Intevac Inc (IVAC) 2023 Q1 法說會逐字稿

Good day, and welcome to Intevac's First Quarter 2023 Financial Results Conference Call. (Operator Instructions) Please note that this conference call is being recorded today, May 3, 2023. At this time, I would like to turn the call over to Claire Mcadams, Investor Relations for Intevac. Please go ahead.

Thank you, Irene, and good afternoon, everyone. Thank you for joining us today to discuss Intevac's financial results for the first quarter of 2023, which ended on April 1. In addition to discussing the company's recent results, we will provide financial guidance for the second 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 each of our businesses and our current outlook, then Jim will review first 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, 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 May 3 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, everyone. I'm pleased to have this opportunity today to update you on our year-to-date activities, progress on the TRIO platform and discuss the business environment in our primary served markets.

First though, I will run through the Q1 results. In our hard drive business, we achieved revenues at the upper end of our expectations due to the increased urgency and customer demand to drive aggressively towards their technology advancement objectives, resulting in an acceleration of upgrades deployed during the first quarter. With gross margin and operating expenses consistent with our forecast going into the quarter, the resultant net loss of $0.16 per share was also at the upper end of our expectations.

Now I'll share my perspective today on the business environment affecting all electronics markets, starting with the hard drive market. As we are all very aware, the hard drive industry entered a period of softening demand around mid- to late 2022. And around that time, we significantly moderated our growth expectations for 2023. Since that time, we've also discussed the reprioritization of customer demand, which effectively delayed plans for capacity additions in favor of a rapid deployment of technology upgrades. Our guidance for HDD revenues in 2023 has been consistent at around $40 million, roughly split between the first half and second half.

Given the widespread weakening of customer demand across the electronics industry, the overall business environment has become increasingly challenging, especially related to forecasted growth rates for mass capacity drive demand. These recent industry announcements indicating further weakening of the HDD market are now putting a portion of the 2023 forecast at risk of pushing out.

The fact that we've been able to largely maintain our 2023 HDD revenue forecast over the last 3 quarters in spite of the continued deterioration in market conditions is testament to our critical role as a technology provider and enabler for our hard drive customers, and our forecast for 2023 is primarily driven by technology upgrades that enable the migration to HAMR drives.

There is no doubt that capacity additions have been pushed out and that the industry is utilizing significantly less than the currently installed media capacity. Even though our customers have altered their outlook regarding the timing of capacity investments, they remain excited about the long-term opportunities presented by the secular growth of data and the relevance of mass capacity storage as new data-centric applications emerge and more workloads migrate to the cloud.

Our view on the latest industry feedback, however, is that the slowdown in the growth rate of data center investments will continue for some time. I will continue to meet with our leading customers each quarter in order to ensure we are sharing the latest data and outlook on each earnings call. In response to the current industry conditions, we are prudently managing costs and expenses as we weather through this drought in system shipments, and we are closely watching inventory dynamics to determine the timing and magnitude of any changes to our longer-term forecast.

Finally, in what is now highly regarded as a game-changing development for Intevac, in late 2022, we delivered on our commitment to develop a meaningful partnership relating to a new product category. Intevac's 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 and away the most important development achieved by the company since the launch of the 200 Lean products 20 years ago.

The recently announced development agreement was a key milestone in our growth strategy, as it has the potential to broaden our product line and increase the total addressable market we can reach. These have been an extremely busy and productive first 3 months of 2023. On the last call, I highlighted that the process of transferring the technology from a test bed to a production tool and then into qualification would take a couple of quarters.

I therefore am very pleased to have confirmed that, at the end of Q1, we successfully completed the build of our first TRIO system, which is a significant and key milestone. The TRIO system is currently running samples and testing multiple configurations and chemistries to optimize the tool. Our partner continues to express their excitement about the TRIO technology and development program, and our next milestones are to move the tool to qualification at the end of this quarter and complete qualification ahead of market demand returning in 2024. Because of this progress with TRIO, we will continue prioritizing resources towards these new opportunities.

As a result, during the quarter, we also made further investments in the TRIO development program, which we are able to make given our strong balance sheet, and these underscore our confidence in the platform's future success. One key investment was to capitalize the TRIO tool for wider development activities and ensure we retain a capability for in-house coating for all our potential customers. A key driver of this decision was positive feedback from meetings held in the USA, Japan, South Korea, Vietnam and Singapore during the quarter.

