Claire McAdams - IR Wendell Blonigan - President and Chief Executive Officer James Moniz - Executive Vice President, Chief Financial Officer and Treasurer.

Mark Miller - Benchmark Company Nehal Chokshi - Maxim Group Peter Peng - B. Riley FBR.

Good day and welcome to the Intevac's Third Quarter 2018 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, October 29, 2018.

At this time, I would now 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 third quarter of 2018, which ended on September 29. In addition to discussing the company's recent results, we will provide financial guidance for the fourth quarter of 2018.

Joining me on 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, and then Jim will review third quarter results and discuss our financial outlook before turning the call over to Q&A.

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

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

The contents of this October 29 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. Today, we reported Q3 results that were better than forecast. Revenues were just over the top end guidance due to strong performance in our Hard Disk Drive business. Gross margin also came in above forecast especially for photonics.

And with tight control of operating expenses our loss of $0.05 per share was smaller than forecast. We continue to focus on managing cash and ended the quarter with $46 million on the books, up more than $6 million from Q2. Bookings were up sequentially in both equipment and photonics with total new orders of $27 million, up 14% from Q2.

Driven by particularly strong orders in the hard drive upgrades, our thin film equipment backlog grew to an eight-year record high of $64 million.

During the quarter, we continued to make progress in our initiatives to expand our thin film equipment business, as well as in the development of our new ISIE 19 digital night vision sensor, +to support the capture of our photonics opportunity pipeline.

Today, I'd like to give you status updates on the business initiatives driving our outlook for the remainder of the year and building the foundation for return to growth in 2019. I'll begin with an update on our Thin Film Equipment business.

The biggest growth opportunity for our equipment business continues to be our vertex tool in the deposition of protective, decorative and intra reflective coatings on display and backside cell phone cover glass. I think it's important to emphasize just how confidential our work in this space is to our customers.

Engaging in this industry requires that extremely restrictive NDAs be in place, which doesn't allow company names, projects or specific designs and applications to be discussed. As much as we would like to discuss details to give better clarity, in most cases we cannot.

Last quarter, I detailed out an enhanced strategy to accelerate and improve the capture rate for applications for the vertex system, specifically a two pronged approach. One place seed assets at key cover glass manufacturers to minimize the risk on their capital investments.

And two, market and sell directly to major handset makers, the multifunctional and unique capabilities of the vertex tool and the features that can be incorporated into their designs depositing oDLC, decorative films and transition and powder colors. I in the third quarter, we made excellent progress executing on these strategies.

We were able to meet with multiple key cover glass makers and their decision makers to discuss in detail our offerings and proposals, and have negotiated terms and conditions for seed evaluation units. The outcome of each of these discussions led to a similar conclusion.

Each cover glass maker wants to get some handset maker pull for vertex capability prior to finalizing the agreements. And an integrated multifunction tool is most desired giving intense cost pressures in the business.

Our amplified effort to market and sell directly to the handset makers is targeted specifically to generate this end customer pull to the cover glass makers. We added an additional sales director in China during the quarter and he's now meeting with customers and driving our regional sales and marketing efforts.

This marketing effort positioning the vertex as a multifunctional tool with oDLC decorative coatings in our unique capability of virtually limitless patterning designs has generated significant interest from multiple top handset makers.

Since our last call, our demo labs have been full depositing a wide array of decorative coatings and patterns both on the inside and outside of your cover glass and with and without oDLC.

Initial demo work with these customers is focused on displaying the capabilities of the tool and in some cases we have now engaged with internal design teams, implementing their concepts.

We expect to have heavy demonstration activity through the rest of the year as we continue to work with the handset makers on their designs, testing and qualification. In addition to the ongoing new demo activity, our first customer for vertex truly continues to apply oDLC for multiple applications.

And our second customer has begun initial testing of oDLC 2.0. From the business perspective of vertex, our new deposition sources that enable oDLC 2.0 decorative coatings have been qualified and we can quickly respond to system orders or seed placements given a tool and inventory ready to go.

Coming into the court, we had to vertex in the revenue plan for 2018. Our engagement with top handset and cover glass makers continues to evolve and their increasing desire for multi application tool configurations has pushed vertex revenue into 2019.

