Claire McAdams – Investor Relations Counsel Wendell Blonigan – President and Chief Executive Officer Jim Moniz – Chief Financial Officer.

Craig Ellis – B. Riley Mark Miller – Benchmark Company Mark Jordan – Noble Financial Brian Alger – ROTH Capital Partner Nehal Chokshi – Maxim Group Greg Weaver – Invicta.

Good day, and welcome to Intevac's Third 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, November 1, 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. Thank you and good afternoon everyone. Thank you for joining us today to discuss Intevac’s financial results for the third fiscal quarter of 2016, which ended on October 1. In addition to discussing the company's recent results, we will provide financial guidance for the remainder of 2016.

Joining me on the today's call are Wendell Blonigan, President and Chief Executive Officer; and Jim Moniz, Chief Financial Officer. Wendell will start with an update on our businesses, then Jim will review third 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 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 November 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 Wendell.

Wendell?.

Thanks, Claire, and good afternoon. Today we reported Q3 financial results favorable to guidance. Revenue of $22.6 million was at the upper end of guidance, while gross margins exceeded guidance and operating expenses came in lower than expected. This resulted in improved bottom-line results and a net loss of $0.02 per share.

We were very pleased to announce the Q3 booking of an additional two hard drive systems, which drove another sequential increase in Thin-Film Equipment backlog. Incremental to the $50 million in equipment backlog at the end of Q3 is the Vertex order we announced this afternoon from a new Tier 1 customer.

These two recent orders continue to demonstrate the importance of our technology in the hard drive industry, as well as our execution against strategic growth initiatives in our Thin-Film Equipment business.

In the hard drive industry, the recent order of two 200 Leans reflects the ongoing partnerships with our customers and the need for strategic technology improvements in support of their product roadmaps.

In total, we booked six hard drive systems this year, two of which shipped in Q3, and the remainder scheduled to be delivered over the next three quarters. These systems are part of an ongoing technology upgrade of existing manufacturing capacity, which is not increasing the install base of media capacity in the HDD industry.

Fundamentals in the hard drive industry once again exceeded expectations in the third quarter. PCs and hard drive units surprised the upside which is encouraging evidence of possible industry stabilization.

The growth segment within hard drives continues to be the near-line segment, which is a positive for media units given the significant number of disks in each drive. The TIE ratio, or average number of media disks per drive, has also exceeded expectation heading close to 2.1 for the second quarter and we believe for the third quarter, as well.

The increase in TIE ratio in the industry is primarily being driven by a growing mix of near-line drives. The TIE ratio for the near-line segment is much higher than the overall hard drive TIE ratio and is forecast to grow from over four this year to over seven in 2020.

In an HDD unit volume environment of the 100 million to 120 million drives per quarter, the installed industry media capacity would be utilized once the overall HDD TIE ratio gets to the range of 2.5 to 3 disks per drive.

Turning to our display cover panel initiative, and the growing market traction of our Vertex tool, we were pleased to announce a booking with the new Tier 1 customer today. Given the unique configuration for this new Vertex order, customer acceptance for revenue recognition will be required.

We expect to sign-off to occur in the first half of the next year. In parallel with our recent Vertex tool booking, our in-house coding operation continues to process hundreds of samples per week for multiple cover panel applications.

And, we believe our strategy to market our tools, films through this in-house operation is a key enabler in securing new customer orders for Vertex. The three other Vertex systems and backlog are shipped to Truly Opto-electronics this quarter, as they had volume oDLC manufacturing capacity to their display cover glass operation.

Truly, as recently began marketing it’s Kingkong cover incorporating our oDLC on 2.5D and 3D cover glass. Their renounced product launches incorporating our film, include “high end models” of world-class smartphone brands beginning in the current quarter, as well as protective coatings for the pool of watch.

Our optical diamond-like carbon protective coating solution, oDLC has demonstrated outstanding performance as a cost-effective, optically transparent, scratch protection solution for display cover panels in the mobility marketplace.

Based on recent booking activity, capacity additions at Truly and the ongoing support activity in-house, we have increased confidence at the Intevac Vertex system incorporating our oDLC film, can address multiple applications in the cover panel market and represent the largest near-term revenue opportunity in our Thin-Film Equipment business.