However, in the electronics ecosystem, we have seen forecasts being significantly reduced, levels of consumer weakness that are just beginning to be understood and development time lines elongating. Many OEMs have signaled that the industry's sharpest slowdown in more than a decade is lasting longer than expected. As such, we are responding to the evolving market conditions and customer qualification time lines and are still forecasting that initial TRIO orders will be placed around year-end 2023, with first revenues now in 2024.

As we sit today, we have an incredibly strong team that can execute and deliver world-class products to the forefront of the markets we are operating in and pursuing and with great partners. Our objective on this call today is to ensure that our investors, analysts, employees, suppliers, customers and all stakeholders recognize the important achievements over the last 15 months and our confidence and commitment in our strategy to deliver strong growth and financial performance for years to come.

Underscoring our confidence and commitment to delivering this strong performance are the unique attributes of the TRIO. And before turning over the call to Jim today, I will highlight some key features about technology and platform we are developing with our strategic partner. TRIO technology leverages the 200 Leans flexible and modular design that enable coating of glass disks. TRIO was able to coat glass faster than any other manufacturing processes, resulting in higher throughput. TRIO was also more flexible than other manufacturing designs, and it does have capability for all form factors, including 2D and 3D shapes. And TRIO's unique operating concept enables a compact footprint. We continue to believe that over time, the TRIO platform will be developed for multiple applications and make a significant contribution to our growth plans.

Despite the uncertain operating environment, our significant technology expertise, deep customer relationships and strong fundamentals provide a solid foundation for us to execute on our business strategy. This includes expanding our served markets, diversifying our customer base, expanding market research, establishing a leaner and more diverse team of operational leaders, and continuing to deliver differentiated technology and manufacturing solutions to our partners and customers.

In summary, we have launched into 2023 with continued progress following the transformative 2022 for Intevac. We are very excited about the future and our new partnership and development agreement for the TRIO platform.

I will take this moment to emphasize just how committed we are as a company to increasing stockholder value and protecting the strength of the balance sheet. We made a decision to utilize our strong cash balance to make strategic investments in our future, and these investments will absolutely convert back to cash as we revenue multiple tool deployments in the coming years. 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, our goal is to emerge in these challenging market conditions as a stronger, more agile company with a return to profitable growth and leveraging our technology leadership.

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

Thank you, Nigel. First quarter revenues totaled $11.5 million and consisted of HDD upgrades, spares and service. Revenues were at the high end of our guidance range of $10.5 million to $11.5 million due to the acceleration in pull-in of technology upgrades in the first quarter.

Q1 gross margin was 40.9%, roughly at the midpoint of our guidance of 40% to 42%. Q1 R&D and SG&A expenses were $9.2 million, just below the midpoint of our guidance of $9 million to $9.5 million. The Q1 net loss was $3.9 million, or $0.15 per diluted share. The non-GAAP net loss was $4.2 million or $0.16 per diluted share, which is equal to our net loss from continuing operations and excludes the impact of discontinued operations from the Photonics division.

Our backlog was $120.7 million at quarter end, reflecting the $10.5 million of new orders booked in the quarter. We ended the quarter with cash and investments, including restricted cash, of $85 million, equivalent to $3.27 per share based on 25.9 million shares at quarter-end. This equated to a net use of cash of $28 million in the first quarter.

The most significant change in the composition of our working capital during the quarter was the roughly $14 million increase in inventory. As we discussed on our last earnings call, we have been making targeted strategic investments in TRIO-related inventory in support of the growth ahead. These investments, which began in earnest in Q4 and which drove the majority of the increase in inventory during Q1, support the build of multiple TRIO systems over the next several quarters.

To a lesser extent, a portion of the increase in inventory was in our hard drive business and reflects a number of long lead-time components that we had ordered over a year ago when our customers were on an aggressive delivery schedule, and the supply chain was highly constrained. However, it's important to note that this inventory was already funded by advanced customer deposits received late last year.

On our last call, we shared our outlook that we expect inventory to continue to go up as we go through the year and that, when you see a decline in cash, there will normally be a corresponding increase in inventory to support customer requirements. That being said, our cash declined more than we expected in Q1, and that is largely attributable to the $6 million increase in receivables year-to-date. This increase is directly related to the current very challenging business environment in the hard drive industry and the extended payment terms we currently have in place with our largest customer.

