Claire McAdams - IR Counsel Wendell Blonigan - President and CEO Jim Moniz - CFO.

Mark Jordan - Noble Financial Richard Kugele - Needham & Company Nehal Chokshi - Maxim Group Brian Alger - ROTH Capital Partners.

Good day, and welcome to Intevac's First Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] Please note that this conference call is being recorded today, May 2, 2016.

At this time, I would like to turn the call over to Claire McAdams, Intevac's Investor Relations Counsel. Please go ahead..

Thank you and good afternoon everyone. Thank you for joining us today to discuss Intevac's financial results for the first fiscal quarter of 2016, which ended on April 2. In addition to outlining the company's financial results, we will provide guidance for the second quarter of 2016 and commentary on the full year.

Joining me on the call today are Wendell Blonigan, President and Chief Executive Officer; and Jim Moniz, Chief Financial Officer. Wendell will start with an update on our businesses, and then, Jim will review first quarter results and our outlook going forward before turning the call over to Q&A.

I would 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 the 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 2 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 Wendell..

Thanks, Claire, and good afternoon. Before I begin, I'd like to take this opportunity to thank the employees of Intevac for their tremendous effort, particularly over the last few quarters, as they drove successful outcomes in multiple strategic initiatives across the company simultaneously; an exceptional effort and results.

Today we reported financial results exceeding guidance, primarily due to the rapid customer acceptance of our second VERTEX system.

This tool, which is used to coat display cover panels with optical grade diamond-like carbon or ODLC, was scheduled to revenue in the second quarter, but a smooth start-up facilitated a quick customer acceptance in Q1 resulting in sales and gross margins above our guidance ranges, and a smaller net loss than projected.

This was our most successful and rapid conversion of a new product opportunity to revenue in our thin-film equipment growth initiatives. We began discussions with our customer Truly Opto-Electronics early last year, and driven by interests from their customers, they ordered a tool in July, took delivery in December, and accepted the tool in Q1.

This is the first of the two [indiscernible] sign-offs required before we can begin to recognize revenue on shipment of the VERTEX product. The VERTEX has proven to be a highly-capable, low-cost of ownership, high-productivity manufacturing system.

In order for our customers to secure orders for their display cover glass protected with our ODLC coating, they must demonstrate that they can produce samples with the performance equal to the samples supplied by Intevac from their production line.

Truly has now demonstrated their capability and have secured their first production order for a new branded cell phone launch in China, scheduled for late summer. The debut of this new phone will require between 200 to 300,000 units over the initial production run.

So, after all the work we've put into our display cover glass initiatives, significant quantities of mobile phones with our ODLC coating will be in the China market this year.

At the same time, our in-house coating operation is busy processing samples for multiple end-users and applications, as we continue to work on accelerating market demand for our scratch-protection solution. Our films are currently being evaluated by a growing number of customers for cell phone point-of-sale, as well as wearable applications.

Future applications include tablets, auto infotainment, and cell phone backside covers. Given our traction at Truly in increasing activity levels with others, we anticipate additional end-customer adoption of our ODLC film to drive incremental VERTEX orders in 2016.

We believe that we have the lowest cost anti-scratch solution available in the marketplace, with up to 20 times the scratch-resistance of uncoated glass, and ten times the reduction in haze due to abrasion, and a 20% increase in breakage resistance.

Industry forecast indicate that the amount of cover glass needed for displays is expected to grow around 20% through 2020, to about 45 million square meters. It would require over 500 VERTEX systems to coat all of that production. A 25% adoption rate of our solution over the next five years represents a $500 million revenue opportunity for us.

The past quarter success in customer sign-off and the first volume production order for cover glass incorporating our protective film gives us increasing confidence that this is a market that can provide significant revenue growth for our thin-film equipment business.

In our hard disk drive business, in Q1, we continue to work on several strategic programs with our HDD customers, which continue to provide revenue opportunity for technology advancement upgrades.

We believe what is driving our ongoing revenue opportunity in the hard drive market is the need for our latest technologies that deliver the lowest cost of ownership, helping to enable the continuous reduction in cost per gigabyte of storage.

Given the current activity and technology upgrades and anticipated bookings in the second quarter, we continue to have confidence that we will see comparable levels of hard drive revenue this year compared to 2015. For the last few calls, I'd been bringing to attention the increasing TIE ratio, or the average number of disks per drive being shipped.

