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

Nehal Chokshi - Maxim Group Brian Alger - ROTH Capital Partner Rich Kugele - Needham & Company.

Good day, and welcome to Intevac's Fourth Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we'll 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, February 1st, 2017.

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

Thank you good afternoon everyone. Thank you for joining us today to discuss Intevac’s financial results for the fiscal fourth quarter and full year 2016, which ended on December 31st. In addition to discussing the company's recent results, we will provide financial guidance for the first quarter of 2017 and our current outlook for the full year 2017.

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 a review of each of our businesses and our outlook going forward, then Jim will review fourth quarter results and provide first quarter guidance and discuss our 2017 outlook, before turning the call over to Q&A.

I'd like to remind everyone that today's conference call contains certain forward-looking statements including, but not limited to statements regarding financial results for the company's most recently completed fiscal quarter and year, which remains subject to adjustment in connection with the preparation of our Form 10-K, as well as comments regarding future events and projections about the future performance of Intevac.

These forward-looking statements are based upon our current expectations and actual results could differ materially as a result of various risks and uncertainties relating to these comments and other risk factors discussed in documents filed by us with the Securities and Exchange Commission, including our annual report on Form 10-K and quarterly reports on Form 10-Q.

The contents of this February 1st 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'll now turn the call over to Wendell..

Thanks Claire, and good afternoon. Today we reported Q4 revenues of $29 million near the midpoint of our guidance with gross margins, operating profitability, and earnings per share all exceeding guidance.

We had a significant number of systems either in-built, installation, or progressing through sign-off in Q4 and ultimately, we ended the quarter recognizing revenue on two 200 Leans and one MATRIX PVD system. Out of all the moving pieces in our revenue guidance, there was a possibility of a fourth 200 Lean shipping in 2016.

During Q4, our customer accelerated their overall technology upgrade plans, which resulted in both an additional two system order placed in November and the shipment of the fourth 200 in December. Additionally, we experienced increased activity in upgrades near the end of the year providing outside in our HDD business.

The additional tool and upgrades resulted in modest growth in our hard drive business for the year, slightly better than expected. Revenues in our Thin-Film Equipment growth initiatives increased meaningfully in 2016, with significant backlog on the books heading into 2017.

2016 was a pivotal year for Intevac with multiple systems orders in our new equipment growth initiatives, marking an inflection point in our company's growth trajectory. To summarize the highlights for the year, we launched VERTEX, oDLC, our optical Diamond-Like Carbon protective coating solution into the display cover panel market.

We revenue our first VERTEX and booked our first multi-system capacity order for volume production mobile phones and watches. We won second Tier 1 customer for the VERTEX and shipped all the VERTEX orders by the end of the year.

We won orders for eight 200 Leans, the highest level since 2010, demonstrating the continued need for advanced technology investments in the hard drive industry. We revenue to solar systems and ended the year with three more in backlog, helping to bring total Thin-Film Equipment backlog of $46 million, the fourth straight year of backlog growth.

In our Photonics business, we develop demonstrators for our latest Digital Night-Vision technology and after successful demonstrations with both the Army and Navy, realized significant expansion of our revenue opportunity pipeline.

And financially, the details of which Jim will go over shortly, we accomplished all of our objectives for 2016; revenue growth of up to 10%, improvement in gross margin, positive cash flow from operations, and a net increase in our cash balance.

Each of these highlighted accomplishments set the stage for the continued positive momentum of the company, which we have been relentlessly building over the last three years. Now for an update on each of our businesses.

In our Thin-Film Equipment business, the most exciting driver of significant revenue growth over the next year or two is the VERTEX, which deposits our optical Diamond-Like Carbon or oDLC protective coatings on display covered panels.

The production capacity order booked in 2016 was an important milestone for this business and winning the second Tier 1 customer for the VERTEX later in the year was equally significant.

It's too early to speculate on the extent of market adoption that we will be able to achieve at these first VERTEX customers, but we know one is in production and both customers are highly motivated to achieve success using our oDLC coatings and are evaluating our films for multiple application.

Our first customer Truly added volume oDLC manufacturing capacity to their display covered glass operation and we estimate they will have an annual oDLC coating capacity online to produce approximately 24 million five-inch smart phone covers before the middle of 2017.