In the solar market, which has become increasingly challenged over the last several quarters, we recognized revenue on the R&D implant tool during Q3 and continue to make progress toward customer acceptance for each of the remaining four solar tools in backlog.

Our MATRIX PVD tool is running well for our Tier 1 customer and signed-off for revenue in October. The two ENERGi implant systems announced in May for a new solar cell technology, which utilizes N-type ion implant doping of monocrystalline P-type cells are progressing through the installation and qualification process.

Lastly, we expect the MATRIX implant system, which is part of an ongoing joint development program for advanced solar cell technology to ship in the fourth quarter and revenue during 2017.

We are continuing to the conditions in the overall solar market, especially with regards to the capacity build out for N-type cells to assess and update our revenue opportunities for our solar product offerings.

To sum up the environment in our Thin-Film Equipment business, the second quarter was an inflection point in terms of new tool orders that will drive the future growth of our company, and the third quarter once again built upon the positive momentum and execution in each of the markets we serve. Now for an update on Photonics.

We continue to achieve strong financial performance in our Photonics business, which again saw profitability above expectations. New orders for Photonics were driven largely by the Apache program, as we received a new $4 million order for foreign military sales.

The latest order is incremental to the $5 million order discussed last quarter for lot four and includes the exercise of options for cameras destined for two additional nations. Our production program for the F35 Joint Strike Fighter, continues to ship camera subassemblies at approximately 35 cameras per month.

And recently, we have been requested to wrap the delivery rate to over 50 per month, as manufacturing supply chain for the helmet-mounted display systems are raising production levels. Additionally, we continue to produce ISIE11 camera subassemblies as technology upgrades for previously fielded ISIE10 cameras for the F35.

These upgrades to convert Gen 2 helmets to Gen 3 using our ISIE11 cameras will continue over the next few years. Our high-resolution ISIE 4000 goggle prototypes delivered to NAVAIR or the U.S. Naval Air Systems Command, earlier this year continue to receive favorable evaluations and deliver important feedback to us.

As, these evaluations proceed through the analysis of alternative process, as a key part of the Navy's enhanced visual acuity initiative, we have growing confidence that this program is destined to incorporate digital night-vision capabilities, utilizing the core Intevac ISIE sensor technology.

The 2K x 2K ISIE-4000 digital goggles are envisioned to bring the digital advantage and augmented reality to the community of rotary-wing naval aviators, currently flying with analog night vision goggles. Our ground force digital monocular technology demonstrator for the U.S. Army is currently being demonstrated and evaluated at Ft.

Benning, as well as with special operators into service. Additionally, we have delivered a technology demonstrator to the Australian Army for evaluation in their LAND 53 program.

We continue to demonstrate differentiated lowlight performance and the power of digital technology over analog with Bluetooth connectivity, image capture, wireless image transmission and reception, augmented reality, picture and picture, digital zoom and the implementation of the extreme low light multi-frame signal integration.

The technology demonstrators will continue to go through the evaluation process for the next several quarters. The digital monocular technology demonstrator is being evaluated for the next-generation enhanced night vision goggle program.

We believe 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 fused monocular goggle solutions.

Beyond our efforts in digital night-vision, our near-eye display, in optics group have been working largely with internal funding on wireless head-mounted displays for the army’s Family of Weapon Sights Crew Serve program.

We expect to receive contract awards for this program, as well as contracts to provide this head-mounted display for the navy’s M2 machine gun weapons program. Combined these contract awards will convert over $15 millions of pursuits into production programs within our ground force opportunity pipeline.

Finally, in Photonics, we delivered our first prototype collimated binocular monitors for the stabilization of display images in dynamic environments. We anticipate this collimated technology will open up new opportunities for us into the armored vehicle market.

To sum up the environment in our Photonics business, we continue to deliver excellent financial results in our production programs and the technology demonstrators that have been fielded to position us for new production programs in the future are performing well.

We expect our track record for production and the new technology being demonstrated will generate fund development programs for our next generation sensors and position us favorably in important long-range programs. So on total, 2016 continues to be a pivotal year for our company.

