Good day, and welcome to Intevac's First Quarter 2019 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, April 29, 2019.

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

Thank you, and good afternoon, everyone. Thank you for joining us today to discuss Intevac's financial results for the first quarter of 2019, which ended on March 30. In addition to discussing the company's recent results, we will provide financial guidance for the second quarter of 2019 and our outlook looking forward.

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 current outlook, then Jim will review first quarter results and discuss our financial outlook before turning the call over to Q&A.

I'd like to remind everyone that today's conference call contains certain forward-looking statements, including, but not limited to, statements regarding financial results for the company's most recently completed fiscal quarter, which remain 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 April 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 Q1 results that were above the high end of guidance. Revenue of $24.8 million, which included four energy systems and one 200 Lean came in above the guidance range as a result of upside in our hard drive systems upgrade business.

Higher gross margin coupled with close control of expenses also drove our net loss favorable to forecast at $0.10 per share.

Our progress in each of our businesses and the financial performance in the first quarter continued to support the revenue growth, profitability and cash flow objectives for fiscal 2019 that we established on our last earnings call. As we move forward from the first quarter, we continue to manage a number of moving pieces in our business.

These pieces can be positively or negatively impacted, not only by current industry climates, but the global macroeconomic environment as well. Moving ahead, we will continue to monitor how our business environments are unfolding and provide updates to our forecast accordingly. Now, for an update of our business segments starting with photonics.

In photonics, we began to see the impact of the IVAS program award we announced in December and detailed on the last call. The initial phase of our digital night vision camera development was to define and get approval on the ICD or interface control documents.

We completed the process with the supply chain and program prime in Q1 and the resulting finalized ICD generated an increase in the development scope for our camera and the associated contract revenue opportunity for this program. IVAS revenues began in Q1 and will ramp significantly in subsequent quarters.

This IVAS award was the single largest order ever booked in photonics and represents the largest future revenue opportunity for this business.

The original contract award of $29 million over the next two years has now expanded in scope, and if successful, the projected volume of digital night vision camera modules beyond the initial development contract to be fielded to the dismounted soldiers would be in the hundreds of thousands of units.

IVAS or integrated visual augmentation system, is the first major program in the US Army that requires an all-digital night vision solution for the ground soldier.

It's the Army's objective to incorporate head, body and weapon technologies on individual soldiers in a single platform that they can use to fight, rehearse and train, providing the increased lethality, mobility and situational awareness necessary to achieve over match against our current and future adversaries.

Digital night vision is a key part of this platform, as there is no analog night vision in the program. Our 2300 camera modules will leverage the successful accomplishments of our state of the art low light level CMOS cameras developed over the past year, along with our next generation ISIE-19 sensor development activities.

I think it's worth restating that our current $29 million contract is for the development and delivery of the initial lot of digital night vision cameras for the IVAS system development and qualification.

The major revenue opportunity for us lies in the actual fielding of the IVAS systems to the dismounted soldiers after the qualification and selection processes are completed.

The success of the IVAS program over the next five years holds the potential to double the level of revenue in our photonics business compared to the five years past and beyond 2023 continue to drive the largest revenue opportunity component comprising our $1.4 billion revenue opportunity pipeline.

In addition to IVAS, the drivers supporting the doubling of our photonics revenue over the next five years consist of our established programs for Apache, LIVAR and the Joint Strike Fighter along with multiple international and emerging digital night vision programs, including the DELTA-I coalition warfare goggle, the Navy's enhanced visual acuity system, a currently classified production program for the US Army and the Striker II helmet mounted display system, all alongside our family of weapon sites, cruiser, wireless head mounted displays.

In the near term, the IVAS award supports our confidence in a return to revenue growth for Intevac in 2019. And for photonics in particular, year-over-year revenue growth in excess of 30%.

Moving now to our equipment business, in thin film equipment, as I mentioned earlier, we were pleased to report four energy tools revenue in the first quarter after a year-long delay from our customer. This leads five in backlog that we continue to expect to ship later in the year.

Also, as expected, we had one 200 Lean in Q1 revenue, leaving five in backlog. And while down from near record levels in the fourth quarter of last year, our HDD media upgrades came in a bit better than forecast in the quarter. Recent HDD channel information indicate hard drive units came in a little light of expectations in the first quarter.

