Timothy Stultz - President and Chief Executive Officer Jeffrey Andreson - Chief Financial Officer Claire McAdams - Headgate Partners LLC.

Tom Diffely - D.A. Davidson & Co. Patrick Ho - Stifel, Nicolaus & Co. Mark Miller - Benchmark Company Weston Twigg - Pacific Crest Securities David Wu - Indaba Global Research.

Good afternoon, and welcome to the Nanometrics’ Third Quarter Financial Results Conference Call. A Q&A session will be held at the end of the call. Until that time, all participants will be in a listen-only mode. Please note that this conference call is being recorded today, October 27, 2016.

At this time, I would like to turn the call over to your host, Claire McAdams. Please go ahead..

Thank you, and good afternoon, everyone. Welcome to the Nanometrics’ third quarter 2016 financial results conference call. On today’s call are Dr. Timothy Stultz, President and Chief Executive Officer; and Jeffrey Andreson, Chief Financial Officer. Shortly, Tim will provide a recap of this quarter and our perspective looking forward.

Then, Jeff will discuss our financial results in more detail, after which we will open up the call for Q&A. The press release detailing our financial results was distributed over the wire services shortly after 1:00 PM Pacific this afternoon.

The press release and supplemental financial information are also available on our website at www.nanometrics.com. Today’s conference call contains certain forward-looking statements including, but not limited to, financial performance and results including revenue, margins, operating expenses, profitability and earnings per share.

Such statements may be identified by the use of words like believe, expect and similar expressions that look to forward events or performance.

Although Nanometrics believes that the expectations reflected in the forward-looking statements are reasonable, actual results could differ materially from the expectations due to a variety of factors including general economic conditions, changes in timing and levels of industry spending, the adoption and competitiveness of our products, industry adoption of new technology and manufacturing processes, customer demand, shift in timing of orders or product shipments, changes in product mix, our ability to successfully realize operating efficiencies and the additional risk factors and cautionary statements set forth in the company’s Form 10-K on file for fiscal year 2015.

Nanometrics disclaims any obligation to update information contained in any forward-looking statement. During today’s call, we will also refer to financial measures not calculated according to Generally Accepted Accounting Principles.

Please refer to today’s press release for an explanations of our reasons for using such non-GAAP measures as well as tables reconciling these measures to our GAAP results. I will now turn over the call to Tim Stultz.

Tim?.

Thank you, Claire. Good afternoon, everyone, and thank you for taking the time to join us on our call. Today, I will speak to recent highlights of our business and financial performance as well as industry trends and our business drivers. I will conclude with our guidance for the December quarter.

Following my prepared remarks, Jeff will provide additional details on our financial results. After which we will open the lines for Q&A. Our September quarter results reflect continued revenue growth and outperformance versus the overall Wafer Fab Equipment or WFE market, an another quarter of improved financial performance.

While 3D NAND revenues continued to be strong and were once again the largest contributor to our sales volume. We saw a more balanced mix of business across our customer base, the significant sequential growth in foundry and DRAM revenues.

Our quarterly and year-to-date results clearly demonstrate the progress we have made against our commitment to improve financial performance across all areas of our business. In the third quarter, we posted five year high in our operating profitability, earnings per share and free cash flow. We also added $22.5 million in cash to the balance sheet.

In the first nine months of 2016, revenues increased 12% over the comparable period of 2015. Gross profit grew by 20% and operating profit nearly tripled. Incremental gross profit and incremental operating profit over the same comparable period were 82% and 80% of incremental revenues respectively.

And free cash flow for the first nine months was 19% of revenues, above our target model. The successful execution of our multi-year strategy to target key technology inflection points within industry-leading process control metrology solutions has resulted in two record positions with every leading semiconductor manufacturer across all device types.

It has also been the catalyst for revenue growth, share gains, and overall outperformance versus wafer fab equipment spending. And while 3D NAND business has been a major headline for us this year, there is much more to the Nano story.

Over the last several quarters, we have realized significant growth and increased market share in integrated metrology system as well as good progress in growing our thin films business. Year-to-date, in both integrated metrology and thin films, we have already exceeded our previous full year revenue records.

We were also executing well against our strategy to increase our value in the fab through technology upgrades, software and data analytics. And for the full year, we are on track to deliver record high revenues in key areas including the total memory end-market, service and upgrades.

Fundamental to the ability to gain and sustain our maintenance technology nodes is a requirement to continuously develop and offer new products, technologies and system solutions.

