Good day. And welcome to Intevac's First Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference call is being recorded today, April 27, 2020.

At this time, I would like to turn the call over to Claire McAdams, Investor Relations from Intevac. Thank you. 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 2020, which ended on March 28th. In addition to discussing the company's recent results, we will discuss 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 our businesses and our current outlook. Then Jim will review first quarter results 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 27th 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 welcome everyone. Thank you all for joining our Q1 2020 earnings calls. I trust and hope all of you and your loved ones are healthy and safe.

Today we reported stronger than forecast results for the first quarter of 2020, which was a notable achievement in light of the stress placed on our operations and supply chain by the ongoing COVID-19 pandemic.

Revenue of $18.8 million exceeded the high end of our guidance range, primarily due to exceptional execution by our Photonics team, ramping up to the higher quarterly revenue levels expected for this year ahead of schedule.

Outstanding operational execution by both our thin film equipment and Photonics businesses led to higher gross margin and lower operating expenses and resulted in a net loss of just $0.05 per share much better than expectations.

Before we start our normal business review, I would like to first talk about the overarching topic of today, the global COVID-19 pandemic and how it relates to Intevac.

First and foremost, I am pleased to report that the entire global workforce Intevac is healthy, and albeit in a primarily remote configuration have been on the job delivering for our customers. At our last earnings call three months ago, which seems a lot longer than that.

During the final summary, I discussed timing uncertainties and China's return from the Lunar New Year holiday given the outbreak of the Coronavirus.

I think I speak for a lot of people and saying I did not imagine we would be in the middle of a global pandemic at our next call with the world's economy fundamentally in free fall, a once in a generation Black Swan. These are unprecedented and challenging times, as the COVID-19 pandemic affects our business, as well as each of us personally.

The number one priority that Intevac has been and continues to be ensuring that we do everything we can to keep our employees as healthy and safe as possible while we work through this crisis. Our number two priority is to ensure that we continue to innovate and deliver our products and services on time with the highest quality.

As both our thin film equipment and Photonics business have been determined as essential in support of critical IT and defense infrastructures, each day we have around 75 employees in our Santa Clara headquarters, carrying out essential engineering, manufacturing and logistics responsibilities for the company.

All Santa Clara employees who are able to work from home are doing so. In Singapore as well as our other Asian operations, our teams have been like in California working remotely possible.

Last night, however, in Singapore, we received notice that the next phase of required business closures that went into effect impacted our HDD manufacturer in operation there.

We have met with our largest customer in Singapore, who was not impacted and with their assistance are working to procure an exemption from the shutdown order, which would allow us to continue supporting them. The recent order is set to expire on June 1.

Beyond the equipped challenges of today for an integrated hardware manufacturing companies such as Intevac, operating in a remote resource environment is far from ideal. We initially saw the expected loss and efficiency.

However, the team's approach the situation creatively and each day we're becoming increasingly more efficient in this new work configuration.

We have been taking and continue to take extensive precautionary measures to mitigate the risk to our employees Prior to the shelter in place orders in California, Intevac instituted strict protocols for operation including social distancing, common area layout changes, continuous disinfectant, high touch surfaces, mask and glove requirements, hygiene protocols, twice daily fever checks and disinfection of all incoming mail and inventory.

This preparation led by our EH&S team allowed us to quickly resume factory operations when the decision was made to do so. On March 17, the Bay Area shelter-in-place order went into effect. And Intevac's, Santa Clara operations were closed.

By the end of that week, employees that could work remotely were up and running, and we had received communications from both our hard drive and defense customers that under the Department of Homeland Security directive, we were identified as an essential critical infrastructure business with a duty to continue operations.

Given what we knew about the virus at the time, we remained shut down for an additional week in order to confirm no and develop symptoms, and thankfully no one did. On March 30, our California operations reopened As of today, we have experienced minimal impact on Intevac's manufacturing operations.

In Photonics, two weeks of production was delayed, but we're quickly catching up and we'll be back on plan by the end of May. In equipment, we've experienced minimal impact to date. However, yesterday shut down order in Singapore may cause a shift in HDD revenue timing if we cannot get an exemption in a timely manner.

With regards to our supply chain and valuations, our Photonics ecosystem, which is US-based today has been solid the last outstanding close of our resumed operation after three weeks offline. In equipment, which is Asia-based.

There have been challenges with regional and factory shutdowns, travel restrictions, transportation and freight disruptions, as well as support logistic issues. Fortunately, we've been able to work around these temporary disruptions or the issues have resolved for the most part. The evolving situation in Singapore is our next challenge to resolve.

