted in strength in relationships but also led to the decision to cease development of multiple equipment initiatives in order to focus our innovation efforts on our flagship 200 Lean and to enable the development and emergence of our game-changing TRIO platform.

This proved to be a decision that has not only shifted energy and momentum for the company but has changed its future growth trajectory and also the company's financial potential. It has also led to an early patent award for our TRIO platform, and a further 9 patent applications have been submitted key achievements as Intevac begins the process of strengthening and broadening its IP portfolio.

Looking internally, we committed at the start of 2022 to streamlining the structure of the business and doing so took action to align internal resource to genuine revenue growth prospects. 2022 saw us raise the bar for employee performance and also sort of dramatically enhance the capability of the organization.

We introduced an internal development program within the business and recruited high-caliber talent. We have taken steps to significantly strengthen and diversify the senior leadership team and unified the organization under one cohesive leadership group comprised of the best talent from both the U.S. and Asian teams.

Further still today, we repeatedly measure and assess the strength of our organizational culture, having heightened emphasis on our company values of innovation and accountability. Our internal metrics and measurements are already showing strong evidence that our global team of employees being invested in, energized and excited for the future and our customers and partners I've also validated the strength of the organizational culture plays in our ability to deliver outstanding engineering.

This past year has not only seen Intevac invest in personal and professional development, we've invested in our physical space, too. We know the importance of having an environment that encourages collaboration, something that in turn enables innovation, and the changes made to our building for the creation of a dedicated collaboration space has been a key enabler of greater cohesion throughout the business and also led to the rapid development of our game-changing TRIO platform.

2022 was momentous from an organizational perspective. Our products, people, culture and customers have been part of this positive change and have seen this all year. Today, our R&D, engineering and operational teams are developing into world-class, high-performing teams, and we have begun the process of enhancing and developing our commercial team. I believe we are beginning 2023 with a strong team and are poised for continued execution in the year ahead.

In relation to returning the company to profitability, we are firmly on track to return Intevac to profitability for the full year in 2024 and remain fully invested in preserving the strength of our balance sheet. I have personally met and engaged with dozens of investors, each of which have expressed their preference from a measured protection of our balance of cash and investments, whilst also showing the reassurance of how we have executed on these preferences to date. In 2022, we maintained the strength of the balance sheet and are committed to do the same in 2023.

Turning to our existing hard disk drive market and our flagship 200 Lean product. We believe firmly that we are increasing our share of worldwide media capacity and our customer partnerships have resulted in us rapidly advancing business opportunities through HAMR upgrade initiatives and the securing of $70 million in 200 Lean orders, which will be delivered over the next 4 years. We continue to believe in the future of the hard drive business and our efforts in 2022 have kept us in a prime position to continue to be at the forefront of the market and its development.

Finally, in what is now highly regarded internally with Intevac as well as externally as a game-changing development. 2022 saw us deliver on our commitment to develop a meaningful partnership relating to a new product category. Intevac development of the TRIO platform, a new product that supports consumer electronics and other applications has the potential to provide a runway of compelling and sustainable long-term growth opportunities and revenue for Intevac far into the future. It is by far away the most important development achieved by the company since the launch of the 200 Lean product 20 years ago.

The recently announced partnership on December 30 is a key milestone in our growth strategy. It broadens our product line and dramatically increases the total addressable markets we can now reach. As we sit today, we have a stronger, leaner, more diverse team, delivering world-class products to the forefront of the markets we are operating in and pursuing. Our objective on this call today is to ensure that our investors analysts, employees, suppliers, customers and all stakeholders recognize the achievements of the past year and our confidence and commitment in our strategy to deliver strong growth and financial performance for years to come.

Now turning towards the TRIO. In late December, we completed our joint development agreement with a leading provider of glass and glass ceramic materials. The completion of this definitive agreement was a transformational event for Intevac. The agreement includes a minimum revenue requirement of approximately $100 million over 5 years in order for our customer to maintain exclusive access to the TRIO platform for consumer electronics applications. The agreement also includes a minimal annual commitment to maintain exclusivity.

We are currently completing the first TRIO system, which will begin qualification later this quarter. We anticipate that once the first to complete qualification we will receive a purchase order for the qualified unit. At this time, we are planning to deliver at least 2 additional TRIO systems within 12 months of qualification. We will be building several additional tools this year in advance of 2024 shipments so it can be ready for some upside to support our key partners.