To be successful, new product offerings burst at a timely intersection with customer roadmaps and address the challenges they face in developing and producing leading-edge devices. Earlier this year, we introduced the Atlas III and IMPULSE+, the newest additions to our flagship OCD product line.

In addition, we launched the Diffract Four, the latest upgrade to our OCD modeling and analysis software. Together these products significantly raise the performance bar for OCD metrology. We give our customers powerful new capabilities in process control.

Following the successful multi-tool installation with our launch partner earlier this year, our Atlas III is in combination with our Diffract Four software have already been accepted for production and are being deployed into next-generation DRAM high volume manufacturing.

The successful sign-off of these tools within two quarters of product launch and a solid gross margin performance within the first quarter of revenue recognition are evidence of our improved operational execution while meeting our customers aggressive timelines and challenging performance objectives.

In 2017, we will continue to strengthen our market and customer positions by launching several new products, once again tightly aligned to our customers’ roadmap and performance requirements.

Over the last few years, technology inflection points such as FinFet transistors and 3D memory architectures have been key drivers of incremental OCD demand as well as been instrumental in enabling us to win market share with leading-edge customers. Today, both our 3D NAND as well as DRAM customers are faced with a new metrology challenge.

Full characterization of extremely high aspect ratio device VS or channels. In 3D NAND there are channel holes with height to width aspect ratios approaching 75 to 1. In DRAM there are storage capacitors with aspect ratios approaching 50 to 1.

For these 3D device structures, metrology measurements are far more complex in just height, width and depth, which are challenging by themselves.

However, in addition to those basic geometric features, our customers need to measure and characterize channel or sidewall tilt, top to bottom asymmetries, - steep within the channel and process additions [ph] for future alterations.

With OCD metrology, using two complementary but uniquely different optical technologies, in combination with extremely powerful modeling software it is possible to provide comprehensive 3D characterization of these highest sequential features on a non-destructive high speed in line platform.

These new applications along with emerging metrology challenges in alternative memory device architectures are increasingly reliant in the NAND for leading-edge OCD solutions. And now is a leader in all these areas.

Looking forward to 2017, there are a number of important industry trends and plant investments paving the way for another strong year of WFE in general and Nanometrics in particular. We expect significant new project spending by multiple customers in the second and third generation 3D NAND where we have a very strong market position.

We expect investments for high volume manufacturing of 1x DRAM to result in a growth year for DRAM spending, while the Atlas III has already been accepted and deployed.

We expect growth in our foundry business from 10-nanometer capacity spend HVM ramping of 7-nanometer and development of 5-nanometer devices and we expect to increase all of our thin film metrology, integrated metrology and software and data analytics to further add to our growth story.

As a final note, I want to speak to an important topic we’ve been addressing for some time, the increasing importance of Advanced Process Control or APC. As that process control strategies use metrology and data analytics is playing an ever expanding role in accelerating fab brands and driving the yield improvements.

Both process, challenges tied to the growing number of process steps and reduced tolerance for process variations on accompanying new architectures. The role of in line process control, which leverages synergies between automated and integrated platforms has become increasingly important to our customers.

Notably, the total process tolerance budget is now less than the sum of the controllable budgets for each individual process step.

The only way to address this challenge is by using fab-wide process control strategies across multiple process tools and multiple process steps, because we uniquely offer full featured, automated and integrated tool and the software that can titled together, this is an area of particular space for Nano.

Our process control solutions are being deployed fab-wide with the ability to share and leverage data in both feed forward and feed backward protocols between tools from multiple vendors and across multiple steps.

By doing so, our tools and software solutions are helping our customers reduce process control data latency, accelerate ramps and drive yield improvement. And as a consequence of these trends in our product offerings, Nano is playing an unprecedented and increasingly important role in overall fab management and yield performance.

Summing it up, we are continuing to grow our business, improve our financial performance and perform favorably against our business model targets. As evidenced by our fourth quarter guidance and in combination with our year-to-date results, we fully expect year-to-year revenue growth to once again significantly outperform WFE trends this year.

And as we have guided previously, we expect our second half revenues to be stronger than our first half results. Importantly, we remain positive about the ability to continue this trend in 2017.

Benefiting from industry investment in leading-edge technologies, our strong OCD and growing thin film market position, our product and technology roadmap, and our commitment to drive and improve operational excellence and all that we do. With that our guidance for the December quarter is as follows.