In our equipment business, international air travel is an important part of our operation and this remains an issue particularly for installations, upgrades, and most importantly engineering collaboration in China and other countries hard hit by pandemic. Currently, with U.S. travel and restricted to only essential travel outside the country in China.

fundamentally restricting foreign nationals from entry until further notice. For all intents and purposes, our non-HDD equipment business activity that requires U.S. and/or Singapore employees to be on site is on hold.

We have local employees in China supporting the current install base, but new equipment installations and startup activities will pose a significant challenge if restrictions do not ease in the second half of the year.

Regarding customer demand, we currently have not seen any reductions for our products, particularly in Photonics and hard drive related businesses. However, Thin-Film Equipment sales, engineering collaborations and product evaluation cycles have been elongated in this environment particularly in our growth initiative activity.

Therefore we're taking a prudent approach and are expecting some of the revenues previously forecast for 2020 we'll move into 2021. In a downside scenario, where all non -Photonics and non-hard drive revenues events until delay into 2021.

We would expect to maintain our current targeted level of $40 million in cash on the balance sheet with a net usage of cash and under $5 million, enabling us to continue driving our growth strategy through this turbulent year.

While this is certainly not the scenario we were planning for today, if it weren't to materialize, we have very solid financial footing with a strong cash position and no debt and proven acumen navigating through previous challenges by managing operating expenses and minimizing cash use to maintain the strength of our balance sheet.

I think, we would all agree that in this environment it's difficult to determine how things will develop, how long the situation will last, and the impact that pandemic will have on the global economy. We're taking all the necessary steps in terms of safety, risk mitigation, and financial controls to best manage through these challenging times.

It has been very encouraging to see the resilience and dedication of the Intevac team and the customers we serve as we work through this unprecedented time together. So, with that being said, I'll now provide an update on each of our businesses. First, starting with Photonics. The team did an outstanding job executing despite uncertainties in Q1.

The strong growth expectations for this business in 2020 despite the pandemic remain intact. We continue to have visibility for revenue growth in the range of 20% to 25% for the Photonics business this year, and Q1 deliveries and profitability were executed ahead of expectations.

While we incurred encountered some temporary time crunches getting product out the door, given the mandatory shutdown period, those challenges are behind us and we have the visibility needed to achieve our growth expectations for the year absent any further disruptions.

This level of visibility in our forecast is supported by the continued prioritization and progress of the IVAS program for the U.S. military, as well as multiple new contract awards, which we talked about on our last earnings call. The IVAS program continues at a rapid pace.

However, impact from the Coronavirus has caused about a three month delay in soldier touchpoint number three pushing it from July into October. Despite the delay the overall program scheduled to equip the first fighting units with IVAS systems in the fourth quarter of 2021 remains on track.

Our forecast for steady revenue flow from the IVAS program and now full rate production of cameras for the Joint Strike Fighter program gives us the visibility to forecast the quarterly Photonics revenues around Q1 levels throughout 2020.

We will continue to announce incremental awards that will build upon our Photonics backlog, which provides multi-year visibility for continued growth and profitability. In the most recent of news, the EVA program or enhanced visual acuity, which has been under protest since November has been resolved.

After two denied protests of the prime contractor selection by a competitor, the protest moved to federal district court, which once again denied the protest. This is outstanding news for Intevac, as the winning prime incorporates our ISIE-19 technology. We expect to be on a contract for the EVA program second quarter or early third quarter.

With regards to our ongoing technology advancement efforts, we recently completed the first ISIE-19 based cameras system as well as initial field trials and final fine tuning activity. This unit will shift to night vision labs this quarter.

We are currently building the ISIE-19 sensors in small quantities in support of several programs that will be the launch vehicles for the ISIE-19. We have multiple ISIE-19 cameras in backlog to support not only new programs that you live as Delta-I and EVA, but the future upgrade program for the F-35 Joint Strike Fighter as well.

All of these contract awards and developments have built a strong foundation for our future growth. We have multi-year visibility for our manufacturing operations, continued validation of our digital night vision technology, and we are pleased to report that the significant growth forecast for photonics in 2020 has remained on track.

Turning now to our Thin-Film Equipment division, starting first with our HDD business. As expected, the first quarter was a slow period for the business, but our team did an excellent job delivering the customer upgrades forecast for the quarter, while tightly controlling operating expenses.