In September of 2016, Truly the end marketing its Kingkong cover incorporating our oDLC on 2.5 and 3-D cover glass. Their renounced product launches incorporating our films, include "high end models of world-class smartphone brands", which began shipping in the current quarter, as well as protective coatings on solar watches.

Our second customer, which we announced on our Q3 call, is a Tier 1 company currently evaluating our films and our tool for multiple applications. Combined the four VERTEX tools ordered in 2016 are all part of our six-year record backlog exiting the year.

All four tools shipped in 2016 and were in varying states in the build the revenue process at year-end. I'm happy to report today that we've achieved the required customer acceptances within 90 days of shipment and revenue to all four tools in January.

This is significant, not only by the fact that they were installing qualified quickly, but we completed the last of our perfunctory signoff's for VERTEX. This means that we will revenue similar configured VERTEX tools at shipment going forward.

Building on the momentum of these four systems, our in-house coating 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 additional new orders for VERTEX.

Based on the success in new tool orders in 2016 and the ongoing sampling activity in-house, we have increasing confidence that 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.

Based solely on VERTEX systems and backlog, we will at least quadruple our VERTEX revenue this year versus 2016. And as we look further out into 2017, we see potential new orders shipping inside of this year as well.

We believe our five-year revenue opportunity for the VERTEX is approximately $500 million based on 25% adoption in the smartphone and tablet covered glass application alone with additional opportunities on cell phones, wearable, auto infotainment and more.

Beneath this exciting growth opportunity for the VERTEX is a strengthening base business in our core HDD market. Many who follow the industry were surprised to see an additional two-system order for 200 Leans booked in Q4, bringing the total orders to eight 200 Leans in 2016.

These tool sales demonstrate the strategic technology improvements required for our customers' product roadmaps, our closed partnerships with our HDD customers and the technology leadership of our systems and products. Our 2016 system order activity for 200 Leans led to better-than-expected sales growth over 2015.

The four systems currently in backlog support our view that 2017 will be a similar year in our HDD business. As a reminder, 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 with both PCs and hard drive units surprised into the upside, showing encouraging evidence of stabilization. We believe media shipments had their strongest second half growth in the last seven years and also grew year year-over-year.

The second half of 2016 showed the most significant growth over the first half in all three categories; PCs, hard drive, media units that we have seen in at least seven years, all were up double-digits. Media units were unique and they actually showed year-over-year growth in both Q3 and Q4.

The TIE ratio, or average number of media disks per drive, has also exceeded expectation, exiting the year over two by our estimation.

In an HDD unit volume environment of 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 two and a half to three disks per drive.

The growth segment in overall HDD unit shipments continues to be the high capacity near-line segment, which is positive for media units given that the number of disks in each drive is significant and is forecast to grow from four to over seven disks per drive by 2020.

As we look into the near future, our HDD business is profitable, relatively stable, and is forecasted to drive $200 million to $300 million in total revenues over the next five years, depending on the timing of return to capacity system orders.

In the solar market, which has continued to be challenged on the last several quarters, we made significant progress in 2016 as we revenued in our MATRIX PVD system with a new customer in advanced N-type solar cell technology, as well as progressed with our joint R&D program on MATRIX for ion implantation.

We believe that many customers have been reassessing their N-type strategies and are focusing on upgrading existing P-type lines for backside passivation.

Given that some high-efficiency N-type capacity was announced to becoming offline, we expect the market for our solar products focused on high-efficiency N-type solar cells will be soft over the next year and until overall weakness in solar module pricing is stabilized.

In spite of the current challenging environment in the solar industry, we announced to ENERGi N-type implant systems in 2016 for a new solar cell technology utilizing phosphorus ion implant doping for monocrystalline P-type cells.

These tools are progressing through the installation and qualification process, albeit at a slower pace than we anticipated as we work through incremental system upgrades to meet customer specifications.

While there are many moving parts in the solar business, we continue to monitor the environment for N-type solar investments and have left our five-year solar revenue outlook unchanged for now at approximately $175 million.

To sum up the environment in our Thin-Film Equipment business, 2016 marked an inflection point in terms of new tool orders in both our core market and new growth initiatives, which will drive the future growth of our company most notably with the traction of the VERTEX oDLC systems. Moving to Photonics.