I would like to point out at this time that going forward, we will be limited to what we can communicate about our work with this customer. However, I can share with you a bit of what makes the TRIO such a compelling manufacturing platform for the coating of glass, on consumer electronic devices, which is what excited this customer to engage with us and seek a level of exclusivity, which we granted. And I can also share why we see the potential for this partnership to be well in excess of $100 million over the next 5 years.

The TRIO offers 3 primary advantages over current coating options. First, it offers tremendous flexibility compared to existing coating equipment as the platform can accommodate almost limitless configurations of device form factors, including both 2D and 3D shapes. Second, building on our 20-year history of leadership in the hard disk drive market, our systems have a proven track record of depositing highly uniform and defect-free films of the highest quality standards for durability and precision executed with very high yields over a long operating life. And lastly, also critical to our TRIO customer is its productivity, throughput and competitive cost of ownership in a compact footprint. For the compelling advantages of the TRIO platform are flexibility, cost competitiveness and providing one platform for many different applications.

Our plans for 2023 will be focused on qualifying the initial TRIO system for our customers' thin-film technologies by midyear, delivering the initial systems and working with our customers to ramp in the field. As our customer gains confidence in the value of TRIO, we expect that many additional systems will be deployed potentially beyond the minimum contractual volume required to maintain exclusivity.

The investments in inventory that we are making today and which began in earnest during Q4, support the build of multiple TRIO systems. These include not only the systems we expect to deliver this year, but substantially more systems to ship in the following 12 months. In the short term, these investments will be enabled by our strong cash balance. It is worth noting that the strength of our balance sheet is critically important to each of our customers. not just for the TRIO partnership but also for our HDD business. And the investments we are making in 2023 will set us up for a profitable year in 2024 and consistent positive cash flows and returns on invested capital beginning next year.

As I mentioned earlier, the $100 million revenue level is merely the minimum required to maintain exclusivity with our first customer. We will continue to pursue additional customers or the TRIO outside of consumer devices. Once successful with the first few tool deployments, we continue to expect our TRIO opportunity will be very significant.

In summary, the development of this innovative and game-changing platform will make a significant contribution to our growth plans, which brings me to an update on our HDD business. Recent news indicates encouraging signs on the horizon, setting up a return to growth in data center investments and mass capacity drives. In the meantime, as we discussed last quarter, we're seeing a greater level of customer investments in new technology during this period of reduced factory utilization.

We are very proud to be a critical technology partner in the industry to transition to HAMR, which is proceeding ahead of schedule, a testament to our strong upgrade revenues in Q4 and another strong quarter expected ahead for upgrades in Q1. A fundamental part of our strategy is to maintain a focus on innovation in collaboration with key partners. As such, our road maps are aligned with them. Our HDD guidance for 2023 as well as the 5-year revenue forecast remains consistent with what we communicated last quarter.

We continue to see an extended investment cycle in both capacity and technology upgrades that is providing visibility for at least $300 million of HDD revenues from 2022 through 2026. We expect this strong revenue growth for the next few years will be driven by upgrades in support of the installed base of over 150 systems that will require additional process modules to be HAMR capable as well as a system backlog today of about $70 million.

In summary, 22 was a transformational year for Intevac. We are very excited about the year ahead and our new partnership for our TRIO platform. I will take this moment to emphasize just how committed we are as a company to increasing stockholder values and protecting the strength of the balance sheet as we grow the business and transform Intevac into a consistently growing and profitable cash-generating company with a leading position in each of its key markets.

That completes my prepared remarks. And with that, I will now turn the call over to Jim.

Thank you, Nigel. First, I will briefly summarize our fourth quarter results. Revenues came in a bit stronger than forecast at $11.3 million compared to our guidance of $10 million. As expected, Q4 revenues were comprised of HDD upgrades, spares and service. The primary reason for the upside in Q4 was our customers' prioritization and pull in of certain upgrade investments, which resulted in a more favorable mix of revenue in the quarter. This resulted in Q4 gross margins of 44.3%, well above our guidance of 32% to 34%.

The mix of lower-margin business that was expected in Q4 and is now spread across our full year 2023 forecast. So we expect to continue to maintain our quarterly gross margins of 40% or more for the forthcoming quarters.