We've been working through issues with the supply chain with COVID-19 related shutdowns affecting multiple regions, producing components particularly in Malaysia. At this time, we do not expect material changes to the hard drive business forecast we entered 2020 with, but the risk environment has certainly heightened.

There are many factors affecting both the supply and demand for hard drives this year.

For example, a record number of nearline drives were shipped in the first quarter, and there are multiple positive signs being recorded on data center and notebook computer demand driven by a significant increase in working from home and in virtual learning activities.

Video game demand is also on the rise, which increases demand for hard drive media. At the same time, the negative impact of lower consumer spending and reduced corporate IT budgets will present a headwind for our industry that we are just beginning to understand.

The two 200 liens in backlog scheduled to ship in the second quarter, may move into Q3 depending on the timing of the resumption of Singapore manufacturing operations. We also have process module upgrades scheduled to ship from our Singapore facility throughout the year where we also may see some timing impact.

Given the overall uncertainties in the global macroeconomic environment, as well as the role of Singapore and Malaysia play in the supply chain for HDDs, we continue to watch the industry dynamics very closely to gauge the risk to our plants.

So for the time being, we are maintaining our forecast of a modestly down here in hard drive business due to fewer system shipments, compared to 2019, and just as before, we believe the strong growth in Photonics will offset this decline in 2020.

Next, moving to our progress and expanding our current footprint in the display cover panel market with our VERTEX platforms, which continues to present the largest growth potential over the next few years for our Thin-Film Equipment business. Q1 was an important quarter for us.

We announced our DIAMOND DOG Tempered Glass Screen Protector, which we debuted at the Consumer Electronics Show, and we finalized the agreement to deliver a second VERTEX Spectra evaluation system to another leading display covered glass manufacturer.

This agreement took longer than expected and was further complicated by the extended shutdowns in China around the Lunar New Year. We were very pleased to complete this agreement in Q1 in spite of the emergence of COVID-19.

In regards to our VERTEX evaluation programs for decorative coating applications now in process, we remain optimistic that these will convert to revenue and result in follow on orders in supportive multiple programs currently in development.

The first EVA tool has finished the initial pilot production samples for a top handset maker, which resulted in a second design cycle, which is in process now. This same handset maker has another designing cue for a different model and a second handset maker has a designing queue as well.

The second evaluation tool which ships out of our Singapore operation is there in Singapore awaiting import by our customer in China. While our projects and opportunities remain in tack, the timing for revenues this year is at risk to the impact that COVID-19 is having on several aspects of the business.

In China, we're projecting roughly four to six months of delay on development engineering programs. When the factories in China were shut down over the Lunar New Year, all development engineering work hadn't stopped. When the factories came back online, which is still an ongoing process.

All available resources including engineers were deployed to the manufacturing area in order to get the factories back up and running at some level of capacity as quickly as possible. We are only just recently beginning to see a resumption of focus development work by our customers in China for our Vertex programs.

In addition, given the current international travel situation, we are supporting these tools with only our China based teams. However, the Santa Clara development team is integral to the effort as well.

Rather than having our development teams working on site and in hand with our customers, we have to work remotely with them which elongates the duration and complicates the execution of the effort. Beyond the difficulty executing development programs remotely with our partners and customers trying to get their business back up and running.

Compounding situation is the deteriorating forecast for mobile handsets and the pressure that this will undoubtedly place on the display colored glass industry. At this time, while VERTEX project delays persist, we have been encouraged by the initial soft launch of our branded DIAMOND DOG Screen Protector.

The DIAMOND DOG is a best-in-class screen protector that we showcased at showstoppers event and see at CES in January, and it's had an encouraging reception so far. DIAMOND DOG is a branded consumer product selling for $29.99 utilizing our DiamondClad coding on a retail cell phone screen protector.

We believe this performance surpasses the best screen protectors on the market today and at a lower cost, it's sapphire-like protection against scratches, abrasion and breakage, it's several times better than competing products. Since our soft launch in January, we've been hard at work preparing for a full launch of the product.

We are now up and running on Amazon where the bulk of our current sales are coming from today, and currently have a low profile social media ad campaign ongoing on Facebook and Instagram. Initial sales volumes are modest as expected, as we work to establish our brand and continue to gain momentum.

Today we are close to depleting our initial seed inventory we soft launch with. Going forward, once we have significant inventory on the shelf at Amazon, we will ramp up our marketing campaign currently finishing development with an outside e-marketing specialist.