So while we won't be able to meet our objective to revenue to vertex in 2019, the third quarter was a quarter of significant progress. We had more interest enthusiasm and demos from the world's leading handset makers during the third quarter than any time in recent memory.

We believe future customer evaluations and wins for the vertex will be primarily focused on providing a completely unique multi application vacuum processing solution to improve the differentiated appearance and durability of next-generation handsets.

With the new deposition sources for oDLC 2.0 up and running, we are also looking at opportunities to upgrade the install base of five vertex tools with the latest capability.

We remain confident, this remains a significant revenue opportunity for us diversified from the hard drive business and the third quarter was an exciting one for us in terms of the level of engagement with industries leading companies.

Our Hard Drive business continued to perform better than forecast in the third quarter with strong levels of upgrade spares and field service revenue. We have also announced orders for seven new 200 hundred Lean in the last four months. One which will ship in Q4 and in six backlogs for 2019 revenue.

After six 200 Lean shipped in 2017, this would equate to for four 200 Lean in revenue for 2018 and at least six in the forecast for 2019. With process module upgrades accelerating significantly this year, we now expect total hard drive revenues in 2018 to be up 5% to 10% over a very strong 2017.

Basically, it's our strongest hard drive year since 2010. What's key however understands the drivers for continued growth in 2019 and beyond. Last week, we announced our first major four tool order for 200 Lean in the last two and a half years.

These systems will be equipped with the latest technologies for today's high-end media and will ship in 2019 to address projected demand beyond that point. While overall media capacity utilization rates are running in the low to mid-80, the two largest integrated drive companies are running at closer to full capacity utilization.

Try and focus a research firm for the storage industry estimates overall industry HDD units will decline over the next few years, but that is not the case with the nearline drives.

The estimate nearline drives will grow at an annual rate of 12% and because of the very high number of discs in each nearline drive, media units are also expected to grow every year in their five-year forecast at an annual rate of 7%.

Specifically, when we look at media demand in the peak second half period of each year, media production in the second half of 2018 is expected to be up 9% from the second half of 2017, and another 9% increase is expected for the second half of 2019. Total media units are expected to be 55 million discs higher in 2019 over 2018.

All of this news is very encouraging for the long-term health of our hard drive business, as these growth rates for media units driven by nearline high capacity drives would require additional media capacity to come online every year for the foreseeable future.

While solid state drives continue to come down in price, the price per gigabit of hard drive storage still has a sizable advantage. Both types of storage will be required to keep up with data growth.

The most recent estimates in our industry show strong growth in exabytes shipped on both hard and solid-state drives through 2022with HDDS still representing at least 90% of total exabytes shipped during that period.

These forecasts change as we all know but the fundamental drivers for media unit growth for the nearline HDD market continue to be very positive. In the mean time, the multi-year technology upgrade programs underway have resulted in strong demand for both systems and upgrades in 2018 and another growth year for our HDD business.

In our activities in the solar market, I'm pleased to report that we made significant progress here as well, as we've completed the installation startup and qualification of the first 3 ENERGi implant tools of the 12 systems currently in backlog.+ This is after approximately one year delay in the factory startup.

The tools are performing well and have passed all the factory acceptance criteria with only the production uptime validation testing left to get us to system sign-off and revenue recognition. As a note, we've already collected a 100% of the cash for these first three systems and down payments on the balance in the backlog.

Each of the installed tools is currently running volume production of around 20,000 cells per 10-hour day. Two of them will need to complete a final test of 24/7 production for a full week before they sign off. And all other system shift will revenue after that.

The tools in production are running well and are enabling higher solar cell efficiencies than competitive equipment installed in the same factory.

The customers manufacturing line is coming up albeit behind schedule, but given the current performance of the tools and factory progress, we still anticipate to achieve sign-off of the first three systems this year. We continue to discuss the timing and delivery of the next nine tools, three of which are plan to ship this quarter.

Given the slow rate of factory progress over the last six months, we do see risk in shipment timing of these three possibly moving into 2019, and that represents about $5 million with the revenue in Q4. It's important to understand that this revenue will be digital.

If we pass final sign-off on the first two tools and the next three tools shipped before December end, the revenue for all six tools will recognize this quarter. If any of that slips out of the year, the revenue recognition event will move with it. Keep in mind; we collect 90% of the cash at shipment and the final 10% after sign-off.