The cash portion of the P&L loss was about $2 million after adjusting $1.6 million of stock compensation and about $400,000 of depreciation and amortization. Total cash flow used by operations was $24 million during the quarter, and the remaining use of cash in Q1 was from capital expenditures of $4 million, driven primarily from the TRIO tool being capitalized. We absolutely acknowledge and appreciate that the use of cash exceeded our expectations going into the quarter. We expect the increase in receivables will convert the cash within 2023, and the increase in inventory will take a bit longer to convert, but it absolutely will.

Further, the additional HDD inventory is more than funded by advanced customer deposits. When these HDD systems were orders were placed, we were on a very aggressive shipment schedules with a highly constrained supply environment. And as such, we made certain commitments to purchase critical components, and delivery of these noncancelable orders will continue throughout 2023.

Now let me move to the current quarter, Q2 2023 guidance. We are projecting revenue to be in the range of $8 million to $9 million. This would bring first half revenues to $19 million to $20 million, which is about 40% higher than the first half of 2022. We expect second quarter gross margin to be in the mid-30% due to the increased under-absorption and a somewhat less favorable mix of higher-margin upgrades.

Q2 operating expenses are expected to be around $8.5 million. We expect interest income of about $400,000, and GAAP tax expense also of about $400,000 in the quarter. Most of the tax expense will be noncash.

We are projecting a net loss in the range of $0.21 to $0.23 per share based on 26 million shares outstanding. For the full year, as Nigel mentioned, for the last few quarters, we have been consistent with our expectation that hard drive revenues will be around $40 million this year. But with our visibility today, we believe as much as 10% of that forecast is at risk of pushing out to next year. This forecast continues to include 1 200 Lean system and a similar level of upgrades to 2022. And at this time, our full year revenue forecast does not include revenue from TRIO.

Given this revenue profile and expected mix, we now anticipate gross margins for the year will be in the 35% to 38% range. We expect ongoing operating expenses will be below the $8.5 million forecasted for Q2. And as a result, full year OpEx is now expected to be approximately $34 million. We expect both interest income and taxes to be in the range of $1 million to $2 million in 2023. Finally, our current expectation is that our use of cash for the remainder of 2023 will be in the range of $5 million to $10 million, which is largely comprised of planned material receipts in support of future growth.

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

(Operator Instructions) The first question is from Hendi Susanto of Gabelli Fund.

Nigel, I'm interested in learning more about probably that $4 million of sales to hard disk drive market may get pushed out to 2024. I'm wondering whether you can [hear] more color in terms of how much visibility into that? Or in other words, when you will know whether the push out may take place or not and to what magnitude? And then secondly is, with regard to the push-out, is the push-out primarily related to upgrade?

As I said in the sort of prepared remarks, we have a very close relationship with all of our customers in the HDD sector. And I meet with them every quarter, and we look at demand and we look at what they require for each quarter and then through the balance of the year. So we have a very good relationship and sharing of data and good visibility of what we're thinking, as well.

As part of that, and you've seen and heard the sort of push-outs both of data centers and some of that slowdown and some of that underutilization which, again, is all pretty public data. On the back of that, we are working with them to confirm a clear plan for this quarter, which we've put into the announcement there for the revenues. And then we'll work through them through the rest of the year.

So every time we meet them each quarter, we'll go through each of those detailed demand plans. And I think being prudent to the moment, it's sensible to take out a percentage of the demand [from] this year. And I think some of that demand will be more towards the sort of planned, sort of scheduled upgrades of some of the systems going out of this year. As you know, we have one system in this year, but I think that will stay within this year, and the rest will be some of those upgrades moving out and really phasing of that from our customers. Does that help answer the question?

Yes, I think that is helpful. And then second question is for Jim. So Jim, you mentioned that use of cash for the remainder of 2023 is $5 million to $10 million. You indicated that inventories will grow higher. So is there some insight into how much more increase in inventory we should expect throughout the remainder of the year?