We have completed our launch inventory build of 3000 units and they will ship to Amazon for fulfillment as soon as possible. Unfortunately, the COVID-19 pandemic has had some impact here as well, as Amazon halted all non-essential products and inventory and are slowly bringing them in.

We received the go ahead to ship late last week and we are now moving forward with our product launch plans.

As a reminder, the primary objective behind this direct-to-consumer launch is to create industry and customer awareness of our DiamondClad codings capability, to accelerate DiamondClad demo activity on our EVA tools and to drive demand for VERTEX Marathon systems.

So while the focus is generating tool sales, there is however a large and lucrative market for high-end screen protectors around $300 million annually. From our testing DIAMOND DOG is a superior product. We look forward to keeping you up-to-date on the consumer response in handset maker interest resulting from the DIAMOND DOG product launch.

So the overall take away on VERTEX is that we're encouraged by our progress, our strategy is unchanged. And we continue to believe this business has some substantial growth potential for our Thin-Film Equipment business. However, this component of our business has been impacted by COVID-19 and our visibility for revenues in 2020 is extremely clouded.

We shall see in the coming months as things gradually recover in China whether these projects take hold in 2020 as planned and time is available to revenue though, or the revenue events would push to 2021. Next regarding the ENERGi platform.

In our solar cell ion implant business, we continue to have confidence in the future potential for the ENERGi product line. And discussions for the need of additional tools similar in scope to our previous multi-tool order in support of a multi gigawatt capacity expansion in China are ongoing.

At the time of our last call, our customers plan of record was to place follow on orders within the first half of 2020 with deliveries during the second half. With the shutdowns important teams experienced a challenge today, similar to our VERTEX evaluation activity, this expansion project in China is delayed by approximately six months.

Construction of our customers expansion factory was delayed, and we were finally able to meet face-to-face with senior leadership. They communicate that the capacity expansion will go forward, but the project delay is delayed and tool orders will push to the third quarter of this year.

Given the lead times for our tools, this will shift most if not all the ENERGi revenues out of this year and into the first half of 2021. And finally, for the MATRIX platform The MATRIX today has been serving the high efficiency solar cell manufacturing market, and now advanced semiconductor packaging.

Just as we're seeing the delays in China, the MATRIX PVD evaluation system is located in another country also affected by global travel restrictions and shutdowns. The tool continues its evaluation and qualification at their R&D facility, albeit at a slower pace, and we expect the evaluation cycle will be longer than planned due to these challenges.

This tool continues to remain in our 2021 plan. So in summary, based on our current plans in our Photonics and HDD businesses, and without further COVID related interruptions, our forecast for these two components of our business in 2020 is relatively unchanged since our last call. We continue to execute on this plan.

However, there's significant uncertainty about how this current crisis will ultimately impact global GDP end markets, our manufacturing capability, supply chain and most importantly our customers. In addition, the situation continues to evolve rapidly and we are experiencing unforeseen changes almost on a daily basis.

In light of these risks and uncertainties and the dynamic nature of the pandemic, we feel it would not be prudent to provide formal guidance at this time.

What we've communicated today is that so far through this crisis, it is clear that our TFE growth initiatives with customers and display cover panels solar and advanced semiconductor packaging sectors are experiencing delays with elongated sales, development and evaluation cycles, and therefore clouding the revenue timing associated with these programs.

In a downside scenario, with the majority of these revenues into this new markets move into 2021, we have confidence in our ability to closely manage expenses to limit non-strategic operating and capital expenditures, and to preserve the strength of our balance sheet.

These are unprecedented in challenging times, that we have the ways and means to get through it. The world looks a lot different today than it did three months ago. And it's sure to look different three months from now when we report again. We continue to look at the facts in real time day-by-day and react and adapt accordingly.

Despite the fact that current environment acutely imposes near term challenges and uncertainties affecting our growth potential in 2020, we see this as a temporary disruption caused by the chronic pandemic. None of the industries we serve or initiatives we are driving or going away, or have they been permanently disrupted.

We continue forward driving our strategy with confidence that while the achievement of our goals may become delayed, they are not beyond our reach.

I would also like to take this opportunity to thank the entire Intevac team, their families, as well as our many partners who have stepped up in these unprecedented and distressing times in support of our company and stakeholders.

I've seen many examples of incredible teamwork and creativity being employed to ensure we continue to work and serve our customers, all while keeping our number one priority and focus ensuring the safest possible environment to operate in while fulfilling our obligations as an essential business.