Q4 operating expenses were $8.3 million, slightly above our guidance of $8 million due to the prioritization of certain R&D spending for TRIO as well as an increase in variable compensation due to the exceptional work of the team in executing key milestones before year-end. The Q4 net loss was $3.2 million or $0.13 per diluted share and better than our guidance of $0.17 to $0.21 per diluted share, primarily as a result of the favorable revenue profile in the quarter. With total new orders of $133 million in 2022, we ended the year with 12-year record high backlog of $122 million. As we have communicated throughout 2022, the strong level of order activity for both systems and upgrades resulted in quarterly increases in backlog during every quarter of 2022. Of the 11 200 Lean HDD systems in backlog, we expect to deliver 1 in Q4 and multiple Leans in each of the following 3 years.

We ended the year with cash and investments, including restricted cash of $113 million, equivalent to approximately $4.42 per share based on 25.5 million shares at year-end. Our year-end cash balance was stronger than our forecast of $105 million to $110 million, primarily due to Q4's TRIO inventory purchases still residing in AP at the close of fiscal 2022, and we have since paid down that AP year-to-date.

Cash flow used by operations was $11.3 million during the quarter, and $7.4 million for the year. During Q4, we added $11.9 million in inventory to support the growing backlog and anticipated shipments of TRIO systems in 2023. Q4 capital expenditures were $493,000 and depreciation and amortization were $383,000 for the quarter.

Now moving to Q1 2023 guidance. We are projecting revenues to be between $10.5 million and $11.5 million. Consistent with our commentary last quarter, we do not expect system revenues until the second half of 2023 but the level of upgrades in field service for the first half of 2023 is a bit stronger than we indicated last quarter. We expect first quarter gross margin to be between 40% and 42%. Q1 operating expenses are expected to be between $9 million and $9.5 million, slightly higher than our expected run rate for the full year due to timing of investments in research and development, along with some typical seasonal increases.

After Q1, we expect quarterly OpEx to be around the $9 million level for the remainder of 2023.

We expect interest income of about $400,000 and GAAP tax expense of about $400,000 in the quarter. We are projecting a net loss in the range of $0.16 to $0.20 per share based on 26 million shares outstanding.

As we look ahead to the full year's financial results, I'll recap some highlights from Nigel's remarks. We continue to expect approximately $40 million in HDD revenue in 2023. We which will be relatively evenly weighted between the first half and second half with upgrades driving most of the first half revenue and 1 system expected to revenue in the second half. The TRIO activity in the first half will be to build the first production system and work with our customer to pass qualification in Q2 on that system. After we pass qualification, we expect to receive the purchase order for the initial unit. We are currently planning to deliver at least 2 additional TRIO systems within 12 months of successful qualification.

On our May call, once we are well into the qualification process, we expect to be able to provide a range of how many systems could revenue in 2023. With this revenue profile, which is largely HDD driven, but should also include some level of TRIO systems revenue, we expect full year gross margins to be around 40%. And as I mentioned earlier, OpEx is approximately $36 million to $37 million. We expect both interest income and taxes to be in the range of $1 million to $2 million in 2023. Finally, we will continue to closely manage cash to support the business strategy.

This completes the formal part of our presentation. Kevin, we are ready for questions.

(Operator Instructions) Our first question today is coming from Hendi Susanto from Gabelli Funds.

So Nigel, congratulations on the TRIO partnership. May I inquire like more color on what kind of like profiles that we can expect, let's say, for the TRIO systems, once the customer ramp up. Should we expect a linear sales profile or it will resemble more like a step-up profile from, let's say, like one period to another?

Hendi, thanks for the question. I mean, very clearly, and I hope it was -- came across on the call. Our focus absolutely has to be this month on completing the build of the first tool. We then move into the qualification of the tool. And we are optimistic and enthusiastic and excited about the process we're going through on this qualification. And that's a qualification of the production tool. I mean the tool is qualified on the test bed and it now moves to a production tool.

And really, that process is going to take the next couple of quarters. And that's the critical thing for me is to maintain this organization's focus on delivering and executing on that plan.