In our Thin-Film Equipment business, new orders have now surpassed $60 million, including the last Vertex order, which is a level of new order activity that we haven’t seen since 2010. Importantly, these bookings include orders for each of our product platforms and into each of the end markets we currently serve.

Over the last several quarters, I’ve been discussing not only our progress in diversifying our equipment business, but the unique cash and revenue profiles that selling new products into new markets bring, specifically the need for customer factory acceptance to recognize revenue on the income statement, while the majority of the cash is invoiced at shipment.

In the fourth quarter, we will have over $27 million of equipment in the field, which require customer acceptance for revenue recognition. Some of these may or may not record as revenue this year, depending on customer sign-off timing, which leads to the range of our Q4 guidance.

All that being said, and consistent to what we’ve communicated all year, we expect our 2016 revenues to grow from 2015 levels, as much as 10%. Finally, while being pre-mature to provide the outlook for next year I will wrap up my prepared remarks by saying this.

Given the momentum we have build in our business this year, we are currently on a path to profitability for 2017. I will now turn the call over to Jim to discuss our third quarter results and provide guidance for the rest of the fiscal year.

Jim?.

Thank you Wendell. Consolidated third quarter revenues totalled $22.6 million at the high end of our guidance range. Thin-Film Equipment revenue totaled $14.3 million including two 200 Lean hard drive systems and one solar ion implant R&D tool, plus upgrades, spares and field service.

Photonics revenue of $8.3 million included $6.7 million as a product revenues and $1.6 million of contract research and development revenues. Q3 consolidated gross margin was $8.5 million or 37.7 % above guidance with favorable contributions from both business units.

Thin-Film Equipment gross margin was 32.4 %, slightly down from the second quarter and up from the third quarter of last year. The decrease from Q2 was primarily due to change in product mix, the system shipments versus higher margin upgrades, offset inpart by improved factory absorption.

The year-over-year improvement was primarily due to higher revenue, including three system shipments and improved factory absorption. Photonics gross margin was 46.9 %, slightly higher than last quarter and up from the third quarter of last year. And was above our long-term model for this business.

The high gross margin in Q2 was due to continued favorable mix of product revenue, as well as favorable sensor yields and lower inventory reserves in the quarter. Q3 R&D and SG&A expenses were $8.8 million, just below our guidance range.

Our Q3 net loss was $0.5 million, or $0.02 per share, above our guidance range of a loss $0.04 to $0.11 cents per share, driven by better margins and lower OpEx. Our backlog was $72.9 million at quarter end.

Thin-Film Equipment backlog of $49.2 million included four 200 Lean HDD systems, three Vertex display cover glass coating systems, one MATRIX solar PVD system, one MATRIX solar implant system and two ENERGi solar implant systems. Backlog in our Photonics business was $23.7 million.

We ended the quarter with cash and investments, including restricted cash, of $42.9 million, equivalent to approximately $2.05 per share based on 20.9 million shares at quarter-end. Q3 Capital expenditures were $496,000 and depreciation and amortization was $1.1 million for the quarter. Turning to guidance for the fourth quarter of 2016.

We are projecting consolidated Q4 revenues to be between $27 million and $32 million. Within this range, we expect fourth quarter gross margin to be between 37% and 38%. Operating expenses are expected to be around $9.5 million. We expect about $200,000 in tax expense, associated with foreign income.

For Q4, we are projecting a profit in the range of $0.01 to $0.11 per share, based on an estimate of 21.4 million diluted shares. Given our Q4 guidance, we expect full-year revenues will be in the range of $78 million to $83 million. Consistent with our previous guidance that revenues would grow, up to 10% from 2015.

At these revenue levels, we expect gross margins in the range of 36% to 37%, with operating expenses of around $38.5 million for the year. We believe we can deliver positive cash flow from operations in 2016 and our objective is to achieve a net increase in our cash balance in 2016. This completes the formal part of our presentation.

Operator, we are ready for questions. .

[Operator Instructions] Our first question or comment comes from the line of Craig Ellis from B. Riley. Your line is open..

Thanks for taking the question. I was hopping to follow-up on James’ recent comments on the outlook.

Guys can you help us just with some color on the gives and takes issue, look at the top line growing $7 million sequentially into the fourth quarter?.