Now moving on to Photonics. In the third quarter, we deliver an improved performance largely driven by increased activity and optimism in the overall defense industry. For the first time in a long time, we have an increased and approved budget for the US military.

Photonics revenue rebounded 40% quarter-over-quarter and returned to profitability as money is working its way through the bureaucracy and being programmed to projects. At the AUSA Conference in Washington this month, the activity level and optimism in the defense industry was clearly on display.

We are excited to report that during the conference meetings for the DELTA-I digitally fused night vision binocular program were held of which in Intevac the prime contractor. And these meetings resulted in all partners in the coalition warfare programs signing up and approving the program to move forward.

From here it'll take 90 to 120 days to get through the Pentagon in the funding to be programmed. The DELTA-I binocular will incorporate our next-generation digital night vision sensor, the ISIE 19 development and the retirement of risk of the ISIE 19 continued last quarter.

And a bridge funding source was identified so development can continue while we await the Delta-I award next year. Initial units of our digital night vision goggle for the Australian army shipped in the third quarter, and are the precursor to the fused version of the delta-I program.

On the F- 35 Joint Strike Fighter program, a deal has been reached for LRIP 11 between Lockheed and the government and we saw monthly volumes increase off base contract levels. Entering the quarter, we did not expect monthly volumes to increase until next year, so this is a positive.

However, the predictability of monthly ship rates continues to be a challenge as the upstream supply chain has low visibility to us. In addition, we saw activity pickup for LRIP 12 through 14 contracting given us the overall sense that things will be accelerating on this program.

In our wireless head mounted display program for the family of weapon sight crew serve, we shipped the initial evaluation units to our prime BAE, and they are currently under tests.

We are seeing protective product volumes increasing for this program, however, the army has moved out their evaluation timeline most likely due to readiness of complementary components of the system. This push out evaluation timing may also push out initial production runs for the program, which was originally scheduled for next year.

And lastly, in the third quarter we were requested to and delivered our proposal for the digital night vision sensor for the Army's HUD 3.0 program. This program is currently on a fast track and represents a significant multi-year development opportunity.

We expect the award selection to occur in Q4 and as digital night vision domain experts; we should be well positioned in this competition. So in summary, as we move into the final quarter of 2018, we see improving environments and performance for both our business segments compared to the front half of the year.

Despite having read on the P&L this year, we continue to generate positive cash flow, growing our cash position by 15% last quarter. Confidence in the business and continued growth in cash 2018 and projected growth in 2019 enabled the board to authorize an expansion of $10 million to our stock buyback program.

On our last call, Jim stated our objective to manage our cash and investments above the $40 million level, and given our cash balance has crossed that threshold, we would anticipate becoming active in the market going forward provided our buying criteria is met.

In our Photonics business, we continue to execute on our current development programs, capture new opportunities and deliver our products into an improved industry environment. In Equipment, our HDD business is the best it is been in nearly a decade.

We see a surge in interest in our vertex product with expanded capabilities and the long-awaited factories start up using our solar implanter is finally underway. Although 2018 turned out to be a pause in our growth trajectory, and we still have several moving pieces bookings to secure and sign us to complete, we continue to progress on all fronts.

Given vertex timing, we are now guiding the year to around $98 million. This assumes one 200 Lean and six ENERGi implant tools in revenue for the fourth quarter, while recognizing the shipment timing of three of the six end planters carry around $5 million of risk that we are working to retire over the next two months.

With quarter ending backlog of $72 million plus over $18 million added to that last week, positive business environments and heightened activity in our initiatives, our growth story continues to remain intact. And we are steadfast in our focus to return to growth and profitability in 2019 as we continue to build momentum this year.

I will now turn the call over to Jim to discuss our Q3 results and Q4 outlook.

Jim?.

Thank you, Wendell. Consolidated third quarter revenues totaled $19.5 million slightly above forecast. Thin Film Equipment revenue totaled $12.1 million and included upgrades spares and service. Photonics revenues of $7.4 million included $5.1 million of product revenues and $2.3 million of contract, research and development revenues.

Q3 consolidated gross margin was $7.5 million or 38.5% and exceeded the high-end of our forecast. Customer request to pull in upgrade revenue in to third quarter allowed for increased incremental margin in Thin-film Equipment.

