Intevac Inc (IVAC) 2015 Q2 法說會逐字稿

Good day and welcome to the Intevac's second quarter 2015 financial results conference call. (Operator Instructions) Please note that this conference call is been recorded today, August 3, 2015. At this time, I'd like to turn the call over to Ms. 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 second quarter of FY15 which ended on July 4. In addition to outlining the Company's financial results, we will provide guidance for the third quarter of 2015 and discuss our outlook for the year.

Joining me on today's call are Wendell Blonigan, President and Chief Executive Officer; and Jim Moniz, Chief Financial Officer. Wendell will start with an update on our businesses and then Jim will review second quarter results and provide our outlook for Q3 and the full year before turning the call over to Q&A.

I would like to make everyone that today's conference call contains certain forward-looking statements included, but not limited to, statements regarding financial results for the Company's most recently completed fiscal quarter which remains subject to adjustment in connection with the preparation of our Form 10-Q as well as comments about 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 related 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 earnings on Form 10-Q.

The comments of this August 3 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 over the call to Wendell.

Thanks, Claire, and good afternoon. On the call today I will review the recent progress we have made in our strategic initiatives and provide some commentary on the current environment for our business units. Today, we reported financial results above the midpoint of our guidance with revenue of $20.5 million and roughly breakeven profitability. The variance in our revenue guidance for the second quarter included uncertainty in the signoff timing of the MATRIX PVD solar system in backlog. This tool revenue is on customer signoff and is subject to our customer 's factory status and priorities which are not in our control. We are in the final stages of qualification and expect it to revenue this year.

Off the low end of the $18 million Q2 revenue guidance, we again saw some up side in our hard drive system upgrades for up significantly from the first quarter as our customers made some strategic purchases. This strong increase in upgrades led to margins and probability exceeding our expectations for the quarter and it also leads us to once again improve our revenue outlook for the year. From our outlook entering the year of relatively flat revenues for 2015 to up to 5% on our last call, we now anticipate 2015 revenues will be up 5% to 10% over 2014.

I am pleased to report that we continue to make excellent progress in our Thin-film Equipment growth strategy. Q2 revenues included some development funding from our JDP pressure for passing the key technical and commercial milestones on our solar implant program, which we discussed our last call. And notably two weeks ago we announced an important new customer win for display cover panel market. We won a new tier 1 customer for VERTEX PVD system for the protective coating of cell phones and other mobile devices. The implications of a new customer win in this developing opportunity are significant, as I will discuss later. We are also pleased to announce a new production order in Photonics business building backlog for deliveries in 2016 and 2017.

I will now turn to discuss current environments in each of our businesses starting with Photonics. Photonics revenues were $9 million in the second quarter, similar to the first quarter with an operating margin of about 14%, favorable to our long-term model. The overall business environment is unchanged from the last quarter as funded R&D revenues continue at four-year lows as the result of the sequestration of the military budget. We are anticipating a better funding environment in our government's FY16 based on the president's budget while we monitor congressional defense budget reviews. We will know more in October when the budget is scheduled to be passed.

In light of the funded R&D environment, we continue to execute well on production programs and fund strategic R&D activities internally. In early July we announced the second major order release for the Apache helicopter night vision cameras, a $13 million production contract covering deliveries through 2017. As part of this order, the US Army also accepted an additional $11 million in options for foreign military sales, the timing which is to be determined. We are extremely pleased with our execution of the Apache program with on-time, in spec deliveries, and our ability to come up the yield curves faster than forecasted. This $75 million program continues to be the cornerstone of our Photonics business and is an ongoing success.

Additionally, we entered into a $26 million multi-year pricing agreement for night vision camera modules in support of the F35 joint strike fighter program. This program is the largest in US military history and the initial production order of $4.6 million demonstrates the emerging importance of our proprietary night vision technology for the future of the US military. Our camera is integrated into the helmet mounted display system, or HMD for short, and provides exciting technical advancements such as precision-integrated symbology and extreme off-axis targeting and cueing. This HMD with Intevac's digital night vision will be used by multiple branches of the armed forces including the Air Force, Navy, and Marines, as well as the nine partner nations Air Forces and three additional foreign military sales customers. The $26 million agreement covers the next several years with the program amount of business exceeding $120 million over the life of the program.