We continue to achieve strong financial performance in our Photonics business, which again saw profitability above expectations. Based on all the new program activity in 2016 and what we are working on the U.S.

and foreign militaries, as well as, our customers for dismounted soldiers systems, we have expanded our revenue opportunity pipeline to over $1.4 billion over the life of the programs we are engaged with and are pursuing.

I would encourage you to review our latest version of our investor presentation, which details the opportunity for digital night-vision cameras, integrated night-vision systems, and ground force applications. We have several highlights for the quarter in our Photonics business. First, we're pleased to report that both the U.S.

Navy and Army are engaged in funding discussions for the development of our next-generation night-vision sensor, the ISIE19. In previous call that discussed both the ISIE12 and ISIE14 would be our new sensors as we moved into the future.

Now, after getting both branches of the service together, we have been able to merge the requirements and settle in on a single new sensor design to meet everyone's needs of the ISIE19.

After funding the new sensor development internally early in 2016 and seeing a pause in contract R&D revenues during the year, we are optimistic that the engagement with the two branches of the military for this development activity will generate the required funding going forward.

On each call in 2016, I have been discussing two new technology demonstrators that we have developed and have been demonstrating in the second half of the year. This activity has been a great success for the future trajectory of our Photonics business.

The successful demonstrations and the positive reactions to our latest technology enhancements have helped grow our overall revenue opportunity pipeline.

Our 2K x 2K high-resolution digital goggle developed for navigators, EVA or enhanced visual acuity program was well-received and has not only generated an increase in the potential of the overall program itself, but will also serve as a technology upgrade socket for the next-generation ISIE19 sensor.

Additionally, we now see opportunities for the digital binoculars in aircraft as they currently fly with analog night-vision goggles.

Our Digital Night-Vision Monocular demonstrator, which is targeted for the ground forced ENVG4 or fourth-generation Enhanced Night-Vision Goggle program was also well-received and its advanced capability generated interest from the U.S.

and foreign special operations forces for a binocular version and also demand for us to productize the demonstrator for unique applications prior to the introduction of the ISIE19 sensor, which will be the core technology for the ENVG4 application.

Rounding out the increase in our opportunity pipeline, our additional camera systems for Apache and LIVAR, an increase in Joint Strike Fighter volumes increases in opportunities with BAE Striker II Gen 5 helmet-mounted displays and an increase in daytime systems using our optics design.

Also in our product sales, we were awarded the sixth option for Apache foreign military sales and additional production awards for both Joint Strike Fighter and LIVAR.

To sum-up of our progress in Photonics for 2016, we made great strides toward securing government funding for our next-generation sensor and make significant progress in expanding our revenue opportunity pipeline. While 2016 Photonics revenues not only decreased from 2015, product revenues were up.

And with the return of contract R&D spending and additional project production awards, we believe 2017 will be a similar year for Photonics, with the growth potential dependent on funded development levels and timing. So, in summary, 2016 was an outstanding year for our company.

In our Thin-Film Equipment business, we achieved six-year record highs in orders and backlog and have built the foundation for significant revenue growth outside our core HDD business.

We expanded the revenue opportunity pipeline for our Photonics business by investing profits to develop technology demonstrators that showcase the advantages of digital night -- that Digital Night-Vision brings and put that technology into the hands of the user.

On our last call, I commented that given the momentum we were building in our businesses, we were on the path to profitability for 2017. In the fourth quarter, we continued further down that path.

With both the hard drive and Photonics business forecast to generate similar revenues compared to 2016, we would achieve a minimum of 15% revenue growth in 2017 by recognizing the revenue currently in our Equipment backlog.

Given our current engagements with both new and existing [Indiscernible] customers, we are forecasting revenue growth of at least 25% and a return to profitability in 2017. As we move further into the year, we will have greater visibility on potential upside to our current outlook and will communicate accordingly.

I will now turn the call over to Jim to discuss our fourth quarter results, provide guidance for the first quarter, and to discuss the outlook for this year.

Jim?.

Thank you, Wendell. First I will reiterate a few highlights about our full-year financial performance. Revenue increased 7%, with significant growth in our new Thin-Film Equipment markets and better-than-expected sales to the hard drive market.

While Photonics revenues were similar to 2015, up by 2%, Photonics product revenues actually increased during the year and operating profitability increased to 17%. Gross margin improved 300 basis points. We kept SG&A nominally flat, while increasing our R&D investments by 16% and reduced our operating loss by 13% compared to 2015.