About a month ago, TrendFocus reported signs of improving demand by two large cloud companies raising orders for 12 terabit drives and signaling that next generation 14 terabyte capacity demand later in the year will also rise from prior forecasts.

These reports came after the publication of their revised full quarter and long term forecast for HDD media.

In the short term, expectations as of mid-February was that the rebound in cloud demand will result in media shipments rising to 257 million discs in the fourth quarter, equating to a tie ratio in excess of three disks per drive and media capacity utilization rates exceeding 90% exiting the year.

These forecasts, despite the overall decline in HDD units, indicate that media demand will continue to grow, with the five year CAGR still expected to be at 7% in support of the 25% CAGR expected for exabytes shipped on hard drives.

Depending on the capacity leveling of the production of disks each quarter, we could be close to 100% capacity utilization as early as the end of the year, 2020. We just completed the fourth straight year of growth in our hard drive business, and the best year since 2010.

The overall takeaway from the long term outlook for hard drive media is that our HDD business is reasonably stable at current levels.

And given the need for capacity additions to support the forecast demand of hard drive storage for the cloud, we expect the business to contribute at least as much revenue over the next five years, as it has in the past five, with modest upside, depending on media capacity needs to support the near line drive growth.

Given the stable outlook in our HDD business, we've been driving equipment growth initiatives in adjacent markets, leveraging our core technology and capabilities, with emphasis in the underserved coating markets for display cover panels.

Our vertex deposition system targeted at this market has been deployed with two customers to date, one with four systems of production capacity and the other with an initial development tool.

As these tools continue to operate in the field, we have focused our efforts to enhance the value proposition of vertex to facilitate and accelerate mainstream adoption in the cover panel industry. This opportunity in display cover panel market remains the most significant driver for growth in our equipment business over the next several years.

Over the last year, we've developed new deposition and patterning technology to expand the versatility of the vertex tool beyond protected coatings, now encompassing fully integrated, decorative and optical film stacks with high durability characteristics, and improved optical diamond light carbon fills.

We also continue today with initiatives to lower the cost of ownership for our customers, and to approach sapphire light performance with our diamond light carbon protective [ph] coatings.

In addition, over the last few quarters, we've been driving strategies to directly market to leading end customers to spur demand and place seed vertex assets into the field to support demand at leading cover panel manufacturers.

As highlighted in our earnings release today, after several quarters of driving these strategies, we've made significant progress and are in the final stages of closing a deal for an evaluation system with a leading cover panel manufacturer.

We've signed the evaluation contract and are currently configuring the system we have in inventory for a late Q2, early Q3 delivery. There still remains some work to close at this time, and once the deal is formalized, we’ll make an announcement with more exact timing and any details that we can disclose.

This evaluation system will bolster regional accessibility to Intevac’s newest technologies, and will support the fast design turns required to meet smartphone OEM’s aggressive product development cycles.

The versatile vertex systems differentiated and fully integrated film stack configurations will expand the freedom and options available in the design of next generation smartphones. We are very encouraged with the progress we have made and the access this seed tool will provide to the world's leading handset manufacturers.

We remain confident that the vertex continues to be a significant revenue opportunity for us, diversified from the hard drive business and year to date, we've made excellent progress. In addition to the HDD and display cover panel markets discussed, we anticipate increasing opportunities for our matrix and energy systems.

We continue to be actively engaged with foundation customers in advanced packaging and our solar implant systems continue to lead its competitors in the field, driving discussions on possible follow on business opportunities.

While not in our current revenue forecast for 2019, these additional market opportunities are served by our high productivity platforms, continue to add growth potential to our business. For our thin film equipment business in total, our outlook continues to be for growth in the 15% range over 2018.

So in summary, given the growth projections for both of our businesses, we are maintaining our forecasts of consolidated year-over-year revenue growth of at least 20% for 2019. We continue to forecast revenues to be weighted into the back half of this year.

And given expected gross margin and OpEx forecasts, at these revenue levels, we expect to be profitable and cash flow positive for the year. With that, I'll now turn the call over to Jim to discuss the details of our recent financial results and outlook.

Jim?.

Thank you, Wendell. Turning to the first quarter results, consolidated first quarter revenues totaled $24.8 million. This was above our guidance of $23 million to $24 million with upside in HDD upgrades. Thin film equipment revenue totaled $18.9 million and included one 200 Lean and four energy systems along with upgrades, spares and service.