The team has moved forward with strength, courage and wisdom. And I'm proud to be part of the team during this moment in history. I can confidently say that the Intevac team is not only doing the best we can do under these circumstances, I believe we're doing the best that can be done.

I'll now turn the call over to Jim to discuss the details of our recent financial results.

Jim?.

Thank you, Wendell. Turning to the first quarter results. Consolidated first quarter revenues totaled $18.8 million. This was above our guidance of $18 million to $18.5 million, primarily as a result of faster than expected ramp in Photonics towards our growth plan for the year.

Thin-Film Equipment revenue totaled $8 million and included upgrades, spares and service. Photonics revenue of $10.9 million included $5.9 million of product revenues, and $5 million of contract research and development records. Q1 consolidated gross margin was 43% above guidance of 39% to 40% with both businesses delivering above forecast.

Thin-Film Equipment gross margin was 44% due to strong execution and a higher mix of upgrades versus forecast. Photonics gross margin was 43%, primarily driven by higher revenue and higher margins on both products and contract R&D versus forecast. Q1 operating expenses were $9.3 million below our guidance due to tight control of development spending.

We expect quarterly operating expenses to remain around the $9.5 million level for the remainder of 2020. This resulted in a net loss of $1.2 million or $0.05 per share better than our guidance. Our backlog was $87.2 million at quarter end. Thin-Film Equipment backlog of $22.4 million included two 200 Lean HDD systems and non-system HDD backlog.

The backlog in our Photonics business was $64.8 million. We ended the quarter with cash and investments including restricted cash of $43.2 million, equivalent to approximately $1.84 per share based on $23.5 million shares at quarter end. Cash flow generated by operations was $1.1 million during Q1.

Q1 capital expenditures were $1.1 million and depreciation and amortization was $858,000 for the quarter. We purchased approximately 100,000 shares of our stock on our repurchase program at an average price of $3.97 during the quarter. These purchases were pursuant to a 10B5-1 trading plan already in place.

As we entered the second quarter, we made the decision to suspend buybacks against the remaining $10 million available on our plan. Now turning to our outlook for 2020. Given the strong visibility and backlog in Photonics. We remain on track to grow Photonics revenue levels in 2020 in the range of 20% to 25% above 2019.

We continue to expect a softer year in our hard drive business this year, given fewer system shipments with the revenue growth in Photonics offsetting the lower hard drive revenue, consistent with our view as of the last earnings call.

Beyond these views, given the global uncertainties Wendell discussed, we are taking a conservative approach and will refrain from providing formal guidance at this time. I would like to say however, even with these uncertainties, we will prudently manage our expenses and cash.

We expect to use no more than $5 million of our cash this fiscal year, even in a downside scenario, and to maintain our balance sheet of cash and investments around the $40 million level. This completes the formal part of our presentation. Operator, we're ready for questions..

Thank you. [Operator Instructions] Our first question comes from Craig Ellis with B. Riley FBR. Please state your question..

Yes, thanks for taking the question and you guys in a very difficult environment. Congratulations on managing to the financials that you reported. I'm just going to start off with a clarification. You're welcome - clarification question on OpEx. So, Jim, the positive variance to what we expected in the quarter was clear, the development expense item.

But if you look ahead and you maintain OpEx at around $9.5 million, is that because some of those development expenses are held down or there are other sources of production that would step in.

I'm just looking for the composition of lower OpEx going ahead?.

Yes, some of that in the near term would be the limited travel that would go into OpEx is going to be reduced as well as we're managing the expenses including OpEx just down to a lower level. It just makes sense to do that, its prudent thing to do at this point in time..

Yes. And then, Wendell, it was very helpful to get the detailed description on what you're seeing with the supply chain and display advanced packaging and solar. And it's clear that just saw the disruption that we've seen and continue to encounter a new to your point on Singapore is having some impact.

The question is across those three areas, solar displaying advanced packaging and advanced packaging was something where you expected revenues next year.

But the other two, is there any greater or lesser confidence between the two on what might be able to rerack this year versus next year?.

Well, I think if I look at all of the equipment that is out there, the VERTEX tools are fundamentally all in China, so they carry a bit of a different concern, because right now there's a complete travel ban coming into China and when that gets lifted we don't know.

On the HDD side, that the majority of our deliveries actually go in Singapore, so that's really a function that's going to be them opening the businesses back up, or I think they call them circuit breakers in Singapore, they can turn one of the circuit breakers back on.

What we don't know right now is what other parts of the supply chain may be being affected by this latest move in Singapore. And literally, I finished the conference call script last night at 5 o'clock, and I got a call at 5:30 from Singapore that we've been told that we were going to have to shut down in 48 hours.