The industry exited 2014 with a TIE ratio of 1.7, and at the time of our last call, Q4 2015, was estimated to be 1.9. The quarter ended up above expectations at 1.96, and is forecast to be over two for all of this year.

Recent announcements indicate demand for high-capacity near-line drives should be a bright spot in the HDD landscape, and the TIE ratio for this segment is increasing from over four this year to over seven projected in 2020.

It is important to note that it's the total number of disks shipped and not just the number of hard drive units shipped that will drive the need for capacity additions. In a stagnant HDD unit volume environment, the current industry capacity would be utilized once the overall TIE ratio gets to the 2.5 to 3 range.

Until then, we have sized this business to operate on strategic technology investments, upgrade service and spares, and focused our thin-film equipment resources on the strategic growth opportunities for the VERTEX and MATRIX platforms.

In our MATRIX platform initiatives, our first opportunity has been in advanced PVD metallization of high-efficiency n-type solar cells. We have two Tier 1 customers adopting our MATRIX PVD solution, which offers best-in-class target utilization and lowest cost of ownership, while providing high-precision deposition performance.

Our first system continues to run in full volume production, and at this point, we anticipate our customer will continue to optimize and evaluate their pilot manufacturing line through this calendar year. Our second customer system is under site acceptance test at our factory, and is scheduled to ship in the current quarter.

The work we're doing today with these two customers, positioned the MATRIX as the PVD processed tool of record for advanced metallization of high-efficiency n-type solar cells. Also in site acceptance test is our first MATRIX implant system for ion implantation of high-efficiency n-type solar cells, which remains on schedule on ship midyear.

Our technology provides advantages over boron diffusion doping, including process simplification and the ability to selectively dope. This can result in the reduction of process steps lowering the capital intensity and cost per watt of the solar cell.

Industry estimates project that the capacity required to produce high-efficiency n-type solar cells will double over the next three years, and be up 2.5 times by 2020. This equates to five gigawatts of new capacity to be added in the industry. We expect to participate in a meaningful way in the capacity build out to support this growth.

Based on our activities with our initial customers, we continue to estimate our five-year revenue opportunity for the MATRIX PVD and implant to be around $175 million. To sump up the environment for our thin-film equipment business, we're optimistic about new and follow-on orders in the display cover panel market this year.

We continue to drive technology advancements and upgrades in our HDD business, and are making excellent progress improving our technical solutions and advanced high-efficiency solar cell manufacturing. Our three product platforms together address nearly $1 billion of revenue opportunity for us over the next five years.

Now moving to our Photonics business; 2015 was a year of important progress in building our program opportunity pipeline for our enabling digital low-light solutions, where we are the supplier of digital night vision for U.S. military. We've continued to make good progress in 2016 to-date.

In the first quarter we delivered a high-resolution ISIE 4000 goggle prototypes to NAVAIR, or the U.S. Naval Air Systems Command. The initial evaluations have been very favorable, and resulted in bookings of $2.1 million in Q1, and another 1.5 million in Q2 of new development funding for this program.

We believe these 2K by 2K high-resolution digital goggles can be a key component of the military's Enhanced Visual Acuity initiative, and be the platform to bring the digital advantage in augmented reality to the community of aviators currently flying with analog night vision goggles.

Also in the first quarter we made good progress with the development of our Ground Force Digital Monocular Goggle, and delivered the technology demonstrator to the U.S. Army last week. The demonstrator will now go through the evaluation process over the next several months.

The digital monocular technology demonstrator is for the analysis of alternatives for the Army's fused vision mobility device program.

We're demonstrating not only superior night vision capability, but the advantage of digital, such as zoom, information overlay, image enhancement, image capture, and wireless transmission, as well as Bluetooth connectivity and remote control via smartphones.

Successful validation of our technology demonstrator will position us as the solution for Ground Force digital night vision and enable funding for the development of a prototype monocular solution. Part of the prototype monocular solution will be our next-generation sensor, the ISIE12.

Last fall, we were awarded a $25 million funding vehicle for development of this next-generation digital night vision sensor.

Having this new sensor along with our recently introduced ISIE 4000 high-resolution sensor, expands our opportunity pipeline by providing technology upgrade path for our fielded cameras and integrated night vision systems, as well as providing the sensor technology targeted for the Ground Force applications.

In our night vision camera applications, our largest near-term opportunity continues to be the Apache helicopter program. Our ISIE11 sensor is the digital night vision gold standard for the military.