If I look out way beyond that and the profile, I think it's too early to say. I mean, I think for me, the opportunity, as we've said, is pretty compelling. It's a very significant opportunity. It's a very different market we're entering. It's one that is the partner and us are going to maintain a level of confidentiality, which is why I said we're going to have to be cautious what we actually share with people on these calls moving forward because the key for me is to maintain our strength, maintain that technology advantage and then move forward.

So really, for this call, it's very much about we're absolutely on track with that first unit. We're on track with our partner to get that qualified. I think once we get through that, we'll have a much better view on what the market potential opportunity is. And the great thing for me is, is the commitment from that partner for the $100 million over 5 years as a minimum for that period. But I think it's too early to say that linear or anything else. I think the excitement for me to get the first tools completed into the market and actually start building success in securing some orders. So that's going to be my absolute focus.

So it's really too early. We're so excited about it and that the potential is huge. But so I don't think it will be linear, let's say, that's probably anything to say.

And then, Nigel, with regard to the TRIO system, what is the latest estimate of the production rate? And then I would like also to know, let's say, when there's an estimate for production rate will be it somewhat like semi-fixed, meaning that just the run rate and then there is no like big window, let's say, like from like early into like a full ramp up, whether there's like a big range, like how many units they can produce? Yes, would you share some color on that?

Yes. I mean, I think probably one of the really exciting things about the product is this new platform, which is very different to anything we've done before. So people have got to start thinking about segregating in their minds, the traditional business to this new platform. This platform has huge flexibility. Not only can it do 2-dimensional coating, but it can do 3-dimensional coating, which is a phenomenal step forward.

But it also has the ability to actually do multiple sized structures to the machine. So it's not like we're just putting through, if I go back to the HDD business, a machine that does billions of 1 size disk day in, day out and so on. So this platform concept and the flexibility of the design is one of the key things that attracted us and this technology to our partner. And so the machine can have multiple sciences running on it. It could be running on different programs.

So you can't really say it's going to be a fixed number. So I think that level of flexibility is probably one of the unique capabilities of the technology.

And is it going into consumer electronics market? I mean, again, that market is huge, as different components within it. And therefore, this flexibility of the tool is probably fundamentally one of the game changes and why we've been selected by the partner. Didn't quite answer your question, but hopefully gives you some flavor that this machine can do. So this isn't about one machine, it's about multiple machines supporting a very large industry that we're actually going to start entering.

And Nigel, with regard to the annual minimum commitment of that partnership, like when is the timing of like to exclusivity, like will it start when the annual minimum commitment like I got was -- is met or whether now you can explore potential sales with other customers while waiting for the annual minimum commitment to be met sometime later in 2023.

The agreement, I think we're pretty clear when we announced it, does not restrict us from looking at other market opportunities. So, the exclusivity is within the consumer electronic devices for glass and glass substrates. So that is very clearly documented and was in the sort of announcement. So outside of that, we can look for other opportunities from the starting point of the agreement. The agreement that should be announced was signed in December. That's the start date for the agreement.

But for me, the real focus today is making sure we get the first production unit exuded on finished, that first unit qualified and then move forward with that strategic partner.

Got it. And then questions for James. James, would you be able to share how much like cash consumption we can expect in 2023, especially considering that Intevac needs to build TRIO systems? And then I also noticed that there is a long-term customer advances of $22 million on the balance sheet. I'm wondering whether the cash on the balance sheet got boosted by that $22 million, and that's why the cash balance is higher than the prior estimate?

Sure. I can answer a couple of questions. First, let me answer your second question first. The ending cash of $113 million was not influenced necessarily by the $22 million. That was known quarters ago. That is none of our customers who placed large orders that are in our backlog, customary for that customer to give us cash down payments or customer deposits. We use those customer deposits to secure inventory. So if you look at the inventory growth through the year, inventory went up by about $24 million from the beginning of the year to the end of the year. Majority of that was not TRIO. TRIO inventory started to build in earnest in the fourth quarter. So we were using the customers down payments to support the backlog and to buy the inventory as the customer requested. But -- that number of the cash down payment, the $22 million had been reflected in our estimations of $105 million to $110 million and when we ended at $113 million.