Sure, I can answer the question. So first of all, at a range of $27million to $32 million, that will be the highest revenue in a vaccine in four and half years, included in that range, as Wendell pointed out there will be $27 million of shipments outstanding that will require customer acceptance.

One of those is Wendell mentioned was the MATRIX PVD system that we actually recognized revenue in October. The balance will be our best expectation of where we think we can get acceptance from customers, which gives us the range of $27 million to $32 million. .

Okay, that’s helpful. And then going down to the operating expense line, were there any one timers that accounted for the significant decrease in the third quarter.

And secondly, what accounts for the reverse on the increased back in the fourth quarter of about 10% sequentially?.

There were really no one timers, but we did expect to have a few hundred thousand dollars that we would spend in Q3, which moved over to Q4. But other than that there was nothing that was really abnormal that happened in either Q3 or Q4 other than the few hundred thousand dollars that shifted from Q3 to Q..

Okay, so just some timing items, that’s understandable.

And then lastly encouraging to see that potential application set for the display cover glass start to broaden out, but can you provide more color on which applications you think would be most logical for early adoption and when you think adoption might occur?.

In general, we’ve discussed that we believe that our oDLC has a scratch protection solution, it has multiple applications. And I would probably point best to Truly which is a customer that we can discuss, because we are co-marketing together this function that they already internally have their wearable that they use, that’s the Truly watch.

And truly also announced that they are putting protective covers on wearables, as well for the polar watch. And then they announced their King Kong glass, I think, a couple of months ago, publicly and they are quoting that they will be on high-end phones starting in this quarter. So there is a mix.

I know it is also applicable when you look at like point of sales applications, auto infotainment, we think it’s a broad based coding and go fundamentally across the gamut of display covered glass or panels are there being out there today..

That’s helpful, Wendell. And then the last one before I hop back in the queue, it’s the second consecutive quarter of backlog that I’ve seen $70 million. So congratulations for the team on that.

Is that a level that the team believes would be sustainable or how should we look at the trajectory of backlog now that we’re at that level of intensity?.

Yes and without guiding into next year, I think what you can take away from that is that over the last couple of years we’ve been in a process of repositioning our Thin-Film Equipment business and that starts up with the technology development.

But then it moves to getting initial significant cornerstone customers to take in R&D and the initial tools. And what we are seeing at least in the truly case for sure is now that’s transitioning into volume production, where they added an additional three systems which we want to be shipped and we’re building the other two right now.

So we’re in that process and certainly as we look with the momentum that we’ve build the year, and to my comments, I think, we are on a really good path with these programs and will just have to let everything play out as we moved through the next couple of quarters..

Thanks guys, good luck..

Thank you..

Thank you, Craig..

Thank you. Our next question have come in, comes from the line Mark Miller from Benchmark Company. Your line is now open..

Good afternoon.

You indicated that the – you are sampling the VERTEX coder to five different sites, I’m just wondering if you can give us any updates on how it’s gone outside of Truly?.

Yes, I think may be I will take a moment to the kind of set what I can and cannot I talk about. In general, if you look historically Intevac, we very rarely will discuss different customers or different applications. That’s pretty consistent with our practice and what is required by our customers.

We had a very unique situation with Truly where we went to and had an agreement to co-market the feature, and work together and publically talk about each other and where we’re driving the program itself. So to answer your question, it really needs to be the end customers.

If you are talking about the display cover guys, what I will say is that, we’ve sampled, we’ve been sampling now for quite some time. And I think everyone is aware of what we’ve doing and monitoring our progress with Truly..

You talked about the solar markets become more challenging, is that because of policy uncertainty in China, Japan and United Kingdom, seen producing some slowing next year from a record year this year?.

Yes, I think, when I look at that certainly about the middle of this year, I think China had came out, and I forgot the exact gigawatts of installed, they were going to fund, but it was basically, they put a cap on it, which was a gigawatt number that had already been shipped mid-year.

So that created a huge demand gap, and that was coupled with capacity additions that had went on in the previous 12 months. So kind of put it all in the perfect storms, we moved into the second quarter of this year.

So yes certainly over capacity for commodity type solar panels is where that industry is being impacted and we’re seeing dramatic price drops, as well to try to move inventory and keep those factories running. So I think we’re going to have a period here of a couple of quarters, where we got to get things back into balance.