As we noted on the second quarter call of last year, our partner, BAE, launched their new Striker II helmet mounted display at the Farnborough Air Show in the UK. In the July 2015 issue of Eurofighter World, the Striker II is highlighted as an incredibly sophisticated digital innovation and one of the most advanced helmets ever devised. Our digital low-light sensor is the exclusive source of digital night vision technology for the helmet which projects the field of view onto the inside of the helmet 's visor, entirely eliminating the need for analog night vision goggles and most importantly gives the pilots the same digital heads-up information at night that they have during the day. I would encourage all of you to read the article about the helmet's impressive capabilities.

We are now driving our internally funded program for our next-generation digital sensor, targeting ground soldier deployment. As with the production proven ICE-11 sensor, we will be looking to offset our development in CapEx costs with significant funding from the government and anticipate initial funding after the 2016 military budget has been approved. This is a very barge and long-term program and we must begin now to meet the military's road map for deploying digital night vision to ground forces which will be the largest application for our digital night vision technology. Additionally, our government funded program for night vision goggles for avionics remains on track for prototype delivery at the end of the year.

There's no change in our differentiated positioning and we continue to be recognized as the provider of integrated digital night vision imaging systems for the US military with an opportunity pipeline of over $350 million over the life of the programs which we are currently engaged.

Now to discuss our Thin-film Equipment business. I continue to be very pleased with their growing traction in new markets and the execution of our Thin-film Equipment growth strategy. Levering our core capabilities and technology into new Thin-film deposition applications, we continue to gain momentum in entering new markets outside the hard drive industry. In my recap of the second-quarter results, I highlighted some key milestones in our growth initiatives in Thin-film Equipment. These initiatives are protective coating for display cover panels plus PVD metallization and implant for advanced solar cell manufacturing.

In our display cover panel initiative we followed up on a successful Q1 signoff of our first pilot vertex PVD tool with the second tool sale to a new tier 1 cover panel manufacturer. Our second tier 1 customer win is an important validation that the end market value proposition is evident. We have demonstrated that our production tool and engineered thin-film process delivers outstanding performance as a cost effective, optically transparent scratch protection solution. We believe that our thin-film solution holds real commercial promise in the large and growing ability marketplace.

Our second customer is a leading display provider in Asia. They plan to use the tool for a multitude of protected applications for cell phones and other mobile displace, camera lenses, glass covers, smart watches and potentially more. We expect to ship the tool in the fourth quarter of the year and revenue in 2016.

Winning a second customer in this large market opportunity is increased validation that this feature is marketable by display cover panel suppliers to their customers and eventually to the end user. We work jointly with this customer to market the end solution directly with cell phone manufacturers. Those discussions create an excitement in our solution and resulted in a new system order. We have a second supplier -- having a second supplier of our film is a critical requirement for end customer acceptance as it eliminates a barrier of adoption that exists when the coating is single-sourced. Where as the first application of our protective film has been in high-end custom cell phones in Asia, our current discussions with our customers are for more mainstream cell phone and tablet applications. We continue to engage additional tier 1 display cover panel manufacturers and are working with them to proliferate our technology into mainstream cover panel applications.

For our PVD metallization for advanced solar cells, our first MATRIX PVD system is running 24 x 7 production with a leading tier 1 customer. The signoff process in this new factory has been time consuming, but I'm happy to report the tool is running well and we have an agreed upon signoff plan in schedule for the third quarter. We have arranged this tool in our Q3 guidance, however, as there could be delays based on factory priorities and line availability.