The slightly higher $113 million above our last call guidance was we did secure the inventory for TRIO that we expected, but it came later in the quarter. So it's still -- the payment was not made did not draw down the cash. It was in accounts payable, we since drawn that down. As far as the cash being used for the business, I think if you look over the last number of years and especially in 2022, we've been excellent stewards of the cash. We'll continue to use the cash strategically. And as Nigel said in his prepared remarks, we're building inventory beyond whatever the minimum order quantity is for 2023. And so you'll likely see inventory continue to go up as we go through the year, but we will still manage cash. You won't see cash go down, let's say, to a $80 million or $90 million level right away. If you see cash go down, there'll be normally a corresponding increase with less building inventory to support customer requirements.

Next question from Mark Miller with Benchmark.

I'd like to congratulate you on the progress last year and looking forward to the future. After listening to Seagate and Western Digital over the last week, they are indicating that the customer inventory for hard drives is starting to deplete. And as a result, they're more optimistic about the outlook, at least for hard drives for the remainder of the year. Have you sensed anything in terms of improvements in capacity utilization or anything in terms of maybe more demand than expected now that the customer inventories of hard drives have come down?

Yes. I think the first nickel we'll be seeing is a really excitement is, and as you say, listening to some other calls, one in particular, and the emphasis and the level of Q&A around the HAMR. I think what we've done in the last year, we have enabled the HAMR technologies to come through. That's been a key part of our last quarter's performance. And we're seeing that HAMR focus and the hammer readiness and to ensure that actually the equipments are capable of supplying the equipment for their launch to be maintained. And I think Jim said that will be maintained into Q1.

So we're seeing continued focus around those technology upgrades. And again, like you, we are optimistic that demand is starting to come back. Some of those key markets in Asia will start to get additional business for them. And we're confident that the positive outlooks are going to sort of start coming through.

But really, under fundamentally, is this technology shift to HAMR, I think, is actually also going to be a significant change in that sector in that industry, and we're well positioned to maximize on that. I don't know if you want to add to that, Jim?

No. I think as Nigel mentioned, it's been -- you can see some of that in the results in Q4 and some of our customers' calls as you mentioned, Mark, they really are taking advantage of the lower capacity and trying to build on inventory to improve their technology and we're a key component of them being able to do that, and they're helping, as you see in Q4, that's one of the main drivers why revenue was above guidance and will continue, as I said in my prepared remarks, that the first half of the year will actually be stronger than what we implied on the last earnings call as it relates to the linearity of shipments first half, second half, and most of that will be upgrades.

Okay. From what I glean from your -- your just comments about cash in 2023. There's going to be some drawdown as you build new tools, but you are talking about shipping, I believe, 1 Lean tool later in the year. Do you think the -- by the fourth quarter, it'll be cash flow positive?

I think it all depends on what happens with the TRIO build. That's really going to be the driver of cash flow positive. When you look at a combination of what the linearity of the revenue is in Q4. But I think the biggest use of cash for us, which is just going to be a timing issue, is going to be building to support a large backlog should that happen once we pass qualification on TRIO.

Okay. In terms of the Lean tools, you'll be shipping later late this year and beyond, -- do you still have more features such as more deposition chambers and prior tools or any new technology in these tools?

I think that the 1 that will ship has an additional process module, but I don't think there's much additional technology other than some of it has some HAMR enabled capability.

Yes. I mean the major focus is really as we've talked on is enabling the installed base, putting in the HAMR upgrades for those tools and ensuring customers are ready and enabled to actually execute on the HAM road maps. And that's a key thing we've done is ensuring our road maps are absolutely aligned with our key customers, and that's been a key success over the last 12 months is having those regular technology review meetings and ensuring we're meeting their needs and actually helping -- enabling them to actually move to that next generation of technology. So it's been an exciting year.

If all goes well with the first qualification of the TRIO tool, you're talking about delivering 2 more TRIOs after that. When could you think these tools will be revenued early 2024?

I think as customary with our rev rec responsibility and rules, we'll need a couple of tools on the field to be installed to go through full qualification on site -- and once they do that and the customer signs off on the qualification will take revenue. And then probably the third or fourth tool after that, we can take revenue at the time of shipment, but we have to first pass the call and we do expect revenue in 2023, as we've said, the first qualified tool that Nigel emphasized, and I think everybody should remember is that's our focus right now. Our focus right now is building a production tool, getting through qualification, trying to get that qualification through Q2.