That being said, we are focused specifically on N-type solar build outs, which at some level, somewhat immune, because that’s not necessarily in all applications competing with commodity in multi crystal and solar, specifically in space constrained installations. So we’ll continue to monitor that.

And as well as the activity we have with our energy implanter, which is actually a P-type but a different cell and higher efficiency cells. So that’s really, where we continue to focus, where our technology can bring benefit and enable lower cost and higher efficiency devices..

One last question, before I have to jump on another call, N-type of sales, I mean the projections are for around 30% of all sales by 2020.

Next year, 5% to 10% will be in that range for all sales produced?.

Yes, I think mostly look at the one big U.S. player that’s N-type and you can kind of extrapolate what their shipments are pretty close to those percentages of the overall market. .

Thank you. .

Thanks Mark. .

Thank you, Mark..

Thank you, our next question or comment comes from the line of Mark Jordan from Noble Financial. Your line is open..

Thank you. Question for – what is the size of backlog in Thin-Film sector that you would expect to carry into 2017? Obviously you have a $5 million range in the fourth quarter for revenue that is driven by Thin-Film acceptance.

But if you have basically, I assume what $50 million of Thin-Film $49 million, of Thin-Film backlog at the start of the quarter, you’ve booked one more, say $3 million tool.

And then shipments you have, what do you have again, going into the year in terms of backlog?.

Yes, it’s a tough question for me to answer right now. But what I can say is we discussed on the call that certainly the implanter for solar, we discussed we expect that one to ship this quarter, probably late this quarter and revenue in 2017. Also the order we announced today also would be a 2017 event.

And then we really have a number of these tools in backlog. If you put aside the 200 Leans, which were revenue at shipment, that are really up in the air at this point.

They are in the field or about to go into the field, and it’s just going to depend on progress, timing at customers’ factories, are there facilities ready in time and whether they would move into 2016 or 2017 we’re going to have to wait..

Okay.

Want those comments about the goal to be breakeven or better in 2017, given the momentum that you have, how much incremental thin-film orders do you need to achieve that’s to achieve a break-even earnings level?.

Jim..

Yes, I think, we are necessarily looking at it on an incremental quarter basis, it certainly depends on the mix between Photonics and Thin-Film Equipment, And then it also depends on the mix of the makeup of the different equipment within Thin-Film Equipment. We normally said some more around $100 million or less is where we breakeven.

Given, give or take kind of the way we are spending money and the way the margins are coming in right now. So I don’t have an orders number per se, but I think, we’ve consistently said somewhere plus or minus $100 million is what we’ve considered to be breakeven, given a sensible mix..

Okay, final question from me the evaluations are going on at Ft. Benning relative to with soldier vision systems. When do you think, will there be this efficient point by the army to move to prototype development..

That particular program, that’s basically ENVG4, that were being looked at and we’re doing demonstrations for. I think that a very long range program, but it’s the biggest program that’s out there. We would expect to see funded development, program development, money coming in probably the earliest would be mid end 2017.

Number one to start funding or continue to fund or next generation sensors which will be key for that particular program, as well as some variety of prototypes to be used in demonstrating and get the feedback on..

Okay, thank you..

Thank you..

Mark, thank you..

Thank you. Our next question come in, comes from the line of Brian Alger from ROTH Capital Partners. Your line is open..

Good afternoon guys. Great quarter..

Good afternoon..

Nice to have the progress report continue to move in the right direction. Just following-up on the Photonics side of things, we’re just picking a lot there, army, what about the navy with the 2K x 2K design share, what’s the timeframe for that sort of an evaluation to be completed..

We’ve gone to one around, we took – we had funded development that we are using right now we’re doing algorithm improvements things like that. That particular program seems to have pretty good momentum. So again, we’re looking forward funding vehicles for our next-generation of ISIE4000 the 2K 2K.

We think that’s pretty near term and again it would be prototype demonstrators that would be in the near-term.

But I would say, overall over the last couple of years, or at least since I’ve been with the company, certainly the mood about the availability of funding for these technology programs seems to be much improved, as move past the elections and into 2015.

And that is kind of the general sentiment I got when I was in Washington, a couple of weeks ago at USA..