Now Singapore certainly handles things well. They have been the poster child for how to deal with this pandemic, and I expect that they'll come back quickly. But we're going to work on getting an exception because our customers are operating as essential business in Singapore as well as in the U.S.

So we're heading down that path immediately - those meetings took place. Mondays in a poor time..

Okay, and just to understand, is that just potentially significantly impacting 200 lanes, or is there also potentially a meaningful impact of what you could rerack and upgrades in software?.

Well, I think when we look at our business flow in HDD, their great business is relatively consistent, the process module upgrades and things like that, that flow up through the year and tools that are coming in a bunch. I can see, you can make a case that the 200 lanes could come back into Q2, one of them could push to Q3, they both get pushed.

So we just really don't know at this moment and like I said, we found out about this last night. So we're in the process right now, we've got meetings set up that will start here in a few more hours in Singapore wakes up on Tuesday to start assessing where we think everything is at..

Got it. Okay, I'll hop back into the queue. Thanks very much, guys..

Bye..

Thanks Craig..

Thank you. [Operator Instructions] Our next question comes from Mark Miller with The Benchmark Company. Please state your question..

Thank you for taking my question. I just want to make sure I understand –.

Hi, Mark..

Hi, I just want to make sure I understand all the ramifications. You mentioned the HDD the Lean tools could slip from the second quarter to third. Also some process module upgrades may also be slipping.

Seems like the biggest issues might be the VERTEX and ENERGi iron implant tools that they both could be some of these expected sales could be slipping into 2021. Photonics is really not that effective.

Is that a good summary or did I missed something?.

No, I think that's a pretty good summary, we had a little bit of an impact in Photonics because we did take the Santa Clara campus down for two weeks. That was kind of the prescribed timeframe where people would show some type of symptoms if they were ill.

But we were able to catch up and we get the final shipments out for the quarter and we're catching up now. You know, right now, the Photonics it looks pretty good. Clearly the Homeland Security orders were very clear about this defense infrastructure staying, working and letting it know it was our duty to do so.

I think that the tools in China have a little bit more of a complicated situation, but - so if those would be the most likely that could slip particularly follow on orders. But you can also say, we've got a VERTEX EVA tool that moves into full production that would revenue almost right away.

So, we're just going to have to wait and see how things are playing out.

But the good news on VERTEX is after a pretty long hiatus, the engineering teams are back working on the tool, and there is some focus on engineering work going and development work going on with the covered glass makers rather than just trying to get some production out the door with anybody they can possibly man a machine..

The drive companies are all reporting in part due to the Coronavirus more stay at home type activities, but they're all reporting very strong demand for near line storage.

Any idea what their media plants in terms of running, in terms of what percent are they up in terms of capacity?.

I think, right now that could be utilization rates have come down a bit, but I believe that's more of a function of component supply, rather than hard drive demand.

I think the demand is there, and I think we look at one of the comments I made in the prepared remarks is really what the impact Malaysia has on the food chain in HDD, which is something to pay attention to since their borders have all closed out, and there's very limited activity there.

So the demand seems very high, again, especially on the near line side. And a lot of the things that are being discussed is data infrastructure is going to be one of the longer-term winners in all of this pandemic as people remote out.

And I think some of those people will never remote back in, and same with some of the virtual learnings, in-house schools and classes are being done. So I think in a big picture, HDD, it should be a positive, not a headwind necessarily, but certainly near term is destruct. The disruptions that we're dealing with has been painful..

No. On the other side is the concern over consumer electronics, obviously that's slowing a smartphone sales were supposed to be down low double-digits.

Any idea how your display customers plants are operating, are they operating at the half production or how are you feeling what's going on there? Or are they've starting to ramp back up or what's your thoughts about that business in terms of the activity in the plants?.

I think in general they're ramping back up from a standstill basically, but I believe there is a fair amount of hand ringing in the entire industry space that there is going to be a downturn in handsets that you're going to have to manage through the second half of this year just because nobody's buying phones right now..

And I think Apple just announced like one month delay….

Certainly demand is down. Yes..

Okay. All right, well thank you for your questions and happy everybody's in good health there..

Thanks, Mark..

Thanks, Mark..

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

Thank you. Before I sign off, I'd like to again thank the dedicated employees of Intevac all around the world and there's tremendous efforts and dedication in 2022. I also want to thank our customers for their continued business and appreciated 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..

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