The next-generation ISIE12 sensor expands our opportunity pipeline by providing a technology upgrade path for the Apache camera, as well as future pursuits for the Apache co-pilot. In total, the program opportunity pipeline for our digital night vision cameras is currently over $250 million.

In integrated night vision applications, where our night vision sensor and camera technology is integrated into a helmet mounted displayer goggle, we're the digital night vision solution of record for programs currently in production or development.

When we look at the total opportunity pipeline for integrated digital night vision, it includes Joint Strike Fighter moving to full rate production with the ISIE11 sensor for around 2700 baseline aircraft.

Added to this opportunity is the ISIE 4000 technology upgrade for the F35 joint Strike Fighter, our high-resolution digital goggles program, as well as BAE's Typhoon and the additional future opportunities outside of the United States. These programs add to the total opportunity pipeline about $325 million.

The largest future opportunity for our proprietary digital night vision technology is for Ground Force application. Our solution is in support of the military's fused vision mobility device for U.S. Army Ground Forces, and our technology demonstrator has now been delivered.

This is the program of record to replace ground soldier analog night vision, and over 100,000 of these monoculars are planned to be fielded by the U.S. Army.

Ground Force applications also include the Family of Weapon Sights program such as the rifle sight eyepiece and wireless helmet mounted displays, each of which will ship in the tens of thousands of units.

While only a small piece of the program opportunity pipeline for the Ground Forces is currently designed in, these pursuits add up to $400 million of future opportunity for our Photonics business.

In total, the revenue pipeline for current Photonics programs is over $500 million, and when we add it in our pursuits, including Ground Force applications, the opportunity pipelines expands upwards to nearly $1 billion. So in summary, we continue to be encouraged by our business growth prospects as we successful executed the first quarter.

We expect a similar year in our core HDD and Photonics businesses this year, compared to 2015, and developing opportunities in our thin-film equipment growth initiatives.

2016 is a key year for both our thin-film equipment and Photonics business, as we anticipate orders for capacity additions in our new equipment growth initiatives and develop our next-generation night vision sensors to position us for the upgrade path in the Ground Force opportunities.

As I indicated on our last call, our thin-film equipment revenue will continue to be lumpy quarter-to-quarter and back-end loaded. That being said, with our current backlog and revenue forecast, 2016 revenues are expected to increase from 2015 as much as 10%, with upside potential depended on adoption momentum in our equipment initiatives.

With new equipment sales we collect between 70%-90% of the cash in shipment, however, the revenue events occur at customer sign-off. This makes the revenue cycle longer, not completely in our control and forecasting revenue timing difficult. We will continue to update you each quarter as we progress through the year.

I'll now turn the call over to Jim to discuss our first quarter results, provide guidance for the second quarter, and to discuss the outlook for the year.

Jim?.

Thank you, Wendell. Consolidated first quarter revenues totaled $13.7 million, above the high-end of our guidance range due to the rapid sign-off of the VERTEX tool, not included in the guidance range, slightly offset by the delayed sign-off an energy, solar R&D tool, which was in the range.

Thin-film equipment revenue totaled $5.6 million, including one VERTEX coating system for display cover panels. Photonics revenues of $8.1 million included $7.7 million of product revenues and $0.4 million of contract research and development revenues.

Q1 consolidated gross margin was $3.9 million or 28.2%, above guidance with favorable contributions from both business units. Thin-film equipment gross margin was 9%, substantially down from both the fourth quarter and the first quarter of last year.

The decline in margins was primarily due to lower revenue, including lower upgrade revenue and lower factory absorption. We were above guidance, however, as the VERTEX achieved successful sign-up in Q1 as our normal tool margins and the low margin energy solar implant tool did not sign-off during the quarter.

Photonics gross margin was 41.5%, slightly higher than last quarter and slightly down from the first quarter of last year, for above our long-term model for this business. The high gross margin in Q1 was due to continued favorable mix of product revenues versus lower margin contract research and development revenue.

Q1 R&D and SG&A expenses were $10.2 million, just outside our guidance range driven by slightly higher engineering costs for our new thin-film equipment initiative programs and development of our Ground Force digital monocular technology demonstrator in our Photonics business. Our Q1 net loss was $6.3 million or $0.31 per share.

Our backlog was $44.7 million at quarter end. Thin-film equipment backlog of $18.3 million included one INTEVAC MATRIX PVD system, one pilot INTEVAC MATRIX implant system and one energy implant system. Backlog in our Photonics business was $26.4 million.