Great. And just a clarification, you mentioned that the current shipment rate for the F-35s was roughly 35 cameras a month and that was going to ramp. But then I think, I subsequently heard that you are also shipping ISIE11 as replacements.

Are all of the new cameras, if we do ramp to 50 per month, are all of those ISIE11?.

Yes, yes all of those are ISIE11 the types 11 margin that were shipping to convert the Gen 2 helmets to Gen 3 are incremental along that and they kind of feather in. .

Okay, great, excellent. And then you described the VERTEX opportunity. And then you discussed the VERTEX opportunity as being the biggest Thin-Film opportunity at least for the near-term. Is that just simply because the end market is so large or is that because you have line of sight on diverse group of customers..

Well, I think it’s – I would say it’s two-pronged. I think number one, it’s a big market, there’s clearly in our view a need for this feature.

And the progress that we’ve been making, as far as getting out to the market as you can imagine for us to basically come into the market with a new feature for display cover panels, rather than the next-generation of equipment to do something, as someone is already doing.

It was a massive undertaking for us to not only develop the equipment, develop the technology in the film stack, but also promote it and move it into demand from end market. So I think when we look at those combinations together and where our progress is, where the industry is, it leads us to those statements.

That’s the most significant near-term opportunity with different initiatives we currently have talked about publicly. .

Okay. And I think that’s pretty impressive in light of the progress you guys have seen over the past couple of quarters at least with the lean orders kind of coming in over the transom, albeit technology buys.

I’m curious in light of some of the commentary that’s coming out from those customers being close to full capacity, are you seeing any change in fostering from those customers with regards to moving from technology buys to capacity buys at this point..

Not, at this point. I think they are running very hard right now, I think that where I read through the transcripts, I think, both of the high drive makers talked about that. But I think, we’re really looking at, what is the Exabyte shipment demand forecasts for hard drive storage looking at the growth rate in the near line enterprise shipment.

And we are looking at those kind of in the face of a declining hard drive unit environment and that we still see that projected out of few years, it certainly as inside of our five-year window as look to project where we think things will be depending on where the different trends take us.

But it’s not an immediate need based on current capacity utilization..

And then the near-term obviously we still have the occasional technology buys as well as the upgrades that you guys had in shipping?.

Yes, yes..

Right, great. Guys you sounded pretty good, keep up the good work, thank you..

Thanks Brian..

Thank you. Our next question have come in, comes from the line of Nehal Chokshi from Maxim Group. Your line is open..

Thank you. By the way congratulations on the strong results. So I think you referred to truly the Tier 1 OEM. Can you give us as sense of say whether there is new Tier 1 OEM covered glasses bigger or smaller customer in Truly..

I think right now I really can’t answer those types of question. I’ll try to give a little bit of model log on where we stand as far as really talking about the different customers. Truly was kind of an exception for us.

But we again we look at, when we say Tier 1 customer we believe that they are known players with the amount of capital to do the type of capacity expansion you’d see with adding oDLC..

Okay, may be just as a bit of education [indiscernible] Tier 1 couple of vast players are there?.

Depending on how you rank then is four or five..

Okay, great.

And those customers once they have accepted the unit which will be in 1H17 do they already have orders for volume orders or is there plan to sample to the customers? Can you give some clarity on there?.

At this point really can’t talk about whether adding their sales process beyond that we did get a new customer, we think that’s not only the fact that the order is significant and material in our revenue stream. But also the fact that it’s a new customer rather than repeat of the material parts that we can really talk about..

Absolutely, and I do think that investors should have increase in confidence in the covered glass opportunity, I think you guys have sized at 300 million over a five-year period. I don’t think you guys have a reaffirmed that in a while maybe that’s a moving target.

Can you talk about the sizing again, real quickly?.

Yes, those are the numbers that we put out there, we kind of look at a 25% adoption rate that we are driving to, that we drive those type of numbers.

But we are in the process of reassessing all of the markets, as we move forward through the balance of this year, particularly I mentioned, we are looking at the solar and we’ll continue to look at that. And at what point our progress has changed our outlook and hopefully that’s to the upside and we’ll put that in our materials and communicate them..