Photonics revenue of $5.9 million included $2.7 million of product revenue and $3.2 million of contract research and development revenues. Q1 consolidated gross margin was 29.2%, above guidance of 27% to 28%, as a result of positive contributions from the revenue from higher HDD upgrades.

Thin film equipment gross margin was 31.5%, up from last quarter and down from the first quarter of last year due to the lower margin energy systems, but still better than forecast given the higher mix of upgrades, relative to energy tools.

Photonics gross margin was 21.5%, down from last quarter due to lower product revenues, which carry higher margins, but up from the first quarter of last year, due primarily to higher revenue from higher margins on contract R&D.

Q1 R&D and SG&A expenses were $9.2 million higher than Q4 due to normal seasonal increases, but below our guidance due to tight control of development spending. This resulted in a net loss of $2.4 million or $0.10 per share, better than our guidance. Our backlog was $102.6 million at quarter end.

Thin film equipment backlog of $59.3 million included five 200 Lean HDD systems, five Energy Solar ion implant systems and non-systems HDD backlog. The backlog at our photonics business was $43.3 million.

We ended the quarter with cash and investments, including restricted cash, of $41.9 million, a growth of $1.6 million from year end, and equivalent to approximately $1.83 per share based on 23 million shares at quarter end. Cash flow generated by operations was $969,000 during Q1.

Q1 capital expenditures were $371,000 and depreciation and amortization was $1 million for the quarter. Now, turning to the full year outlook for 2019. Our full year outlook has not changed, which is for total revenues to grow at least 20% in 2019, while returning back to profitability for the year.

At this revenue level and expected product mix, we expect gross margins in the range of 34% to 35% with operating expenses of between $37 million and $38 million for the year. We expect interest income of about $600,000 and GAAP income tax expense of about $2 million for the year, of which more than half will be non-cash.

For Q2 specifically, we are projecting consolidated Q2 revenues to be between $20 million and $21 million. We expect second quarter gross margin to increase from the first quarter, and to be between 34% and 36%. Q2 operating expenses are expected to be between $9 million and $9.5 million.

We expect interest income of about $200,000 and GAAP income tax expense of about $300,000 in the quarter. As I mentioned previously, our cash taxes will be much lower. For Q2, we are projecting a net loss in the range of $0.08 to $0.10 cents per share, based on 23 million shares outstanding. This completes the formal part of our presentation.

Skyler, we're ready for questions..

[Operator Instructions] Our first question comes from Nehal Chokshi with Maxim Group..

Alright. So Photonics product revenue was down from 6 million in the December quarter, and 2.7 million in the March quarter.

I think you probably did cover in your script, but can you just review that again as far as why that was down Q-over-Q?.

Q-over-Q, it was down because we had a lot more product revenue in Q4 that didn't happen in Q1 of 2019. Although as Wendell said in his prepared script, and as we're continuing to forecast, we do expect that the photonics revenue will grow about 30% in 2019 over 2018. The first quarter should be the lowest quarter..

Okay.

And what's the reason for that non linearity there?.

Some of that is a combination of, as Wendell said, the IVAS contract was anticipated to start a little bit slower and now starting to ramp up, and so we'll see that make a larger contribution in the next three quarters.

And if you remember, that contract was around just under $30 million, was $28.6 million in revenue, and we said about half of that would be in 2019 and the other half in 2020..

Okay, and just to be clear, the IVAS contracts, that is for product, not for R&D, correct?.

Initially, it's going to be for development. There's a good portion of that that's development. And that will be for product, though. Yes..

Yes. So the answer is, it's both, it's the development work. And then the end of the deliverable from the development contract is the 2300 camera modules..

Got you. Okay. And then on your guidance for the quarter of 20 million to 21 million, that's nicely above my estimate. And I think probably above the consensus estimate now.

All right, but at least can you talk about what goes into it in terms of systems and then photonics product versus contract for that guidance?.

Yeah. There will be one 200 Lean system. And on the equipment business, we ship for the revenue for four energy systems, there's five in backlog. Those will happen in the second half of the year. So that'll be the biggest contributing factor as to why Q2 is down on the equipment side of it.

But we do expect that photonics business to be above the 5.9 million, it should probably hit somewhere around 8 million..

[Operator Instructions] Our next question comes from Craig Ellis with B. Riley FBR..