The heart of the MATRIX PVD system is our patented LSMA magnetron source that is now demonstrated in industry-leading cleaner target utilization rate of over 65%, enabling us to offer the lowest cost of ownership for high-value metal deposition. We believe that over time the winners in the solar industry will all migrate to higher efficiency solar cell devices and architecture and that the work we are doing today not only opens up near-term revenue opportunities, but positions us as the process tool of record for advanced metallization of high-efficiency solar cells. Provided our customer is successful, their plan is to build out significant capacity with our tools, and this would be a sizable project. Additionally, in the second quarter we continue to make excellent progress in the qualification of our MATRIX PVD tool and films with the second tier 1 solar customer. We estimate our [SAM] for equipment in this application to be over $100 million over the next five years.

In implant [doping] of advanced solar cells, the joint development program with our tier 1 customer to implement our technology into their next generation solar cell manufacturing flow in the second, successfully passed our second program milestone which was the key technical feasibility gates and system design -- system concept design reviews. We continue to work on the productization of the technology and integration on to the MATRIX platform. If successful, we estimate the SAM in this application to be around $50 million over the next several years. In total, I'm extremely pleased to report the significant progress we have made towards demonstrating the revenue growth opportunities in these adjacent Thin-film Equipment initiatives.

Lastly, an update on the hard drive media equipment business where we are the technology and market leader. This segment remains stubbornly in an overcapacity situation despite positive long-term growth forecast. Personal computer and hard drive units sales reports to date have been disappointing and far short of the forecast coming into the year. This situation is negatively impacted (inaudible) by shipments and in turn media units. Recent earnings calls continue to suggest aggressive growth forecast and near-line enterprise and exabyte demand in the cloud. Accelerating demand for high-capacity, multi-disk storage will help enable the industry to absorb its excess media manufacturing capacity and drive demand for our production tools.

As I discussed last call, we've been waiting for our customer's budgetary planning to get a better view of our second half. The outcome has been a mixed bag as one customer is continuing strategic upgrade in their equipment set and another has reduced their capital plans. Until such time capacity systems are needed, we have sized this business to operate on strategic upgrades, service, and spare business activity and focused our resources on the strategic agreement growth initiatives I discussed earlier. We remain confident in our technology leadership position and our ability to gain incremental market share at the next technology inflection point.

In light of the continued weakness in the HDD equipment market, coupled with the momentum and customer engagement we have achieved in our Thin-film growth initiatives, internally Jim and I have developed a preliminary forecast of what 2016 is looking like for the Company. We are not guiding for 2016 today and we will stay on our historical cadence for guidance, but I would like to share some important points.

The outlook for Intevac has changed radically over the last two years. We now have a profitable Photonics business with long-term opportunities to grow and our executing smoothly with multiple production programs. We have a core HDD equipment business that is scalable but sized for the current business environment and we now have multiple customer engagements with new equipment for new applications and markets.

Given our customer's current forecast and factory build-out plans in our new equipment initiatives, we believe even without a resumption of capacity HDD system orders we will return to cash flow positive operations in 2016. And, most importantly, we will have escaped our reliance on the cyclical HDD equipment market to achieve probability.

I will now turn the call over to Jim discuss our second-quarter results and provide guidance for the third quarter and full-year outlook.

Thank you, Wendell. Second quarter revenues totaled $20.5 million, above the midpoint of our guidance range. As the results did not include revenue from the MATRIX PVD tool that we had ranged in our Q2 guidance, the upside was primarily driven by the hard drive media tool upgrades. Some of that upside came from new orders and some was from backlog we have scheduled to ship in Q3 but for which customers pulled into Q2. Equipment revenue totaled $11.5 million and included some customer funded NRE for passing key technical milestones.

Photonics revenue of $9 million included $7.2 million of product revenue and $1.8 million of contract research and development revenues. Q2 consolidated gross margin was 38.2%. Photonics gross margin was 34.5%, lower than last quarter and the second quarter of last year as Q2 reflected the first full quarter of the labor contractual pricing of the Apache camera and as the margin profile normalized to our long-term model as we have previously discussed. Equipment gross margin was 41%, up from both the first quarter of 2015 and the second quarter of last year due to a higher mix of higher-margin upgrade revenues in the quarter.