The strong orders in Thin-film Equipment also allowed for increased material receipts, which resulted in higher absorption than forecast. In Photonics, we had a favorable revenue mix, maintained favorable yields, and controlled expenses and managed program cost growth to a minimum, which all resulted in improved margins.

Q3 operating expenses were $8.6 million down from Q2 and lower than forecast primarily due to a more focused emphasis on selected programs in R&D and cost containment efforts implemented in Q1. This resulted in a net loss of $1.1 million or $0.05 per share exceeding our forecast. Our backlog was $72.2 million at quarter end.

Thin-film Equipment backlog of $63.6 million included three 200 Lean HDD Systems, 12 ENERGi solar implant systems and non-systems HDD backlog. Since the end of Q3, our 200 Lean backlogs have grown to seven systems. The backlog in our Photonics business was $8.6 million.

We ended the quarter with cash and investments including restricted cash of $45.7 million, up $6.6 million over Q2 and equivalent to approximately $2 per share based on 22.8 million shares at quarter end.

As we communicated in our last call, it is our objective to manage our cash and investments to stay above the $40 million level and we believe we will end the year with a net increase in cash year-over-year before any stock buyback. Cash flow generated by operations was $6.4 million during Q3.

Q3 capital expenditure was $844,000 and depreciation and amortization was $1 million for the quarter. For Q4 specifically, we are projecting consolidated Q4 revenues to be between $34 million and $35 million. This includes one 200 Lean system and six energy systems, three of which have yet to ship.

We expect fourth-quarter gross margin to be between 31% and 32%. Q4 operating expenses are expected to be between $9 million to $9.5 million. We expect interest income of about $100,000 and net taxes of about $300,000 in the quarter. For Q4, we are projecting a profit of $0.05 to $0.07 per share based on 23 million shares.

Given our Q4 guidance, we expect full-year revenues will be approximately $98 million plus or minus $500,000 and include four 200 Lean and the six energy systems. We expect gross margin to be between 33% and 34% for the year with operating expenses of approximately $37.5 million.

There will be operating line we expect to see interest income of about $600,000 and net taxes of about $1 million for the year. This completes the formal part of our presentation. Justin, we are ready for questions..

[Operator Instructions] Our first question to Mark Miller from Benchmark Company. Your line is now open..

Yes, good afternoon. And just question about your guidance.

The gross margins are lower is that because fewer spares and upgrades are included from the hard drive business?.

No, it's really because the solar tools have a lower margin profile than the other tools that we've sold..

I see, okay. In terms of the vertex systems, you said you were in multiple evaluations. Can you provide a number? I know you didn't want to say too much but is this has increased from last quarter..

Yes, absolutely. And a little more color on that is that we started our marketing efforts with our new source technology which is for the DLC 2.0 but it also puts down the decorative non-conductive vacuum deposition material that's using the decorative coating.

And then we present it with our capability of doing the decorative coating, a very unique way to put almost any pattern they want to put on there. That's very unique and something that only be done in our tool. And that really garnered a lot of demo activity for us.

And we've kind of prioritized that over the last several months because that seems like a quicker path for us to move on the vertex versus a full evaluation cycle with 2.0. We can do the evaluation of the cycle with 2.0 and parallel to that, but we really want to take advantage of while the iron is hot with the patterning capability on the NCVM.

So that's kind of what's going on. As far as numbers, it's quite a few. We've tried --.

Getting back to the hard disk drive business, the recent orders, it appears that these are more reflective capacity ads rather than upgrading the old MDP 250, so you're starting to see -- it sounds like you've pulled in your expectations for capacity ads which we've been waiting for so long.

Is that true?.

They don't exactly tell us what they're going to do with the tools, but as we look at the technology upgrade programs that we've been working on, we believe it's to address capacity needs out in 2019 and 2020. .

And you mentioned your two largest customers, they're -- were basically near full capacity in your opinion is that correct?.

That's actually the data that came on a trend focus that they were pretty much like 95% or 97%. That maybe a little high but that's what they do..

Our next question comes from Nehal Chokshi from Maxim Group. Your line is now open..

Thank you.