Hi, this is actually [indiscernible].

On your 2Q, are you picking any Lean systems in your 2Q guidance?.

Yeah, as I just told, we have one 200 Lean system and the guidance..

Okay, so if I kind of just do the math to get to the midpoint, it seems like upgrades and softwares in your equipment looks like more flattish? Is that right?.

That is correct. If you look at the equipment business, we did 18.9 million in Q1 and that included about 6.4 million of the energy systems, which won't repeat in Q2. So we should see a couple million more in photonics in Q2 than we saw in Q1..

Okay, I'm just trying to kind of reconcile the math, because it seems like the backlog, there's some growth in your upgrades, but then you're kind of talking about more – does that imply that the second half is going to be a surge in your upgrade services business..

I'm not sure I would call it a surge. But if you look at the linearity of the revenue, and both product lines will be similar, we would expect of the growth in 2019, which we said should be up 20%, about 40% of our revenue will be in the first half and about 60% will be in the second half.

And of that second half, although there will be some moving parts, I predict that the fourth quarter will be larger than the third quarter..

Okay.

And last quarter, you talked about potentially one or two vertex systems in the 2019 guide, was this -- was the evaluation that you're talking about the one that you are waiting for, or is there something more coming in?.

Our strategy to put evaluation tools that certainly was a component in when we looked at forecasting vertexes for 2019, I think one thing that's important for us and again, we've got a lot of moving pieces in our revenue and kind of practice that a little bit at the opening, that there's a lot of different things that are moving still in our plan.

But getting the evaluation system out is really a critical one for us because it is configured in the new -- a new configuration, whereas the tools that are out there, strictly due diamond like carbon, this tool is actually configured to do decorative and pattern coatings. So it'll need to go through a sign off cycle. So we needed to get that out.

And then once we've got that one through its paces and can prove that that tool configuration works just as well as the original vertexes that are already out there, then we have the opportunity to revenue vertex tools in either one of those configurations at shipment, as we move out through the year.

So, long answer to your question, but the eval was part of that overall forecast, one of the components in it..

Okay. If you could maybe provide some qualitative or quantitative color, this customer versus the size of truly whether this could be potentially bigger than what truly ordered..

I can – they’re very, very strict about what we say, but what we can say is that this is [indiscernible] with our strategy to get seed assets in major covered glass manufacturers and that's what we've been focused on. To put the – to basically consider putting an eval needs to be a large player..

[Operator Instructions] And we have a follow up question from Nehal..

Alright, so let's talk a little bit more about this order that you're working on. That's a huge news over a quarter from my perspective, provided that is indeed signed, remind us what is the best case scenario in terms of timing and the things that need to have happened before follow-on orders materialize..

Yeah, so timing wise, I said in the prepared remarks, late Q2, early Q3 delivery and that's really, as we're having the discussions and finalizing everything is, the exact location that they want to install the tool.

So we're got, we believe we have that hammered out at this point, as the meetings are going on, there will be another one tonight our time. And so, we want it, as soon as we can get it there. They want it as soon as they can get it and that facility is ready to accept it. So that's the timing on the first one.

And I think, as far as follow-on opportunity based on that eval, the whole premise of the eval system is to get our technology and what we can do on the cover glass into the handset makers hands and do it quickly in region with turnaround times that are really supporting these very aggressive development cycles.

And once we’ve got that evaluation tool in production, that's when we would expect the follow-on opportunities start to materialize.

That being said, we continue to do lots of demo activity, and it’s our intention to hand that demo activity that we have been doing the coatings here in Santa Clara and going across the ocean with turns to hand that work to some degree off for the evaluation tool to continue.

So, it's a way for us to go much quicker, get closer to the end customer and our covered glass manufacturer who we will be selling to, for them to be able to get into production as quickly as possible..

So Truly is also providing evaluation samples to end customers.

So I presume that this one here is for a region that they will be placing this tool in a region that's materially different than where Truly has there vertex systems and is that correct?.

Yeah, and just a little more color is that this tool configuration is going out for decorative and patterning coatings, Truly capacities, specifically for our version one diamond light carbon. So kind of different applications.

And then, Truly and the rest of the cover glassmakers have some crossover of customers that they service, but also the larger display panel makers basically have a superset of customers than Truly does.