Revenues of between $54 million and $59 million and on a non-GAAP basis, gross margin of 51% to 52%, operating expenses of $20.8 million to $21.4 million, and earnings of $0.22 to $0.31 per share.

For the full year, our Q4 guidance represents annual revenue growth of between 15% and 18% over 2015 and a range of $0.97 to $1.06 in earnings per share, which is about four times greater than last year’s earnings. I would now turn the call over to Jeff for a detailed review of our financial performance and outlook.

Jeff?.

Thanks, Tim. Before I begin my comments, I’d like to remind you that a schedule which summarizes GAAP and non-GAAP financial results discussed on this conference call as well as supplemental revenue segment information by product, end-market and geographic region is available in the Investor Section of our website.

Third quarter revenues were $58.7million, an increase of 5% from Q2 and up 29% from Q3 of 2015. Product revenues were $49.6 million, an increase of 5% from Q2 and up 33% from Q3 of 2015. Service revenues of $9.1 million were up 9% from Q2 and increased 7% from the third quarter of 2015.

By end-market, the NAND segment, which is now predominantly 3D NAND moderated by about 30% from a record high second quarter to comprise 42% of product sales in Q3. The DRAM and foundry segments each doubled from the second quarter to comprise 23% and 20% of product sales respectively in Q3.

Our IDM Logic segment was 7% of product sales and all other devices and substrates comprise the remaining 8% of product sales. By product type total third quarter revenues were comprised of 60% automated system, 17% integrated metrology system, 8% materials characterization systems and the remaining 15% was service.

Our 10% customers in the third quarter included SK hynix at 19%, Intel at 19%, Micron at 15%, and TSMC at 10% of total revenues for the quarter. I’ll now discuss the remainder of the P&L which are non-GAAP measures now as I identify the measure at GAAP basis. These measures exclude the impact of amortization of acquired intangible assets.

Our Q3 gross margin was 52.5%, an increase of 70 basis points from the second quarter. Product gross margin was similar to Q2 at 54% and service gross margin improved to 44%. Product mix had a favorable impact on product gross margin in the third quarter.

Reflecting the strong level of upgrade sales and the fact that the initial Atlas III’s recognized this revenue had a negligible effect on our gross margins. For the fourth quarter, we are forecasting a lower level of upgrade revenue versus Q3 and we’ll be within our target model range of 51% to 52% for this revenue volume.

Operating expenses of $21.3 million were above our guidance range of $20.6 million to $21.2 million, primarily due to a shift of product development program spending into the third quarter.

We are expecting a similar range of operating expenses for the fourth quarter, which reflects both a 14 week quarter and an increase of stock compensation expenses as a result of the appreciation in our stock price. For the full year, we continue to expect total operating expenses to be similar to 2015’s level.

Below the operating line, other income was $149,000, and included a foreign exchange gain of approximately $100,000. Our tax expense for the quarter was $1.3 million or 14% of pretax income. This was lower than expected due to the timing of a favorable adjustment to our US tax and was equivalent to $0.02 per share.

We expect our fourth quarter tax rate will be in the range of 15% to 17%. Net income for the third quarter was $8.3 million or $0.33 per share. Turning to the balance sheet, cash and investments increased $22.5 million from Q2 and ended the quarter at $118.5 million or about $4.76 per share.

Days sales outstanding decreased to 63 days from 87 days in the prior quarter principally due to the recognition of – and collection of our deferred revenue billing. Excluding the impact of deferred revenues, DSOs for both quarters were similar in the low 70s.

Our deferred revenue decreased to $17.4 million and mainly consists of Atlas III shipments and other systems requiring customer acceptance for revenue recognition. Inventory decreased $7 million to $43.7 million at the end of the third quarter, as we recognized revenue on the deferred systems and shorten our supplier lead times.

Cash flow from operations increased to $20.9 million reflecting the increase in profitability concurrent with improvements in our working capital level. Free cash flow was $20.1 million. And with that, I will turn the call over for questions.

Operator?.

[Operator Instructions] Your first question comes from the line of Tom Diffely with D.A.D. Your line is open..

Yes, good afternoon. So, I just wanted to crunch a little bit on the memories part of the business for the out year. You talked about the second and third generations of 3D NAND were going to be a big driver for you.

So curious with your own product set, what is the opportunity of an upgrade of an existing fab from the first generation to second or third generation? Or the Greenfield of the new fab going straight to second or third generation?.