Q2 R&D and SG&A expenses were $7.7 million down from Q1 due primarily to customer funded NRE and below our guidance due to a lower level of R&D spending in Photonics versus forecast. Our Q2 net profit on a GAAP basis was $12,000, essentially break even or zero cents per share, much better than our guidance range of the loss of $0.08 to $0.12 per share. Higher gross margins driven mainly by the mix of higher-margin upgrade revenues in our Thin-film Equipment business and lower operating expenses will contribute to the breakeven results.

Our Q2 net loss on a non-GAAP basis excludes the acquisition accounting related credit and was $162,000 or $0.01 per share. Our backlog was $43.5 million at quarter end. Equipment backlog of $14 million includes one MATRIX PVD system and one energy solar implant tool. Backlog on our Photonics business increased to $29.5 million. We ended the quarter with cash and investments, including restricted cash, of $58.8 million, equivalent to approximately $2.67 per share based on 22 million shares at quarter end.

During the second quarter we bought back 1.1 million shares for $6.3 million at an average price of $5.55 per share, bringing total share repurchases to $19.3 million total since inception out of a plan of up to $30 million. Since the end of Q2, we have purchased an additional 61,000 shares for $0.4 million and an average price of $6.01 per share. Q2 capital expenditures were $615,000 and depreciation and amortization was $1.2 million for the quarter.

Now turning to the full-year outlook. The outlook for the full year 2015 has improved and now has between 5% and 10% upside from the 2014 revenue levels due mostly to the benefit of additional updrades we have seen in the HDD business in the first half. The timing and recognition of the new VERTEX revenue or additional orders will occur outside of the current fiscal year. At this forecasted revenue level, we continue to expect total gross margins for the year in the range of 32% to 34% and operating expenses of between $36 million to $37 million. Cash burned for the full year is still expected to be approximately $5 million to $6 million, excluding any cash [dues] for the Company's stock repurchase program.

While the outlook for the year has improved, Q3 will be down from Q2 sequentially due to the timing of orders, shipments, and revenue during 2015. The Q3 revenue guidance range of $13 million to $17 million reflects lower upgrades given the [pull ends] we saw in Q2, and the high end of the range reflects revenue recognition achieved with the MATRIX solar PVD tool. Within this revenue range and because we have fewer high-margin upgrades now in Q3, third quarter gross margin is expected to be between 28% and 29%.

With Q3 operating expenses of between $9.2 million to $9.5 million, which is at the normalized operating expense level for our current cost structure and minimal tax expense, the resulting Q3 net loss is projected to be in the range of $0.21 to $0.26 per share based on an estimate of 22 million shares. The expected increase in quarterly operating expenses from Q2 levels is consistent with our prior forecasting as we finalize our efforts to develop the production implant tool and as we increase our internal spending developing the next generation sensor in Photonics.

This completes the formal part of our presentation. Operator, we are ready for questions.

(Operator Instructions)

Rich Kugele of Needham.

Thank you. Good afternoon.

Hi, Rich.

A few questions. Just let's start with the Photonics site. What would you say -- how should we expect the next gen sensor to transition from the current production? Do you think you can make that a seamless transition and when should we expect the next gen sensor to be out? Because the Apache deal, for example, has been so critical, do you need them to sign off? Is that the most likely initial avenue for that solution? Any thoughts on that since that is such an important transition?

Okay. So there is a couple answers to that. When we look at our next gen sensor, the program and the development money from the government behind that is really focused on the ground-soldier deployment and that's a very long-term program, as I mentioned in my script. So we would start seeing development money coming and then working prototypes that would be used as gates to move into the longer term goggle rollout for the ground soldiers.