So, we think that that's not going to be a conflicting effort as one company is working on protected coatings, the other company is working on decorative and added designs..

Is it possible to upgrade one of the Truly systems to version 2.0 for ODLC?.

Absolutely. We're seeing – they have been doing some internal work as far as their corporate structure and things like that. But we certainly have on the table with them upgrades to the hardware layer 2.0, they can also upgrade for decorative coatings.

That's all part of the suite of technologies for the vertex platform as well as the evaluation can be upgraded as well as they see it..

Okay.

And then, so they have four systems currently, can you discuss -- you probably have limited visibility on this, but within your visibility, how has that utilization tracked on a Q-over-Q basis for them?.

Yeah, we don't have the utilization rates, we know that they continue to work and they're doing quite a bit of work in the wearable space.

And also, we are somewhat aware of activity going on for point of sales, scanner, where we also were aware of some Chinese handset manufacturers where they were doing the front cover glass, but the volumes weren't huge.

So they're still busy working, but I don't anticipate at least I'm not getting any real pull that out of capacity at this point and they are looking to pull in another 12. I think they still have some capacity there..

And then my last question is that, you described the utilization for the hard drive media as approaching 90% at the end of this year. And giving us 7% CAGR that you expect that you could get to full utilization by the end of 2020. You do have 505 200 Lean systems in backlog currently.

So presumably, all these are for R&D or technology upgrades and prospects for new Lean 200 orders in the near term would also be for R&D or technology upgrades, is that correct?.

No, our capacity -- when we do our calculations of capacity utilization, we are factoring in the tools that we've shipped coming in to the capacity, at least this quarter, the tools going out now, or adding to capacity. So we're factoring that all in with that estimate of 90% or better utilization rates up to 257 just for quarter rate..

Our next question comes from [indiscernible]..

I'll start off with an easy one. Jim, maybe I missed it.

But did you mention anything about the share buyback? Did you buy anything in the quarter?.

We did not mention anything, Greg and no, we did not buy anything back in the quarter. We still have just under 11 million available..

Okay.

And on the guide for 2019, remind me again, how many vertex tools were in that that will be revenue?.

Yeah. When we built that forecast, we had the two vertex tools that were in that. And, again, we've got lots of moving pieces, but we're very happy we got the deal in place to get the eval out which is really kind of a seed unit for us. But the initial forecast from last year had been at the two vertexes in the revenue..

And on the protective coating side on the vertex, kind of what's your sense of the roadblock there? I mean, you mentioned something about the performance of Sapphire.

Is that the new goal post here?.

Well, certainly for one of our existing customers, that's the goalpost that we’ve been driving at to get as close as humanly possible. I think the applications that – on protective coating with the 1.0 and 2.0 that we have with the different under layers, we certainly see pushback in cost in this particular environment right now.

So, we have initiatives that we're working on today to lower that cost. And, we don't want to lose any performance of the film. But we have, again, internal initiatives on how to do that that we're driving.

But, I think it's, we have a number of things working for protective coatings, we are heavily doing demos and are heavily engaged without saying too much, premier sports fitness tracker that we're doing work in demos with there, that's all protected coating applications.

And then we're driving every angle we have on the big front cover glass market for cell phones..

Okay, so would we call this 3.0 then, your Sapphire Light DLC?.

We haven't named it yet, but maybe it's Sapphire Light..

And just one thing that caught my ear was on the IVAS, you mentioned about CMOS cameras there. So if I understand that right, then there would be two night vision cameras potentially per soldier..

Our understanding right now is that each system has two night vision cameras..

So, they’re different – some are moonlight versus total darkness or different degrees in terms of how much you want to spend..

No, it's the fidelity of having the imaging stereo that drives the two requirements..

Maybe I'm lost, so the ISIE-19 sensor, right? That's totally different from the CMOS camera, right?.

The CMOS, every one of our ISIE night vision sensors has a CMOS imager in it. That's part of the entire camera. So when we talk about the CMOS cameras, it can be with or without the gain that supplied with the photo catheter..

I see.

So different levels of performance if you had the photo cathode?.

You’re not going to see, you're not going to get night vision, the images and starlight overcast unless you have the amplification that we have on our ISIE family of sensors..

And the application for IVAS includes the photo cathode?.

There's a number of different requirements. The first objective requirement that we may be able to get without a doubt, but we also don't believe that the soldiers are going to field with anything less than capable than what they have now, which is they’re using either our sensor or amplified photo tube analog..