Hi, Tom, this is Tim. Thanks for the call. Most of the growth that we are projecting in 2017 is equivalent to Greenfield fabs or second phase fill outs on existing fabs. If you watch at the investments at Samsung, hynix, Micron and Toshiba I’ve spoken to, they are still tooling these up with new tools and it’s not, they are not conversions.

And that’s going to be the predominant contributor to our 3D NAND business. .

Okay.

So, in that sense though, is the opportunity I assume it’s bigger for a new second generation or a new third generation versus what you initially did for the first generation?.

Yes, we – it depends on which – whether you go to the second, third, when they start stacking it. So, the first and second generation is about the same opportunity for OCD for 10,000 wafer starts, when we get into the areas where they might be stacking them as opposed to just adding layers, then there is incremental demand for the tools.

But, if you refer to the model that we’ve got published in our IR presentation, it still holds pretty true to that through the first couple generation..

Okay, and then previously you mentioned on the DRAM side that you thought it was started in the fourth quarter.

Is that still the case and how much of a recovery do you expect now here?.

Yes, we’ve got, the DRAM has been picking up, or picked up for us this quarter. DRAM spending is continuing we’ve got three customers out there they are making investments, the y are staggered, they are not coincident and we see some first half, it was one customer and see second half with the second customer..

Okay, great.

And then finally, when you look at the upgrades, how do you internally try to forecast the timing of upgrades, is it consistent with when new fabs are going through a technology change or what is it that drives the high margin upgrades business for you?.

That’s a really good question. Some of it is just the largest installed base of tools we have where we could offer increased productivity to existing fabs at older technologies and it’s not necessarily just targeted to fab conversions.

So we’ll go to customers that have 20, 30, 40 of our tools in a given fab and we have a compelling value proposition to upgrade the hardware to maybe getting a little more throughput, little more precision repeatability and it just improves, it’s a benefit to the existing fab.

At the same time, we do have those fabs that are being converted and in other case, we go after, when we know the conversions are occurring, then we go into them with a set of upgrades that supports the conversion of the new technology challenges and the cost of ownership objectives. .

Okay, is there a rule to split?.

Go ahead..

Is there a rule somewhere you can upgrade one or two generations and you have to get a new tool or how does that typically work out?.

Yes, it’s a place, I love that one, Tim. I don’t know, I’ve got one customer that – has been using the same tool set for seven years as you know and we have provided upgrades on that earlier. That’s the more of the exception on the rule.

Most of our customers are using through one to two technology nodes and the driven can take advantage of the technology advancements and they like the new tools because of a number of new features capabilities and the cost of ownership benefits that are not necessarily upgradable to their older platform. .

Okay, great. Thanks for your time. .

Okay, Tom. Thank you. .

Your next question comes from the line of Patrick Ho with Stifel, Nicolaus. Your line is open..

Thank you very much. Tim, as you look at the December quarter, you mentioned that you continue to see strength of foundries, DRAM and 3D NAND.

Can you just give a little more color in the mix relative to 3Q whether there is any changes in, I guess, will the top market segment will be in Q4?.

Q4 versus Q3?.

Yes. .

Yes, so, Patrick, I would point – how to tell it, it put a little more weight on the foundry DRAM opportunities as opposed to the 3D NAND. 3D NAND will continue to be a reasonable market, but there is some strength in the whole second half of the year on recovery and increased spending both in foundry and DRAM..

Great, that’s helpful.

And maybe following up on the foundry, as they move to 10-nanometers and eventually to 7-nanometers, how much do you see opportunities in terms of, I guess, upgrades versus even new tool buys as the bay transition from one node to the next, particularly since some of the leading players have talked about 10, 7 being kind of the same node.

How do you see that opportunity potentially shaping up for you down the road?.

That’s another good question. Since that’s really customer-specific and we are relatively new in terms of the market share gains we made on the 14, 16-nanometer. Most of those, most of the opportunity refers to our new tool opportunities. So, when you look at where the investments on the 10,7 is, we don’t think 10 is going to be a big node.

We think there will be some overlap going into 7, we think 7 will be extended, but in a 10,7 combination, tooling out those fabs it’s mostly new tool opportunities for us. .

Great, and final question from me, some of the inroads that you’ve made on the integrated metrology side of things, in terms of the business model, given that you’ve talked about product mix as being one of the key variables for gross margins, how do you see any potential shift from your automated business to integrated as that gross as a percentage.