We generated $3.8 million in cash flow from operations and achieved a net increase in total cash and investments of $1.4 million during 2016. Now let me turn to the fourth quarter results. Consolidated fourth quarter revenues totaled $29 million, near the midpoint of our guidance.

Thin-Film Equipment revenue totaled $19.3 million and included two 200 Leans and one MATRIX PVD system along with upgrades, spares, and service. Photonics revenue of $9.7 million included $7.7 million of product revenues and $2 million of contract, research and development revenues.

Q4 consolidated gross margin was $11.9 million, or 41.1% above guidance with favorable contributions from both business units and more favorable mix in the Thin-Film Equipment business and favorable yields in Photonics, both helped margins exceed guidance.

Thin-Film Equipment gross margin was 38.9 %, up from the third quarter of this year and down slightly from the fourth quarter of last year. The improvement over last was primarily driven by a higher of higher margin upgrades.

The decline from the fourth quarter of last year was primarily driven by a higher mix of systems sales versus higher margin upgrades. Photonics gross margin was 45.5 %, slightly lower than last quarter and higher than the fourth quarter of last year.

The decline from the last quarter was primarily driven by lower margins on contract research and development revenues. The improvement, however, from the fourth quarter of last was primarily driven by higher margins on contract research and development.

Q4 R&D and SG&A expenses were $9 million, similar Q3 and below our guidance due to the timing engineering material purchases. Our Q4 net income was $2.8 million, or $0.13 per share, better than our guidance driven by better gross profit from both business units and lower-than-forecast Q4 operating expenses. Our backlog was $68.5 million at year end.

Thin-Film Equipment backlog of $46.3 million included four 200 Lean hard drive systems, four VERTEX display covered panel coating systems, one pilot MATRIX solar ion implant system, two ENERGi solar implant systems and non-systems backlog for our hard drive business.

The four VERTEX tools and the two ENERGi tools were installed in our customers' factories by year end. The four VERTEX tools revenue quarter-to-date, while the two ENERGi tools are still awaiting customer acceptance. The backlog in our Photonics business was $22.3 million. Now turning to the balance sheet.

We ended the year with cash and investments including restricted cash of $49.8 million, equivalent to approximately $2.38 per share based on 20.9 million shares at year-end.

Cash flow provided by operations was $6.8 million during the quarter and $3.8 million for the year, enabling us to achieve our objective of a net increase in our cash balance for the full year in 2016. Q4 capital expenditures were $838,000 and depreciation and amortization was $1.1 million for the quarter.

We did not repurchase any shares during 2016 and our total planned repurchases stand at $28.5 million. Our year-end cash balance for 2016 is in line with our minimum cash objectives of approximately $50 million of the balance sheet. Now, let me turn to the full year outlook for 2017.

In 2016, we made significant progress towards diversifying our Thin-Film Equipment product portfolio, which makes our revenue growth less dependent on new capacity systems in the hard drive market. Our Equipment backlog grew for the fourth straight year and new equipment orders for the year grew 76%, to the highest level since 2010.

We currently expect our hard drive and Photonics businesses to see similar levels of revenue in 2017 compared to 2016. Given these forecast and based on solely achieving revenue recognition on the year-end backlog in our new Thin-Film Equipment initiatives, 2017 revenues would likely increase by at least 15% over 2016.

Our current outlook is for revenue growth of at least 25% and achieving net profitability for the year. At this revenue level, we would expect gross margins in the range of 37% to 38% with operating expenses of between $37 million to $38 million for the year.

For Q1 specifically, we are projecting consolidated Q1 revenues to be between $28 million and $29 million. We expect first quarter gross margins to be between 37% and 38%.

Q1 operating expenses are expected to be between $9.7 million and $10 million, higher than our normalized level due to higher research and development spending, along with the typical seasonal increase. We expect minimal tax expense.

For Q1, we are projecting earnings per share in the range $0.03 to $0.05 per share based on an estimate of 22 million diluted shares outstanding. This completes the formal part of our presentation. Operator, we are ready for questions..

[Operator Instructions] And our first question comes from Nehal Chokshi with Maxim Group. Your line is now open..

Thank you and congratulations on a great 2016 and a fantastic outlook for 2017. In your Needham Presentation, you had said that you expected the production capacity at Truly to be 24 million and to be effective in mid-2017.