Once we get qualification and sign-off, that tool can take revenue. And then any tools we ship after that. If they go into the field, they'll have to get installed, qualified, signed off and then we can take revenue there. And then it's after that point in time, that we can probably take revenue at shipment. But revenue at shipment is likely going to happen in 2024, but we will see sign-offs and we will see revenue in 2023 from TRIO.

Our next question today is coming from Srini Sundar from Partner Capital.

Congratulations on a fantastic quarter. My first question is, why was the accounts payable postponed.

Accounts payable to?

Yes. But I'm not sure if your question is why is accounts payable higher at the end of the year? Is that your question?

Yes.

So if I understand your question, although it was hard to understand that question, the accounts payable was higher at the end of the year because of the timing mostly of the delivery of the TRIO inventory. So it came in, it was received, but there are payment terms of when we have to pay our vendors. Those payment terms required us to pay the vendors in January, not December. So it's sitting in accounts payable. You'll see accounts payable went up from the September quarter to the December quarter, and that helped the cash because essentially, it was in accounts payable, which has since been paid.

And it was roughly around $5 million kind of coincided with the growth of the TRIO inventory in the quarter.

As a follow-up, the Lean 200 systems that we will be shipping in the next 2 or 3 years, they would all be going out with HAMR updates, right?

There is the order around this time last year. Some of that technology innovation will be included in them and there'll be some that's not. So there will be further upgrades for those tools sort of post in-store. So there'll be some level of HAMR readiness, but not the latest HAMR upgrades that we've actually developed and executed and delivered on in 2022.

Okay. Also on the subject of exclusivity, could you explain what it exactly means meaning that you cannot sell it to somebody else or you can sell it to somebody else?

So the exclusivity is very clearly for consumer electronic devices, for glass and glass ceramic substrates. So it is a very clear definition of the market and the substrates. So what that means, that exclusivity means we cannot sell to anyone for those applications. So that's what the -- It is absolutely exclusive to them for that application.

And this is actually a show of my (inaudible), but I want to know what is the market share of your TRIO partner in the cell phone market .

Our partners market share is not really for us to comment on. The market share of our partner is -- I think is probably on the website, but they are clearly the market leader and absolute #1. So they are a market leader in that sector.

And I would say to anybody that has paid attention over the last 4 or 5 months as to what we're doing.

Okay. And there is a trend towards putting tempered glass on top of the display would that tempered glass stick to your TRIO film?

I mean I think if you look at what we announced in the press release, the TRIO is for coating glass and glass ceramic Substrates and Any Glass and Glass ceramic substrate is covered in that agreement. So it doesn't matter whether it's tempered or not tempered. I think it will cover -- it covers any substrate. And that's why -- I mean, it's a game-changing technology that really has the flexibility and everything about it is why our partner is so excited about it and why we're giving the exclusivity.

Next question today is a follow-up from Hendi Susanto from Gabelli Funds.

We can't hear you. that's just me can you hear, Hendi?

Nigel and James. May I ask, I think 2024 is still far away. But with regard to the first full year of profitable results, do you have insight into what revenue level and what kind of revenue mix is the underlying assumptions among, let's say, like hard disk right markets, Lean 200, HAMR and TRIO?

Yes. I would say at this time, we're not prepared to talk about what the revenue mix could be, how much between the 2. But what we look at internally is if you look at the investments we'll make in R&D this year and as we said in our prepared remarks, our OpEx being somewhere between $36 million and $37 million. If you just did simple math and assume the 40% gross margin, you need to be somewhere around $90 million in revenue to break even.

I see. So that is very encouraging, James. And the second question is, I saw on your website ballistic coating. Is that the commercial name for TRIO's, let's say, end products? And then outside of consumer electronic devices, do you see any like low-hanging fruit applications?

Yes, just to cover that first. I mean, as you know, when I joined a year ago, we had the Intevac ballistic coating and the IBC as a potential route forward in a potential technology. And some of that has been developed into the TRIO tool. So the website, as it says, is under development, and we will actually address that in 2023.

My focus in 2022 has not been about trying to put nice things onto our website. It's been absolutely about creating a new technology platform, getting this business fundamentals correct. But you're right, this year is the time to get the website upgraded, put some additional material on there and actually bring TRIO to life on the website. So that will be 1 of my actions for this year, but last year, it was very much about getting the technology launch focused on making this company a success.