Does that have any impact on overall gross margins?.

I’ll give you one answer and then I’ll let Jeff with numbers around it, but generally, we work very hard at it. When we changed our business model on integrated to be a direct sales to the end user, we basically increased to restore the gross margin contribution.

So, if you look at our integrated business and our automated tools and what was done in both areas, we’ve done our best to make sure that all of them contribute pretty close to the same level of gross profit to the numbers. Now there is a mix number and Jeff can speak to how – what you might expect in swings, but it’s not huge..

No, it’s a very small difference. There is a difference, but it’s relatively small and you can have mix impacts both within integrated versus the automated depending on the application and the amount of software we sell with it. But we don’t really see as one ramps versus the other that have a big impact on the gross margins..

And I think when you are modeling it Patrick also, the integrated certainly has a much lower ASP, but the volume of integrated in a given fab seems to be higher because of the weather and storm in the attach rate of those tools on the – for instance on polishers and deposition tools.

So, we get the benefit of higher volume lower ASP, but overall nice contribution to the revenue story..

Great, thank you..

Okay..

Your next question comes from the line of Mark Miller with the Benchmark Company. Your line is open. .

Thank you.

The upgrades you are seeing, are they more hardware than software? Is it more shifted towards hardware?.

This quarter, I mean it was a relatively strong quarter, there were some software in there, but, I wouldn’t say with it it’s significantly different from any other quarter. Software always plays a component of it, but a lot of it was hardware this quarter. There is some conversions we were doing or upgrades..

As the hardware was detectors, lamps or something else?.

I don’t know we’ll get to that level of specifics..

The hardware that we put in, it’s generally a hardware and software combination that gives a little more performance and in terms of precision repeatability, it’s got a value to the customer and they go hand-in-hand, Mark. We have software advances, but they are tied to the hardware components that leverage the tool’s capability..

What should the upswing in DRAM is due to a stronger PC market as opposed to next-gen type shifts?.

Yes, I wouldn’t tie all the DRAM to the PC market. I think that you got multiple devices. You know that they are also able to drive it. Most of the spending and the investments we are seeing are going into the advanced nodes and as we said, the 1x nodes..

Okay and the DRAM improvements that’s coming from more DRAM per mobile device, is that’s what’s driving that, because mobile device has slowed down so what immune into the cell phones?.

Right, well, I think there is – as the DRAM, a reason we are seeing an uptick is that the DRAM investment cycle has been pretty low because of the low spot prices on it. So there has been a – there was a slowdown of the milled year on DRAM investments.

Now it’s a balance between the supply and demand side and what we are seeing is that, both advanced technology nodes to deal with the mobile device content and also to provide supply that’s starting be more in balance with the demand, all the DRAM manufacturers are stepping up and putting more money into their fabs and their technologies. .

The current expectations are very strong NAND Flash bit growth 45% and there is sort of a growing feeling that with some of the challenges with 3D flash that we are going to be in a certainly not an oversupply condition and if we do get into a shortage condition and price there is still staying up for NAND Flash do you see them reverting to the spending at two dimension or 2D type flash or you are – going to being able to gear up the 3D stuff fairly quickly?.

No, I think that they are fully committed to the 3D NAND technology. I don’t think anybody is going to try to drop back to the NAND applications. So you need the performance and the density. You’ve got five major investors, you’ve got more coming out of China that are looking at it.

They are all pushing on the technology nodes and they are pushing to the – to get to the price point crossover with hard disk drives for SSDs. So I think you are going to see, everybody is going to see, and I think that this whole idea of supply demand is a little bit remodeled.

There is – it needs to be reevaluated, because it’s a price elastic market unlike what you see in the end-use markets for the logic devices in DRAM.

And I think at the right price point, you’ll have almost sensational demand for incremental memory and I think all of these – all of the major customers that are developing these and producing and recognize that and have that in their own models. .

Just one more, did you say Logic sales were roughly 8% of total sales for Logic?.

7%..

7%? 7% okay. Thank you..

Thanks, Mark. .

Thanks, Mark. .

Your next question comes from the line of Weston Twigg with Pacific Crest Securities. Your line is open. .

Yes, hi. Thanks for taking my question. First, just looking at the December revenue guidance, a lot of the other companies have been having pretty good guidance. I am surprised that you didn’t guide revenue up given the pretty strong demand environment.