So it sounds like to me maybe I've heard this incorrectly but it sound like some of the demo work that you're doing is just the decorative pattern coatings and nothing to do with the oDLC, is that correct?.

No. It varies. We're doing --the inside coatings that we're doing on rear covers those don't require oDLC protective. The stuff we're doing on the outside does. So we're seeing a kind of a mix of different requests. I think people who want to see how it looks on the outside and how it looks on the inside.

Clearly on the outside with oDLC it's a much brighter look and reflective look. So we're doing it across the board..

Okay.

I guess is it possible that you could potentially be driving some demand for just a decorative or pattern coloring or you expected to always be coupled with oDLC?.

We positioned the vertex as a very configurable tool. Its first application was the DLC and there's a chamber and some under layer chambers that go on it, but it can do -- it could do patterning only, it could do NCVM and patterning or it can do NCVM and patterning with protective coating, all on one platform just by upgrading it. .

Okay, okay and you mentioned that you proposed a unique way to do two pattern coating.

Now is this something that you're patented? Will patent? How is this going to be protected?.

We have filed for provisional patents for the technique on how to do this type of patterning decoration in this application..

Okay, okay and --.

We're saying because of the way our tool is architected where it's fundamentally running a half a dozen to a dozen pieces of glass sequentially versus some of the competing technologies, which is maybe doing a 150 of them all at once. This really enables us to be able to do this type of patterning.

We don't see a clear path for anybody using barrel type deposition tools to do this kind of activity..

Okay, understood.

And then would you envision that there's actually greater value to a handset OEM for a decorative or patterned coating over oDLC only coating or you think that the oDLC coating still holds much more valued than a patterned coating?.

That's a tough question. I think that in combination you get your best colors and we're certainly seeing in the marketplace people differentiating themselves with how the actual phone looks. We've seen some pretty, I would say intricate designs for the back cover. Some of them are being painted right now.

So they're not very bright but the only way they could able --are able to do that kind of patterning today's with inkjet.

So we think by being able to enable some of the designs that are being used to differentiate and being able to do that in a sputtering tool, and get the bright finish and again having the ability to do a bright finish on the outside with the diamond like carbon coating. We think that's a good expansion of our value proposition..

Okay and then my last question which would be switching gears on to hard drive orders that you received. Looks like, you did the press release ADM on Thursday morning and then 4 p.m. on Thursday, and Western Digital talked about a digestion period for cloud service providers spending.

And so I just want to make sure that this order that you received does indeed consider that potential slowing cloud service provider spending or at the digestion period rather that wasn't just all exciting.

And I recognize that there haven't been a customer and so that commented might be Western Digital specific or it may be industry-wide specific as well..

Well, I think that industry-wide there's and talk about and similar to what WD is saying is that there's been such a big buying cycle that there's going to be a couple of quarters of digestion. But I think as far as capital equipment purchasing that's looking at a much longer term now trying to fill a short-term need.

And the fact is that the some of the components that are on allocation between that we use in common with semiconductor lead times are pretty spread out. So in order to be ready in the back half of 2019 they really need to get on order now.

And I would say that anybody that we put those press releases out very quickly after we receive the PO, so certainly the outlook for the next couple of quarters was already in place when those POs were released..

Our next question comes from Craig Ellis from B Riley. The line is now open. .

Hi, this is actually Peter Peng calling for Craig Ellis. And thanks for taking a question. I just wanted to go through some of the line items. On your upgrades on software if I kind of back out some of the equipment and assume that photonics can be flatter seems like the upgrades and software can still be around 11 to 12 months per quarter.

Is that the more normalized level that we should think about or at some point it's going to kind of regress back to the $8 million to $9 million level?.

We've seen very strong non systems gravity this year. We certainly would expect that to happen continue into Q4. And right now we believe that the hard drive revenue in 2019 will be as strong if not stronger than it has been in 2018. There may be a slight mix between systems and upgrades, but we continue to see strong upgrade revenue..

And then on just 200 Lean systems with six projected in 2019.

How is the revenue going to be divided? Is this going to be first-half weighted? Or is going to be kind of second half weighted?.

So before this order of four, we have a backlog of three which, one of which we said will ship in this quarter Q4. The two remaining will likely ship in the first half of 2019 and the new order will likely ship in the back half of 2019. All that subject to change depending on whether the customer wants to move it in or not..