But you're right, the website still does say under development for IBC, and we will change that to TRIO and our current platform and the future growth.

I see. And Nigel, my second question is about like potential target application outside of consumer electronic devices for TRIO.

Yes. I mean at the moment, as we've said, very much the focus is getting this tool built, qualified and out there and making that a success. Beyond that, I see other opportunities. I think we talked in one of the announcements about there's potential around the automotive and other sectors. There's market opportunities. I mean, but for me at the moment is let's get this thing built qualified into the markets and keep updating you investors every single quarter by saying, this is what we've done. This is what we're going to do next quarter and keep building that story and building that success. So I think I've got enough to do to focus on that one exciting market opportunity with electronic devices first.

And then all the best for winning TRIO sales in the production environment.

The next question is coming from Dan Weston from WestCap Management.

Congratulations on all the progress. Most of the questions have been answered. Just a few more, if you don't mind. In terms of the TRIO, could you share with us what you think your internal capacity is for build and ship per year for that product?

I mean that's highly confidential, as you can imagine. What we're really doing now is building the plan around it. We're executing on the first bills. We're going to get the full qualification done and then we're going to ensure we have capacity to meet whatever demand is out there. So it's -- I mean, the market size and what we're going to do and how we're going to deliver against that is clearly within internal plans.

And we are planning and scaling and building for success. You don't enter something like this without saying we're going to be successful. We know what we need to do. We have to have capacity to do it. We have to be able to actually manage our way through the industry with some store supply chain challenges. We've got the strength of the balance sheet to actually help us leverage with some inventory. So we could be ready to ramp and build whatever the market needs. But I don't want to put numbers in there for people at the moment but we're -- we've got -- we know what we have to do. And as we've said, we actually plan things out, we think it through and then we execute. So we are...

I think I get your point.

Yes, we're just going to get the first one built.

Last question, sorry to catch up.

No, no, it's fine. It's great, but it's -- we are going to move forward, we're going to be successful, and it's about getting this first one qualified and then moving forward successfully with our partner.

Totally understood. Nigel. Let me ask it this way. just given the minimum commitments on this particular customer for TRIO, assumes I'm guessing, using a round about a figure of about 4 units per year to build and ship in revenue. Let's say, the -- that customer excluded this minimum commitments and he required 8 or 10 units to be built and shipped to him in a particular year. Are you saying that you could successfully build and ship 10 units per year?

Yes. I'm not committing to any number, but I'm saying we're planning for success. And whatever our customer needs, we will deliver. So read into that what we're doing, yes.

Okay, fine. Let me ask you a question. In terms of the evaluations that Corning was doing initially on the TRIO platform, did they have any of their end customers involved in that evaluation as well?

I mean clearly, I can't answer that question. What I can say to you is the -- and we've covered it on the last couple of calls. When you launch a new product, you align it with a key partner. You have them -- to be successful in launching products through my 30 years of experience in many different companies is when you have a customer who's working with you, it's feeding and working with your development teams and you're producing product, and we talked on a call, a couple of quarters ago, we gave them some samples. They came in, they ran their own samples. We've done coupons for multiple different potential applications and so on. We've had other people come in and run -- and the qualification success and the real performance of the TRIO and its flexibility and adaptability has been superb.

And on the back of that, that's why they wanted exclusivity. So you've got to read into that, what we've been doing.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thank you. As I look at where we are today, compared to my first earnings call one year ago. I feel we've executed on a complete transformation of the company. We've created a new Intevac an outstanding achievement. We are now squarely on a path towards consistent annual revenue growth and the 2024 outlook supporting significant revenue growth, positive cash flow from operations and a profitable year for the company. Overall, I'm extremely enthusiastic about the future of Intevac, and we will continue to leverage our collective expertise and strong balance sheet to ensure the company is positioned for growth well into the future. In the final, I would like to thank all of our employees as well as their counterparts with our industry partners for their hard work and dedication as we progress with our partnership with the new TRIO platform, as well as the HDD industry transition to HAMR. And that's been, for me, it's been a fantastic achievement all around.

We've also been steadily ramping up our investor outreach over the last year and we're eager to continue meeting with as many investors as possible. So if anyone wants to reach out to Claire, please do that directly and we'll organize follow-ups with us. And with that, I will conclude today's call. So thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.