Okay, my last question is that, when you break into a new market, you have the sort of pile production stages that you are in and then you get to a volume production stage. And then often you have a tailing off of that, as you saturate there.

Is that maybe one way that we should be thinking about how to, I guess shape the profile of this opportunity?.

Well, I think it’s – I would not put the tailing off part of it, because when we look at the overall covered glass opportunity, I mean it’s a vast market that could use our protective coatings.

So certainly, you are absolutely correct, there is an initial R&D sampling, testing, a period of going out with those samples to end customers to gauge demand from their customers and then really bringing in the first tool to do its initial work.

And then once you’ve secured your larger customers that are going to require additional tools and volume orders come in. But in my view, in a perfect world, there is an acceleration point, as the technology gets out in the market is adopted where more people would come in and use this functionality.

So I think it tail off is quite a ways out, if we’re….

Got it, okay thank you..

Thanks Nehal..

Nehal thank you..

[Operator Instructions] Our next question or comment comes from the line of [indiscernible] your line is open. .

Hi, [indiscernible] how are you?.

Good afternoon. .

Congratulations on the progress..

Thank you..

Can you just reiterate what you’ve said about truly actually going into production on major model.

Is that mean that they’re actually – those model are actually hitting the shelves or they have hit the shelves already in terms of I don’t know if it’s tier 1 branded, especially in China it might be harder to differentiate whether that’s tier 1 branded for me personally.

But are they tier 1 cellphones that are actually shipping right now are on the shelves or in customers hands already that are using your technology on the covered glass virtually?.

Well, again, the actual – their end customers they need to make that type of announcement. What I can say though is that we’re shipping capacity tools in, the tool that they currently have is in full production and very candidly I have the phone in my office, a sample of it.

So, I am hopeful, they will come out and start talking about that soon, but what they did the quote that I put in the script is exactly what they had said in their IR materials a few months ago..

But when are those phones actually – or have they hit the shelves, what’s truly indicated?.

They indicated in the quotes was shipping in the current quarter which was last quarter..

Okay..

I think one thing you should probably keep in mind is that when a covered glass maker, the touch screen maker that’s putting a whole assembly gather a shipping, that happens prior to the actual cellphone maker building inventory and put them on the market..

Got it, which means the end cellphones put necessary show up for another number weeks or months?.

Yes, again, I hate to make any assumption there, but I think it’s soon..

Okay.

In terms of their multi unit orders, can we kind of assume that that’s the first machine is running not only well, but it’s being utilized either fully or enough that they’re giving the confidence, but I think delivering on the other parts of the order?.

Yes, that’s the good assumption Rich [ph], if you’re going to buy capacity tools, you certainly have to have either a forecast orders in hand that are going to over utilize the tool you have..

Okay, the follow up on the previously asked question in terms of the next tier 1 customer whether or not they are improved, going to go into production immediately with this tool, whatever you can tell us, but is it safe to say that they have it end-customer or multiple end-customers that are investing that they want to use this tool for, but they’ve got to go out in for listed customers..

I really can’t comment on that given the contrast we have in place on this particular sale….

Okay..

But to one of the previous questions, the pattern that we have seen over time is the first tools are really the ones, they are going to do the in-house qualifications whether or not they have customers in that I really can’t say..

Can you tell maybe you can just probably some of the same questions but I’ll make it broaden the question a little bit, can you tell based on your in-house work being done on the settlements, can you tell whether the drivers here for your first two customers has been actual end customers on the cell phones, whether its been the glass guys trying to meet the market..

If we look at all the tools that we sold previously we have two of them out there that we sold in prior to this customer wise prior to this and I think it’s a mix, depending on the size of the company, one may have a strategy that this is a way to take market share another may be that this is are going to add additional value to product itself, so I think it’s kind of a mixed bag..

But you’re seeing more requests if you look over the last three to six months that you’re seeing more requests on the actual end customer OEM to sending some samples and show me what you can do?.

Yes, we go up and down the supply chain as far as we are sampling, I wouldn’t say that there is anything that has changed over the last few quarters as far as that, we continue to put out samples and we are fundamentally lot of work we thoroughly working with end customers so there is understanding the requirements, whatever modifications we need to make to the film as an example in point of sales, optical clarity is not the big driver, its really the ability so we worked to change those process recipes to fit those requirements..