We ended the quarter with cash and investments, including restricted cash of $45.3 million, equivalent to approximately $2.19 per share based on 20.7 million shares at quarter end. During the first quarter, we did not repurchase any shares. Since inception we've made repurchases of $28.5 million, out of a total plan of up to $30 million.

Q1 capital expenditures were $1.3 million, and depreciation and amortization was $1.2 million for the quarter. Turning to guidance for the second quarter of 2016; we're projecting consolidated Q2 revenues to be between $14 million and $15 million. We expect second quarter gross margin to be between 30% and 32%, up slightly from Q1.

Operating expenses are expected to be around $10 million. We expect no tax benefit, and nominal tax expense. For Q2, we're projecting a net loss in the range of $0.26 to $0.29 per share based on an estimate of 20.6 million shares. Our guidance for the year has not changed.

We're still confident that 2016 revenues are expected to increase from 2015, as much as 10% with the majority of the revenue being recognized late in the year. At this revenue level, we continue to expect gross margins in the range of 34% to 36%, with operating expenses of between $37 million to $38 million for the year.

We believe that we can deliver positive cash flow from operations in 2016, and our objective is to achieving net increase in our cash balance in 2016. This completes the formal part of our presentation. Operator, we're ready for questions..

[Operator Instructions] Our first question or comment comes from the line of Mark Jordan from Noble Financial. Your line is open..

Hi, good afternoon gentlemen. Questions relative to the contract R&D level in the first quarter was 400,000, year ago was I think a million four, I think the fourth quarter was roughly at that level.

How do you see contract R&D in Photonics revolving [ph] through the balance of the year?.

We think that -- the first quarter was actually the low level for the year. We received another $2.1 million in funded bookings from a program in Q1, and another million five in Q2 to-date. So we expect that level to be back up to $1.5 million to $2 million level in Q2..

And do you see it roughly continuing at that rate through the balance of the year?.

I would say yes, but if you remember in the last conference call and even in this conference call, one of the things that Wendell had stressed is that the growth in Photonics in 2016 was going to be driven by our success in funded R&D orders..

Okay. In the presentation, you talked about delivering a Ground Force demo that was going to be under a couple of months of probable evaluation. They're looking for potential for incremental development funding.

Do you have a sense of what might be received there, and how will that impact, let's say, the second half of the year?.

Yes. So, the Ground Force technology demonstrator that we delivered actually last week, it will go through several months of evaluation, and this is a part of the normal -- they call it evaluation of alternatives, and they are going to look at our technology as well as some analog technology et cetera for the night vision programs.

I would say that if there was any funding attached to that in this year, it would be at the very, very tail-end, just because of the time they are going to take evaluating the technology, and I think there will be several back and forth with this as they ask for additional features in the software and look to optimize the performance of that.

So it'd be a while before we get into actually funding the prototypes, and we expect that would be out after '18..

Okay.

Final question for me, relative to the buyback activities, you had obviously favorable comments on positive cash flow, building cash, a little bit peer, do you foresee rounding out the buyback program this year and/or potentially adding to that given the fact that you're seeing to the gaining visibility of positive cash flow both this year and into the future?.

What I can say about our buyback is we're 28.5 million, we expect so far, so that's basically the program that we put in place in 2013 has fundamentally been executed. We meet on a quarterly basis to look at the buyback program in general. And as Jim said, we had not pulled the trigger.

I won't go into the details behind those decisions, but we do look at that on a quarterly basis. As far as we move forward in time, in 2013, we looked at our cash position and we felt the $50 million number is where we wanted to have our cash on the balance sheet, and we will go up and down around that number.

And so, I think for the very near-term, I think we pretty much executed that plan, and then we will as we move towards the end of this year, look at our three-year business plan, what kind of cash we think we need, and what is the right way for us to allocate the capital in the company, and we will make those decisions later on in the year..

Okay. Thank you very much..

Thanks, Mark..

Thanks, Mark..

Thank you. Our next question or comment comes from the line of Richard Kugele from Needham & Company. Your line is open..

Thank you. Good afternoon..

Good afternoon, Rich..

I just wanted to dive back into the spares and upgrade side. For years, as long as I can remember, that's been a fairly consistent adder to revenues; nice margins.

Can you just talk about at what point during the quarter you saw just a fall off and what gives you the confidence that it can come back over the balance of the year?.