Does that still apply or did you revenue that even sooner than you had expected relative to what was stated in that Needham Presentation and can you just give some clarity around that?.

I think it's pretty much exactly the same. We're targeting in -- by the middle of the year, all that production capacity would be online and in production. Right now there's two systems in production, the other twos are in their install.

But as I discussed on the in prepared remarks, the fact that we got the perfunctory signoff done on VERTEX, the other tools that are in installation also revenue and as we move forward, they revenue at shipment..

Okay.

So, if you got the perfunctory signoff for all four tools now and they are already recognized and revenue, why are we looking at full capacity being realized by mid-2017 five months out from basically now? Can you help me understand that?.

It will be no later than that. I think that it will be most likely in the first quarter..

I see..

Let's hope that things will up [ph]..

Yes. And then in your prepared remarks, you said that your two vendors that have the VERTEX tool now, they are motivated demonstrate success with the oDLC tool, obviously, Truly already has and you're really referring to second OEM customer.

Can you discuss what the driver of that motivation is? Is it perhaps that they had some customer overlap and they are trying to compete for that same end customer?.

I think in more general terms what I mean by that statement is the -- both of these customers have purchase tools.

So, once you get to the point where they actually are going to buy the tool, you believe that you've got a solution to go out to market with and they are very motivated to get those tools up and running qualified and in some type of production. So, that's really what I mean by that motivation.

I mean there's times in Equipment business if you're just trying to introduce some new feature, people giveaway machines or just to do extended sampling, we're talking about new customers that have f actually purchased the equipment and are moving forward..

Understood. I'll cede [ph] the floor. Thank you..

Thanks Nehal..

And our next question comes from Brian Alger from ROTH. Your line is now open..

Good afternoon guys. Congratulations on a great year..

Thanks Brian..

Obviously, there's a bigger opportunity than coming down the pike here in the Photonics business than you guys said, obviously, -- by the extension of your TAM.

I'm curious as to the tenor and your engagement with the various departments here, if you think this is going to be realized in an acceleration in this calendar year or we really looking at something beyond this calendar year?.

Well, when we look at the outlook right now in 2017 as we move into this year, this could be a similar year for our Photonics business, but we think there's also some upside potential depending on funded R&D levels and timing.

I think what's very positive for us is that we've got both sides -- both branches of the military that are extremely interested and in discussions with us about having this next sensors, the ISIE19 funded in underdevelopment detail in some of these long-range programs that I talked about.

So, I think that, in itself, gives us some optimism about funding levels in 2017 for this technology, which in reality for the new sensor last year, we funded that internally from profits from the Photonics business for the first half and the program paused to some degree in the second half.

So, we're very optimistic that we've made some real progress in 2016 about getting that sensor funded, because it’s a big program..

So, I guess if we're going to have similar revenues, but a greater mix through funded R&D, I guess I would imply that the Photonics gross margin should be closer to where they finished the year versus where they finished the prior year?.

Jim, you want to answer that one?.

Yes, I think obviously the products margin on Photonics are little bit higher than they would be funded R&D.

So, I think we'll see for the year, you obviously have the -- gross margin will likely be down at Photonics, but keep in mind, so will their OpEx, because we internally funded more R&D in 2016 than we have typically seen and we are forecasting that in 2017, the government will fund more of that. So, we will take our OpEx [Indiscernible]..

Okay, got it. And then just coming back to the VERTEX, which frankly I'm much more excited about just because the numbers get silly big silly quick to the degree a major phone -- platform adopts it.

Given your involvement to-date with your current customers, the Truly and unnamed other Tier 1 here, is there an expectation on your part that there are major platforms evaluating the oDLC [ph]?.

As far as expectation that we have decent visibility of who is taking a look at it and certainly everybody that you can mention that is working on cell phones are certainly aware of what we're doing as you had some look at it at this point..

Well, I guess where I'm going is now that we've got true call and we've got revs here past January, it would seem that if someone were to decide to go ahead for -- call it a second half holiday production, they would probably need to place an order -- or because of the size of the orders for multiple tools within the not-too-distant future.

Is that right?.

In that particular scenario, that would be correct.

I think one thing we need to keep in mind as well as is as we move and look at a bigger end application that will drive a significant number of tools, we also have to have the running data on the tools that are in place because depending on how many units you're going to commit that's going to be a certain amount of yield, a certain amount of uptime, and a certain amount of validated running costs that need to be accumulated before you make those kind of decisions..