Since you got recipes do you have recipes that are good on whether it’s a white case never looking case or a black, that will take some you handle them all at this point with that as factory clarity flash matching the case..

Yes, that’s actually a very insightful question, yes, we do – we worked with all the different cases and whether what – colors of different cases and designs and we’ve also been working on 2D, and 3D applications with the glasses wrapping around and they are different recipes in particular anything that has a white vessel is very sensitive to color where as black is not so you can tune that recipe and make it a bit more durable in a black configuration than you could on in white..

Okay, one last two quick questions without any commitment from any of them per se but have you done sampling for tier 1 cell phone guys to show them what you could do?.

I would say, to answer that question that I would believe that most of the cell phone markers have seen sample of our films on cover glass at this point..

Have you seen any of them that will take it to the next level, where they want you to show them what you can do with doing better match-up for some custom, something more customized on the film side, where it shows a higher level of interest albeit no commitment..

Again I can only answer that in general terms, but we certainly have worked on those type of issues around different colors and optimizing films for different companies bezels and cell phone designs..

Okay and just I may just kind of two quickies, in terms of beyond cell phones and point of sales any interest on tablet side of the wheel or people playing around at this point?.

We certainly have done a number of tablets, I would say the lion share of the work though is in smaller applications..

Okay and the last question, the backlog is that all shippable at least next year, I guarantee another revenue recognition that is shippable next year.

And anything do the spares included in backlog or that sales and services separate from backlog?.

The backlog certainly will be shippable, whatever we don’t ship in Q4 is shippable next year and spare service we prepare to the extent that we have a formal order, as in backlog..

Okay, thanks very much. .

Alright thanks [indiscernible]..

Thank you our next question or comment comes from the line of Greg Weaver from Invicta, your line is open..

Hi, nice job on the quarter, just a follow-up the Orange question there would you, why don’t you consider the sale more of a push or pull for the VERTEX tool at this point?.

I would say depending on where you are absolutely working on a number of different things, but we are seeing some pull on this one I would say a year and half ago, there was a push, we are seeing a little bit of pull here..

Okay, good.

And just a little clarification on the fourth quarter guide here, in the $27 million number is that MATRIX DVD in that number?.

Yes, absolutely, since we recognized it in October it would be in the Q4 in that number..

Yes. .

So most of the range than it is at VERTEX?.

No like we said, there is a number of tools that have been shipped, so certainly VERTEX will be a big part of that range absolutely..

We also have the energy tools that are out there as well..

Correct.

And Truly has how many tools on site today?.

Two, and two more coming..

Great, the original plus the fresh one and then you got two more, you’re making that you’re going to deliver in this quarter..

Yes..

Okay, so the assumption is that there are not going to use the one tool they have on site this quarter..

And, we will be working through the qualification in sign-off, we typically don’t ship and revenue customer signed off tool in the same quarter, however, we’ve seen some quick sign-offs specifically with Truly.

That is one of the reasons that’s all in the range is discuss, normally we wouldn’t see that, but we certainly have some track record and depending on what the emergency level, and their order commitments are once we get the tool fully set-up and running, we will have to wait and see what happens with that one..

Got it, okay. And just one more clarification point on the Photonics business, you mentioned about the ISIE11 upgrades, that’s an addition to this ramp up on the Joint Strike Fighter from 35 to 50 units amongst the ISIE10 to ISIE11 upgrade that is incremental to the 50..

They will be blended into those numbers, so we are anticipating a runway just slightly over 50, but that will go up and down, depending on circumstances and blended into that number over the next year or so is going to be those upgrades.

As they convert Gen 2 to Gen 3 with the helmet-mounted displays, and some of that scheduled, and some of that is attritioned so we have to, its hard to predict..

I see, okay. Right, that’s it for me, appreciate it, thank you..

Thanks, Greg..

Thank you Greg..

Thank you. There are no further questions at this time. I'd now turn the call back over to Mr. Blonigan..

Thank you. Before I sign-off I like to take a moment of thank our employees for their tireless efforts and dedication, as well as our customers for their ongoing business and partnerships. With that thank you for joining us today, and we look forward to updating you again during our Q4 call in February. 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..