Sure. I think the -- what we saw fall off, there is a couple of components to it, one is that we had an upgrade that we pretty much ran the full cycle on, but to be very -- not -- just to be candid about it, when we had upgrades that were in the plan that were impacted by the merger of a couple of companies.

So we believe that will come back with certainly on the first half that was an impact there. And I think secondly -- the second part of your question is why do we have confidence, and it's really back to what I said in the script, in our technology -- strategic technology programs is we're anticipating bookings in the second quarter to support that..

Okay. And then, one of your larger customers is in the process of taking significant capacity offline and shrinking itself. How do you see the next couple of years playing out from a unit requirement perspective? I know we have high cap drives going out to the cloud, but we also then have the industry shrinking its overall capacity.

So the puts and takes there, does that cause you to rethink at all where you think that crossover point is on requirements? Thanks..

Yes. So, obviously we are digesting all of this specifically after the conference call on Friday. I think one thing that if you can go back to my script as we talk about there maybe a declining HDD unit volume, but it's really the disks that are driving our business.

And as the TIE ratios go up, it's not so much the number of hard drives that you are selling, it's the number of disks that are in those drives.

And I think there was some commentary in the conference call transcript about some of this rationalization of manufacturing spaces is probably the impact is on different companies that are providing one thing per hard drive.

We know certainly it's going to be impacted, but there was also a talk about better utilization of current media, and head manufacturing footprint. So I think we're going to have to wait and see how that manifests itself, but again, we are projecting a pretty consistent year of '16 over '15..

Okay. Thank you very much..

Thank you..

Thanks, Rich..

Thank you. Our next question or comment comes from the line of Nehal Chokshi from Maxim Group. Your line is open..

Hi. Congratulations on the early acceptance of the VERTEX tool..

Thanks, Nehal..

The customers are keeping the ODLC lab busy.

Are these OEMs, or these the competitors to Truly, companies like Truly?.

The majority of the work going on here as of probably the last quarter is more with the OEM side..

Okay.

So, if these OEMs do decide to move forward Intevac design, would they go back to their cover glass OEMs and say, "You need to order Intevac tool," or is there a potential for Intevac to provide a foundry service?.

Right now our business model would be that we would provide equipment to their selected cover glass supplier..

Okay, okay.

And then it sounds like you took up the potential opportunity for cover glass from -- I think you're recording 300 million to now 500 million? Can you run us through the reason for the tick up in that opportunity?.

No, actually even on the last call, we had defined that as about a $500 million opportunity at a 25% adoption rate..

Got it, understood.

And under that 25% adoption rate, is that -- how do you think about the high-end smartphone, do you -- does that basically say, "Hey, we've got all of the high-end smartphone," and rather how do you think about the low-end smartphone as part of that? What percentage do you think adopts that within the low-end smartphone?.

Well, we are seeing that the 25% adoption rate is the benchmark that we put in front of ourselves to go attain, and there is a number of different scenarios you can put together with high-end/low-end different manufacturers to attain that. So that's where that number comes from.

We see equal interests from high-end and low-end cell phone in particular manufacturers, anywhere from the latest version of Gorilla glass to Soda-lime glass. So we think that the application is low enough cost that it can be applied across the entire spectrum of cell phone quality, so to speak..

Okay, great. Thank you..

Thanks, Nehal..

Thank you. Our next question or comment comes from the line of Brian Alger from ROTH Capital Partners. Your line is open..

Good afternoon guys, a nice job.

I want to go towards the backlog, you mentioned the three tools for solar that are in backlog right now, can you remind us again the timing of expected delivery on each of those?.

Yes. The implant tool, which Jim talked about that, that's actually already shipped. That's in a government laboratory. The other two tools that are currently in site inspection, we expect the PVD to ship in this quarter, the second quarter. And the implant tool, I think it'll be either the end of Q2, beginning of Q3, somewhere in that timeframe.

It's going to startle the end of the quarter is what it looks like for shipment..

Okay.

I'm not sure if I heard that right, the first one is with the government lab, is that energy tool that didn't sign-off this past quarter?.

Yes, it is..

Okay, okay.

And is that, all these price roughly the same in terms of potential revenues?.

Absolutely not. No, not at all, I can tell you that the first energy tool is just under $2 million. We had it in the range in Q1. It is not in the range of the 14 million to 15 million in Q2, because there are some things that have to happen. The customers are not as motivated as the customer who would be generating revenue from that tool.