Okay.

But if it were to come in, what would it take lead-time, I know like with your Lean systems, you've said in the past that your lead-time can be accelerated to some degree because the spares business will not, can you pull-forward that normal lead-time to the degree you got a big high-volume order?.

Yes. And what we're working on internally is we certainly recognize that there could be some step function activity on this business that we won't have six months' worth of visibility possibly on.

So, internally, we've been working to pull the lead-times down from where they are right now as about five months and we -- objective is to get those under four and closer to three. So, we're working on that internally, but we certainly recognize that that's an important project that we need to tackle for this particular product line..

Great. Well, that's all I have. I appreciate guys. Nice job getting us up over the hump on the profitability and it's good to see flowing through the next -- into this year..

Thanks Brian..

Thanks Brian..

Our next question comes from Rich Kugele with Needham & Company. Your line is now open..

Thank you. Good afternoon..

Hey Rich..

Great to see the profitability return. I just wanted to ask a few questions. I guess first, Jim, on the R&D side, it looks like the R&D increased about 16% year-over-year in 2016, but you're forgetting more or less flat OpEx in 2017.

Is there anything that you need to do on the R&D side? Or have you basically have done it all?.

No, no, we'll still be spending money in R&D, there's no question about it on both sides of the business. But we accelerated some R&D in the first half in Photonics absent of government funding because we wanted the results that we've seen and we wanted to be able to show the demonstrators to the military..

And you don't feel like that you would need to do that in 2017 because the government is on board now?.

Not to the same level we did in 2016 and an obviously, we're going after that funding with the government..

And I think maybe -- Rich this is Wendell, just to expand on that a little bit. As we move into 2017, we certainly are going to continue to invest to bring out our next version of our Diamond-Like Carbon 2.0, so we've got activity that we're ramping on that -- in that particular area.

And then we have our standard product development processes that are moving in different markets that we're going to continue to develop and innovative here, but we're not finished.

So, we're going to continue that spend roughly at the rates that we have in 2016 and then we'll see how the year develops as far as what gets approved for additional resources through our product development processes..

Okay. Thank you for the clarification.

And then when it comes to just the outlook, if I wanted to parse out the pieces here, so HDD more or less flat, Photonics more or less flat, and then if the growth is coming from some these newer initiatives, are we talking about needing an extra five VERTEX systems or what are composition to get you to the more than 25% that you're talking about here in the guidance?.

Yes, we're going to set the floor -- this is Wendell, at 25%. We think it will be over 25% is what our comments are.

And depending on what the tool is, I mean it’s a mix of hard drive upgrades, 200 Leans, VERTEX, but realistically, you're looking at just a couple of systems and equipment to get us to that number and that's where we talk about upsides we moved to the year and we'll discuss that as we continue further..

Okay.

So, you don't need very much to exceed?.

Well, we certainly don't need very much to get to the up 25%, but obviously, we want to end 2017 backlog, so we would hope to get quite a bit orders in the year..

Okay.

Then just lastly, as you've been ramping your equipment shipments significantly, are there any tightness areas on components, anything supply chain-oriented that we should be aware of?.

I think that we are certainly following it very closely, especially as part of our lead-time reductions that we're looking at.

I think in general on the Equipment business as a whole, there is tightness in aluminum and machine chambers just because of the fact that I think you see semiconductor equipment as well as the LCD equipment installing for OLED, there is a lot of activity right now and a certain -- a finite [ph] amount of machinery that can machine that those chambers that large and availability of aluminum fillets at large.

So, we're taking account, we're taking proactive action anywhere that we see that could be tightness in the supply chain in order to meet our plans..

Excellent. Congrats again guys. Thanks.

Thanks Rich..

Thank you, Rich..

[Operator Instructions] I'm not showing any further questions at this time. I will now turn the call back over to Mr. Blonigan..

Thank you. As we now closed the chapter that was 2016, I would like to thank the hard-working and dedicated employees of Intevac, all around the world, for their tremendous effort and successful work last year. I also want to thank our customers for their continued business and appreciated partnerships.

Thank you all for joining us today and we look forward to updating you again during our Q1 call in May. Until then, so long..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may now disconnect. Everyone have a great day..