Yes. I think the increase in inventory, as Nigel alluded to, some of that will be conditioned upon the shipments from backlog that our largest customer in the hard drive wants the rest of this year. And the other portion will be we are continuing to invest in the manufacturability in the TRIO inventory to be able to support multiple tools in the field in 2024. And we still have some supply chain constraints, so we're bringing some of that inventory in. Most of that growth, as I said in my prepared remarks, the $5 million to $10 million of potential additional use of cash will be really growth in inventory.

And Nigel, do you have any update on HAMR and whether the timing of HAMR adoption by customers may get delayed, or everything is still on track?

I think if you listen to some of the key earnings calls of some of the hard disk drive industries, it's been announced that the HAMR drives have been manufactured and are in the market for evaluation. The ramp is starting in 2024. So the schedule for HAMR, as far as I can tell from our customer feedback, is absolutely on track with evaluations this year, and then into start of some volumes in 2024, I think.

And I mean, that's the message I'm getting from our customers. So I think everything around HAMR's been good, and you've seen us over the last 3 quarters build that capability and support them. And in fact, we've played a critical part in enabling their technology. So we're pretty confident that's coming through.

And then, Nigel, would you remind us again what kind of technical milestone do you need in order to be able to recognize the first field system revenue that is currently running sample production at your customer?

So as we said in the last quarter, the system goes through completing builds the first month, which we've done. We then go through from actually having achieved that build through running the process and running all the modules together. So we added into the presentation that's on the website a sort of schematic of the tool that shows the various stages of the processing chambers of that tool.

So we're now going through running that tool in an internal qualification around getting that process up and running, and that's the critical next milestone, which we said we'll do this quarter. We then hand that over and we go through further customer qualifications on that tool, which will take us, say, another sort of quarter-plus. And then that'll move to a fully qualified and adoptive tool, and we're looking at revenues once we're through that qualification in 2024.

So I mean, for me, as we said in the last call, this will take a couple of quarters. We still believe we are going to deliver an exceptional product into the market. Our partner is excited about the technology. We are working on executing on that. And we'll keep everyone updated on each further call. So we'll keep explaining where we are on each step of that time line as we move sort of revenues into 2024. And the key achievement is to pass the qualification.

And then, Jim, for the increase in working capital, I assume that the majority will be preparing the next to your systems. What I'm wondering is, for the next TRIO systems, will it be for production?

Yes. The inventory that we're putting into place for TRIO will be for a salable inventory, inventory that, once qualified, is available to sell to the customer initially potentially through our JDA agreement. But yes, those inventory that we will purchase will be for sale, absolutely. The majority of the inventory growth will be TRIO from here to the end of the year.

The next question is from Mark Miller of The Benchmark Company.

I was just wondering, do you have an estimate for what the capacity utilization is at your hard drive customers?

I think we believe that utilization in the market now is in the sort of 40%, 50% level.

You mentioned you're doing some long lead items. Has there been any improvements in pricing or in the component supply chain you've noticed recently?

There's always interesting challenges in the supply chain. I think overall, we're starting to see some improvements. I mean, there are certain specific items some companies had some specific issues in the last couple of quarters, which impacted their ability to supply. But I think, overall, the level of supply is starting to improve, would be my observation.

And what about pricing? Is pricing starting to stabilize?

I think overall, I mean, one of the things we're looking at is always around pricing, around long-term agreements. I'd say pricing is relatively stable. I mean, you'll remember last year, we saw some spikes, and some of those prices have stayed higher. But I think, overall, the pricing is stable.

Your tax situation, you're getting hit for about $400,000 per quarter. Does that change in 2024 when you start revenuing some of these tools?

The majority of the tax that we see now is really from the hard drive business, which the income runs through Asia. So it's really the tax that we make on the hard drive business. That could change depending on how much of the TRIO revenue we take with profit in 2024. But keep in mind, we have fairly large net operating losses in the U.S., so we'll be able to shelter that income for a couple of years.

The next question is from Peter Wright of PartnerCap Securities.

Nigel, I've actually got 3 questions for each of you. Nigel, my 3 questions for you are really around TRIO. And the first one is around trying to understand the capacity potential of this marketplace. If I look at kind of your install base for hard disk drive at about 180 units, it's a roughly $1 billion market with a $50 million annual kind of service opportunity.

When you look at kind of the ballistic coating market, just specific to CE today, how do you think that market compares? Is there anything we can think of from kind of a sizing perspective to try and understand kind of what the TAM is?