When you say move in you mean pull it..

Pull it in, I'm sorry, yes..

Moved into the factory,.

Yes. Pull it into earlier quarters..

Okay and the solar systems. Any I guess change in time expectations for the remainder six.

Is this going to be still a first half 2019 kind of timing or could this be potentially second half 2019? How should we think about that?.

Well, we haven't heard anything as an update from the customer from the last discussions we have, which was first half of 2019. And so as we get these next three shift and as Wendell said that's the real highest risk in terms of the Q4 numbers, but we believe that will happen.

The previous plans we had discussed with this customer was that the remaining six would go in the first half of 2019..

Okay, thanks for the color. And then on the vertex, last quarter you mentioned seven demos and three proposals in place. Has that run out? It seems like just from some of the qualitative commentary, it seems like that has increased..

I think what we see as we've gone through the initial rounds of demos really displaying the capability. And just what you could actually do with that. And then what we're working on right now or just started working on is taking designs that are coming from the ID or industrial design departments and see if we can replicate what they'd like to see.

So that's what we're doing now. Our demo labs pretty busy. We had to prioritize but we're pretty stacked up and we expect that we will be stacked with demos all the way to the end of the year..

Okay. And kind of can you guys walk me through if an OEM needs to I guess ramp for second half kind of build.

What kind of -- when do you need to get orders, by in order to qualify and install and replicate? How long is that timing between when you ship order to revenue?.

Which product are you talking about?.

Just in general for oDLC 2.0?.

What I see right now is that we have-- one of the tools that we had in this year was just oDLC 1.0. And that particular tool in the project that's working on, they decided to wait till 2020 for a rollout on that. So that one's delayed but that one would have revenue right at shipment.

So if you calculate, it takes us about four to five months to build and then that would revenue right at shipment. The tools that we've been talking about now in particular that's good. That are requiring after patterning system on it. The 2.0 sources for the decorative coating.

Those all need to go through a sign-off, customer's qualification sign off before they revenue. And we have to revenue two of those. So at that point you're probably looking at another three to four months after shipment in order to be able to get a revenue event.

Once we revenue two of those configurations then we can take revenue at shipment from there..

Okay and just kind of the expectation for 2019.

If we were to kind of assume like maybe five to ten vertexes, how broad-based is your customer base be or would there be someone like a truly that can take forces from that at once? How do you kind of think about this?.

The way we look at it is where we are focused on the large cell phone makers. Now each one of those cell phone makers are less maybe one have multiple versions that have different release dates, and they will make some of our flagship and small runs, some of them are large runs.

So it really depends on where that penetration would come from, but I would anticipate that initial adoption of decorative stuff would come on more flagship type phones.

So without guiding on 2019 we would expect a reasonable rollout to support a flagship phone and then depending on how they do that they could do them all, they could do just some portion one particular design of one phone rollout.

So it's really hard to predict, but we certainly believe that all the work we've done at this point, and all the functionality we've put in there that 2019 is a year that we need to see some traction here to get moved..

Okay, great. And one more question. Jim just kind of turning to the R&D. 3.7 that's kind of been low and I think it's probably like a four year low.

Is that the more normalized level for R&D spending or is this kind of pick back up in potentially the first half? Like how should we think about that R&D?.

I think the R&D level will pick back up in Q4 to a number a little bit above four, and that's one of the reasons why we're forecasting the OpEx to go from $8.6 million which is what it ended in Q3 to $9 million to $9.5 million. Majority of that growth will be in R&D.

And then as we look into next year really it just depends on the success we're seeing with vertex and the projects that we have. But we're continuing the OpEx spending including the R&D for the last few quarters as we've seen a pause in the revenue growth..

Thank you. I'm showing no further questions. I would not like to turn the call back to the Mr. Blonigan..

Okay, thank you. So before I sign off, I'd like to thank the dedicated employees of Intevac all around the world for their tremendous effort and outcomes in this very dynamic environment. Also want to thank our customers for the continued business and appreciated partnerships.

And finally, I would like to thank our stockholders for their continued support of Intevac during this pause in our growth trajectory. And thank you for joining us today and we look forward to updating you again doing our Q4 call in January. Until then, so long..

Thank you. This concludes today's teleconference. You may now disconnect..