And I am wondering if maybe that suggest that you’ll have revenue spike in Q1 or Q2 or something in the first half? Can you maybe give us an idea on the visibility into first half 2017 based on the current demand trends?.

I can’t give you specifics, West, because as you know we don’t guide into the quarter hence beyond the current quarter. But there is a timing element there. As you know, we’ve – our revenue growth is for the year, is greater than WP by a large percentage.

Our revenue growth is greater than our competitors who actually if you are looking at one of the largest competitors who had a nice guidance for Q4 came off of it, a down Q3 in the calendar quarter. We have had sequential upguides. So some of it’s timing, some of it’s where we are tied into the nodes, when the developments occur.

Some of it’s tied to effectively have a big – we have a big push on 3D NAND as we tool off those fabs and we believe that 2017 is going to another substantial growth year.

We think that the investments that we’ve been speaking to will help us increase our revenues and we – I don’t think that we see necessarily a spike in Q1 or we see continued growth throughout that year. .

Okay, that’s helpful. The other question I had was just on the tax rate, it’s pretty low, especially compared to the model.

As we think about the tax rate for 2017, can you help us maybe give us a bracket for it?.

Well, I mean, the tax rate, remember is low because essentially we’ve written off our deferred tax asset for the US. And so, basically you are seeing some – you are seeing a tax basically on the foreign label entity. But, next year if the tax asset is recovering and we are back to more normal rates, it will be around 30, low 30s.

We have to do an analysis if we don’t put the tax rate tax assets back on to the books and it will probably stay in this 15 to 20 range just depending on the one-time nature of certain things.

That helps?.

Yes, I think it does help. Thank you. .

It’s not an easy answer, sorry..

Yes. .

Your next question comes from the line of David Wu Indaba Global Review. Your line is open..

Good afternoon. I’ve got a question for you Tim.

Your revenues has been between 55 and high 50s since the second quarter of this year and I was wondering next year your revenues should increase, but what is going to drive the breakout of that quarterly revenue above $60 million? And Jeff, is it possible to hold your operating expenses flat in calendar 2017 after the performance of calendar 2016?.

So, David, I’ll try to answer your first question. I’ll let Jeff to answer your second question and thanks for calling in.

What’s going to drive it is that, as you know, we’ve gained substantial – we’ve had substantial market share gains and solid positions in 3D NAND which has been a wonderful market for us and we see a lot of – we see increased spending next year in 3D NAND over this year.

So, if you look at the big growth rate, look at the fabs that are going to plan, you look at the total capacity being put in place. We see a lot of opportunity in that robust market and as the market leader in that space, it’s going to support growth.

We’ve also got the elements of growth coming from the new foundry and DRAM spending that we mentioned earlier in the call. Our software and data analytics, this is beginning to grow. Our thin films business, which recently a record thin film business is starting to become a nice contributor.

So if you add new thin films business, if you add the software and data analytics, if you look at greater investments of 3D NAND in 2017 versus 2016, then we have a great deal of confidence that’s going to be a growth year for us. .

Is the breakout quarter going to be first half or second half of the year at this point?.

David, you can try. I am not going to give you that much clarity. I’d probably have to be careful not to call it a breakout quarter. I think that what we are trying to do is, say have nice steady incremental growth as best we can.

We try to – Jeff, I’ll let Jeff speak to the operating expenses, but as you know that, if you look at the our incremental profit, the incremental margin against our revenues, for the year, if you take our midpoint, we are going to be adding something like $30 million of revenues and $20 million of operating profit as incremental.

So, we’ve got a robust model and for us if we continue to operate with that kind of flow through with profitability and putting cash on the balance sheet, I don’t think we need a breakout quarter to be, a company that’s doing a hell of a good job. .

David, on operating expense, I mean, if you look, we’ve essentially held the rate flat for, that’s going on three years.

So, as Tim said, we look at 2017 as another really good year for us potentially, So, I would expect that we will manage our operating expenses within our business model and it’s when you see some incremental growth, you’ll probably see some incremental OpEx, but we are not talking about any step functions.

I think if you look at our model, it grows at a fraction of the revenue growth..

Okay, thank you. .

Okay, David, thank you..

[Operator Instructions] I am showing no further questions at this time. I would now like to turn the conference back over to Timothy Stultz. .

Thank you once again for participating in our call. And special thanks and continued appreciation to our dedicated employees and business partners without whom now we would not be such a great company to be part of. With that, we conclude our conference call today. .

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation and have a wonderful day. You may all disconnect..