The second part to the question is technology has a big spectrum on how significant the equipment vendor is to the equation. Process diagnostic tools have higher gross margins because they're a much bigger piece of process and design technology. Hard disk drive is maybe at the lower end, gross margins at 40%. Where do you think, because this is a technology you brought to market as opposed to your servicing an existing market, how do you think that's going to affect kind of the gross margin equation as this product ramps?

And then the third one, if I can throw it out at you, is the timing around non-consumer electronic markets. Is there any discussions going on yet or, from a time perspective, when do you think that's going to happen?

Okay. I might answer these in reverse order just to spice it up a bit. The timing of other markets, I mean, there is incredible amount of interest in this technology. So the meetings we've had in the last quarter have been not just with the current partner but with other partners, other potentials. And if you think about moving, again, obviously your initial question about the size of this market and market opportunity, and you look at the trends, what's going on in the world at the moment, if you take the auto sector, in particular, with the hyper-screens and screens which are the width of a car, all glass, all curves, all now moving into that spectrum of having to be coated. And as people [are] moving into coated glass, thin glass for car dashboards, and thinking about how you make them user-friendly and you've got passengers having one section they're using and the driver a different section, and it's all touchscreen. And those touches are creating scratches and smudges and marks, and you've got to have AR.

So our technology absolutely fits the market requirements into the office sector, and that's clearly an area where we've had some good discussions so far and potential opportunities in the future. I've worked in that business and worked with the auto sector for many years, often take some discussion, and a concept to a new car design can take multiple years.

So I think there's a huge opportunity into that sector. It may take time, but the initial discussions we're having and initial opportunities, initial thoughts say to me there's a great opportunity there. So we're not just sitting back and going. It's all about consumer devices and stuff because we know that's a huge market opportunity. And therefore, that's why we've got the exclusivity where we've got a strong partner to help us develop that market.

Beyond that as well, we're talking to other glass suppliers and coating suppliers, looking at both life sciences, some small optical equipment and to other areas of other sort of exciting new technologies which might come through in the next 5- to 10-year horizon. So we're not sitting back and saying it's we're going to put all into one opportunity. And certainly, the meetings I have had over the last quarter and will continue to have with my team, that's why we strengthened the team with Eva Valencia and Mark Popovich to come on board. It's showing we've got opportunities, but it's probably 3 years out, but there are timing and opportunities out there way beyond the consumer devices.

So for me, I'm pretty excited that we've got the right technology for a much broader play. And I think I sort of covered that in my sector.

What does that mean around technology? I think the technology we're moving into is a very competitive environment. Yes, we've got unique technology. We've got technology that enhances throughput. We have a technology that enables, through the unique [char-char] mechanism, which is where we've actually taken the key parts in and out of 1 processing chamber, enables it to be probably one of the smallest footprint, but it's a very competitive market.

So as we said on the last call, I think for the moment around modeling, we should keep the sort of gross margin in a similar to 200 Lean. But clearly for us, it's about how do we maximize that value. And also, as I look out 3, 5 years, there's an opportunity potentially to even look at coating in a different business model. So for me, the opportunities this gives us to be a game changing for Intevac is immense. And therefore, we position that technology to maximize value for the company.

Size of the market, it is much, much larger than the HDD business. We are still in the process of trying to quantify and give you some better numbers and better scope around that. But if I think about whether it's in the sort of smartphone sector, into tablets and sort of the broader consumer devices, and then you think about the AR opportunities, for augmented reality, and then you look at the automotive and you look at life sciences and so on. I just think this opportunity is significantly larger than HDD.

So does that help answer those questions, maybe in reverse order, but hopefully gives you a bit of an answer on each of those 3 questions.

And Jim, I have 3 for you too, unfortunately not as consistent. They're a bit all over. So my first question there is the TRIO build number. Can you share with us how many TRIOs you expect to build in 2023?

The second question is there was a little pickup in PP&E, as well. Can you share with us what the invested capital has been in TRIO to date, and kind of how you think of really the return on investment in that business versus your legacy hard disk drive, if we could think back 20 years ago?

And then my third question is a follow-up to one of the earlier questions. He was asking if the tools were going to be production tools next year. For you guys, I understand you're going to revenue them, but are they actually going to be production-worthy for the client? Or are they going to be R&D tools next year?