So we've kind of slipped that into Q3. The PVD tool, we've said that those tools run somewhere between $3 million and $4 million. And I don't know if we've ever given a price on the pilot implant tool, but it is higher than the PVD tool..

[Technical difficulty] so they can….

Right..

Yes. We've got 18.3 for the group, so….

Correct. And Brian, just to reiterate, those are shipment dates on the implant or in the P matrix, the two matrix, the implant or in PVD, that's where we're ship them. Those are brand new tools fundamentally. So they are going to have through customer acceptance before we actually recognize the revenue..

Of course, and what we care about is cash flow. And that's what we are tracking more than the revenue side. I absolutely agree that, or understand it, the timing of revenue wreck. Yes.

And shifting gears a little bit towards the Photonics side, who are you up against for this monocular goggle? I mean, it seems like it's almost a custom-made product right up your power ally, who would you be up against in this evaluation process?.

For a digital solution, I think we are the only sensor technology that's being evaluated in this alternative exercise. What you would look at is would you take an analog tube with some digital technology wrapped around it would be -- what would be a competing solution for that..

And in this case, you guys are -- you are providing both the display as well as the sensor, is that correct?.

Yes. It's all in one assembly..

It's an integrated. Okay, great.

Obviously, it looks to be great, and then I got a little confused when're you are talking about the upgrade path for ISIE12 in the Apache, are we going to ISIE11, or are we going to 12 with Apaches?.

All Apaches are being deployed with ISIE11s. And once those are deployed, with the ISIE12 would be a technology upgrade for the fielded cameras..

And how often do they need to replace those cameras? Is that -- did they have like a two or three-year lifecycle, or they naturally upgrade or naturally replace those?.

Well, two things. There is a finite amount of time that the sensor can be exposed to light, but it really depends on how many sorties these aircraft have gone out on, which is kind of hard to predict depending on what's going on in the world. I think the best way to look at it is that the U.S.

Army in the military are going to want to upgrade what they have with the latest and best technology periodically. And they do that through the Apache sensors, a group out of Redstone Armory.

So once the ISIE12 is finished, its capabilities are demonstrated, then it would go into a planned technology upgrade for the Apache helicopters, and that would probably join along with a number of other upgrades they want to make to the platform..

Okay, got it. I got it. I understand.

And presumably that's how things would roll with the Joint Strike Fighters as well, down the road?.

Exactly..

Exactly..

Great, excellent. Thanks guys, I appreciate your time..

All right. Thanks, Brian..

Thank you..

Thank you. [Operator Instructions] Our next question or comment comes from the line of [indiscernible] Capital. Your line is open..

Just a darn follow-up question on the cover glass opportunity, the handset in China, launches this summer, so presumably at some point we will know who the customer is, but how late in the year can we go, or what's the potential to see more handsets launch for, say, the Christmas season, how late do you need to go to get an order and deliver a machine?.

Well, to give you an example, the current end-customer adopted a relatively -- it's a volume-run, but it's a small volume-run, they made the decision probably right around the end of March and they are rolling out end of summer with a product launch. So that's kind of the timeframe between decision point and actual product rollout.

And as far as driving equipment, that's going to be a combination of a couple of things. One is -- our customers got multiple end-customers that are in evaluation. We have some visibility on what their volumes would be, what their products with rollouts would be.

So the timing of our customer Truly to make that decision is going to be based not only by hard orders, but it's going to be based on momentum of attain those orders, because they're going to have to make a decision probably prior to filling up the full capacity of their first machine because it's not going to be possible for them to take on a big order if they don't have the capacity already on line.

So there's couple of factors in there that it's going to drive the timing of the follow-on or new VERTEX orders..

Okay.

And just roughly on a monthly basis, I know that there is a ton of variables, but roughly how many handsets a month can the machine do when it's up and running?.

If you were to run it 24 hours a day, seven days a week, it would do about 500,000 a month. So nominally, you are looking at a 10 to 12 hour working shift that takes that number down to around what 350,000, somewhere between 300,000 and 350,000, depending on how long you run your factory, but it could stretch out to 500.

And that would be useful for attaining new business. You have some flux capacity there by running a third shift with the tool, while you are getting your next tool up and running..

Terrific. Thank you, guys..

All right. Thanks, J.D..

Thank you..

Thank you. As I'm showing no further questions in this queue at this time, I will now turn the call back over to Mr. Blonigan..

Okay. So, thank you for joining us today, and we look forward to updating you again during our Q2 call in August. Until then, so long..

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day..