I see. So the guys who are just doing straight CMOS, who have addressed this tender, I see a couple out there so far that you could compete with that with a lower cost solution, just using your straight CMOS..

Exactly..

I see, okay, that's helpful..

Our next question comes from Dan Weston with Westcap Management..

Yeah. Hi, good afternoon, guys. Thanks for taking the questions. Most have been answered by now.

But to follow up on Greg's questions relating to IVAS, Wendell, in the beginning of your prepared commentary, I think, you alluded to, the program might have expanded somewhat from what you anticipated or talked about previously, did I hear that right and can you quantify what exactly you're talking about there.

I remember on the last call, you mentioned that once it's in deployment phase, you thought the opportunity could be in the hundreds of thousands of units, which is what I heard you say today.

Did I miss something?.

No, but that's a great question. And let me clarify what I meant there. So, the initial part of the program was this ICD, which is basically defining what the sensor is going to do, how it's going to do it, how it turns out, how you communicate to it.

And in the process of developing that and really getting the suppliers and the prime and everybody together to formalize and specify this interface document, what the sensor has to do and how it does it, that amount of work to make that happen, it was this additional scope to our original proposals and what was asked.

So, the way to look at it is we bid a certain set of specifications for the night vision camera assemblies. And once we got through the ICD phase, those specifications changed and grew as far as what it needs to do. So, development contract behind it to develop it actually grows as well.

So we’ve put in proposals for additional work in the development of the sensor based on where the ICD document ended up. And that is the increase in scope on the development program that I talked about.

That makes sense?.

Yeah, no, it does.

And just to close the loop on that, so would that kind of intimate that the initial 29-ish million dollars over the two years for the development work could expand somewhat over that two year period?.

Correct..

Got you. Okay, fine.

And then once deployed, as you're getting further discussions, do you expect that the camera module part of the program will be a sole source contract? Or would you expect that specific segment to be dual source for more?.

For our forecasting and looking at it, we're assuming that there will be more than one supplier. And in the case where the technology that goes forward is our proprietary technology, the ICE version of our night vision camera, we would expect that the military would want another supplier to manufacturing as well.

I don't think they'll go, we don't believe they'll go single sourced with any of the components. They'll need to have a couple of suppliers just because of the pure volume of units in comparison to say Apache or even the Joint Strike Fighter..

And then on the HDD business, it sounds like your tone actually improved a little bit from your fourth quarter tone versus vis-à-vis the industry.

Am I reading that right, has the overall optimism increased or pessimism decreased for overall unit shipment this year? And does that portend at all for maybe getting all of your 200 Leans that are in backlog potentially shipped as revenue this year?.

I think from three months ago, when we had the call and today, I think, it's kind of neutral in my mind right now as far as overall, as we would have liked to seen Q1 come in a little bit higher.

But certainly the longer range forecasts and discussions coming out about some of these big cloud service providers, up in the stake in the back half, that's positive. So I think it's still a bit of a wait and see. We still have the same amount of tools in our forecast that we did last quarter.

So nothing's really changed as far as that and I think we're going to have to see how this afternoon and tomorrow and what the hard drive guys are saying and go from there. But I wouldn't say it's about the same..

Fair. Okay. My last one is, forgive me if somebody have asked it already, in relation to the vertex on the -- your second customer who still remains unnamed. You mentioned that they continue to be in kind of stealth mode, as of the fourth quarter.

Has anything changed there? Are they still operating in stealth and is there anything that has kind of loosened up where you can get a more visibility of potential with those guys?.

No real change in the mode of operation. We do meet with them. So we’re having discussions, we're certainly discussing some of the work we're doing in other avenues and decorative coatings as well as some of the work we have on our next iteration of the diamond light carbon.

We do know the tools, I think we just did some kind of maintenance with them not too long ago. They needed to order some part so, but I really don't have any additional transparency from them at this time..

At this time, I'm showing no further questions. I'd like to turn the call back over to Mr. Blonigan for closing remarks..

Okay. Great, 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. I also want to thank our customers for their continued business and appreciating partnerships.

And finally, I'd like to thank our stockholders for their continued support of Intevac. I thank all of you for joining us today and we look forward to updating you again during our Q2 call in July. Until then, so long..

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