All right. I'll try to answer them in the order that you did it. So the TRIO quantity of build, I don't think we're prepared to give you the absolute number at this point in time other than, to be consistent, it's going to going to be multiple tools that we will build.

And the PP&E, or the capital, one of the things that you saw, and you'll see tomorrow when we file the Q, and you can see it on the balance sheet from the press release, so the earnings release [is]. We added about $4 million in capital in Q1, and the majority of that was a TRIO tool that we are capitalizing. They have the capability to own that and to do multiple coatings for multiple potential customers beyond just the customer who we have a JDA agreement with. And as Nigel said, that could be automotive, it could be virtual reality. It could be a number of areas where we think there's tremendous value in using some of our balance sheet to own a tool where we have control over who we talk to and the coatings and be able to do some improvements in our coating capabilities.

So it's going to be multiple. Certainly, it's going to be more than 2. Could be 2 to 4, but I'm not going to give you a specific number, but that's the number for the TRIO builds this year. And you can see, when we talked about inventory going up $14 million, then the majority of that was TRIO. That's a portion of those inventories that we're building.

And that's kind of the number of tools, the invested capital. I don't have a good number for you on the 200 Lean. I can tell you that we spent -- you can look in our R&D last year. A majority of the R&D last year was spent on TRIO, and the majority of the R&D that we'll spend this year will also be investments in TRIO to launch that technology and improve that capability.

And then your third question, again, can you repeat that? I thought I wrote it down.

You want me to take the third? The third question was really about whether those tools go into valuation or to making real products or whatever. One of the reasons we expect taking -- and clearly, we've talked about some of that markets push our market decline. And one of the reasons we actually have -- going through a process of getting qualification and customer qualification here is to actually make sure that we actually put the time and use this opportunity with the market sort of slowing down a bit to really make sure that tool is fully evaluation, fully qualified by our partner.

One of the key benefits of doing that is then you get that tool into the field. And once it's in the field, you can go from delivery, installation and into revenue for the customer faster. So the tool we're doing with the joint venture partner in particular is going to extensive -- and we'll probably use this opportunity to make that slightly longer -- evaluation and testing and sign-off here before that is deployed in the field.

No one wants to have capital in a field that's not actually making revenue for customers. So I think it will be, once the once tools hit the field, will start to produce parts as fast as they possibly can.

One follow-up. I'm sorry, Jim. Very last question is on invested capital. Is there a number that you have kind of to help me think about how much has been invested in the TRIO?

I would say now you have a combination of R&D. And keep in mind, the R&D and the TRIO benefit was all of the tens and hundreds of millions we've invested in the hard drive business. We've been able to capitalize on that capability as well as some of the prior tools to TRIO. I think in the last couple of years, the R&D is going to be somewhere between $15 million and $20 million invested in R&D. And then, part of the other investment is going to be the inventory that we've invested to date as well as we'll continue to invest the rest of this year.

And that investment won't stop at the end of 2023 because there are going to be applications and there are going to be additional TRIO platforms that could be used for automotive, which may take different sizes than the current one. I don't know if you want to add on to that, Nigel.

That's a good point. I think, as we deliver success here and actually look at sort of broader applications, then I think there will be iterations [at all]. So we will continue to invest for growth, but we will be investing for long-term profitable growth.

Correct. And the majority of our R&D investments will really be in the TRIO, because that's the platform that gives us, as Nigel said, that growth in the future.

It's exciting. It's clearly a much better use of capital than acquiring something. So that's tremendous. So thank you for sharing that.

There are no further questions at this time. I will now turn the call back over to Nigel Hunton for his closing remarks. Please go ahead, sir.

Thank you. Firstly, I want to thank all of our employees as well as their sort of counterparts with our industry partners for their hard work and dedication as we progress with our partnerships with the new TRIO platform, as well as the partnerships for the HDD's industry transition to HAMR. I think it's been an incredible performance from everyone.

I also wish to thank our investors for their ongoing support. Clearly, we need this while these near-term macroeconomic challenges are adversely affecting demand in each of our markets. So I would like to thank the investors for their support in that remit. And also, I'd like to say that, if you want to reach out to Claire directly, if you want to follow up with us, and we look forward to updating you on our Q2 call early in August. And with that, I will conclude today's call. Thank you.

This does conclude today's conference. Thank you for joining us. You may now disconnect your lines.