But in parallel with that, every sensor that we make is an upgrade for our installed base. So, realistically the first little bit more volume on a next gen sensor would most likely be an upgrade path into one of our existing platforms that are currently fielded.

Okay. So would you anticipate then that the production revenue side of Photonics can maintain its dominance over the NRE R&D side even during that transition or will there be a period where it flip-flops?

I'm not sure I quite understand what's your question about the production.

So one of the major things over the years that has helped the Photonics business get to profitability has been the shift to shifting to product revenues from just being contract R&D, right?

Right.

And so as this goes through to the next gen and you start getting all the NRE revenue or development revenue for the next gen, should we assume that the mix can stay the same or will it shift temporarily to more R&D?

It will shift temporarily to more R&D as we move through the development programs and it would do something similar to what we saw with Apache as the production volumes come up and finally it goes into full production. There's a big step-up in the product side of the revenue.

Okay. All right. That's helpful. Thank you for walking through that. So then on the HDD side, you talked about how there was some [pull-in] on the upgrade side. In terms of eventual capacity then, should we assume that the end of 2016 is no longer when we should be assuming there is some capacity additions, that it's pushed into now 2017?

I think we are digesting all of the information from yesterday, but certainly we go through the process and it will happen, I think the analyst days for the hard drive guys are in the September timeframe and we are in discussions with them now because they have pretty much decided on what their budgeting is. So we will take another look at that model. The model is extremely sensitive and I think we've all been pretty frustrated with the forecasting as the only thing we can tell for sure is it is probably going to be wrong.

But that being said, looking at where we went into 2014 and what the growth -- into 2015 out of 2014, we saw media units basically normalize and we were projecting growth out of that. And certainly the first two quarters did not measure up to that, and the numbers I am seeing today for the second half, I don't know if they're conservative or what, but certainly it is not going to make the growth rates in the 2015 timeframe, so certainly it is moving to the right.

Okay. My last question is just on the guidance for the quarter. So the guidance range you provided for Q3 does not assume the solar PVD gets recognized or is it just the high-end that does?

The high end does. As we have done in the last couple of quarters, it's about a $4 million tool. So $13 million to $17 million; $17 million if we get the acceptance. If not, it is a $13 million range.

Okay. And once you got acceptance on this one, would you need such a long approval process for future tools?

The answer is yes and no. We need to have just as far as our accounting, at least two installs that we determined are perfunctory before we take revenue at shipment. That being said, however, the tool has now been integrated into the line and configured to run in a line, so all of that work that has gone on for months and months of getting the lineup, getting our tool optimized for their line, all that time goes away. So it would not be a prolonged period of times like we saw in the first basically beta unit going into the line.

Excellent. Okay. Thank you very much.

Thanks, Rich

Thank you, Rich.

Mark Miller of The Benchmark Company.

I'm just wondering if you can give me a little more color on what you are calling this $11 million option for the Apache program for foreign sales? Is that an order or the potential that you can get orders and also the timing of that?

The timing is to be determined. It is over the length of the agreement. It's earmarked for the upgrade of foreign aircraft that the US Army would do on their own versus being done through the subcontractors. And the pricing and the agreement and the delivery of those are all to be negotiated through the term of the program.

And then coming out of the inner solar conference last month in San Francisco there were some people who walked away with that who had the feeling that the capacity expansion in China for solar was at its peak and was going to be winding down somewhat. I'm just wondering what's your feel for what is going on in China right now in terms of solar capacity? They were counting on significant capacity additions in China and that was supposed to go into next year.

As far as the China buildout, and I think we are seeing not a lot going on in that particular part of the space. Some of it obviously I cannot see what is going on there, but we certainly -- we are getting the feedback that the sell manufacturers in Taiwan have really brought their utilization rates up and they're verging on the 90% range. So I would expect that would be one of the areas to look for on capacity expansion would be in the Taiwan makers, but where they would actually put that capacity in, I think, is a case-by-case situation.

And one of our competitors in the space which has spent a lot of money developing implant technology recently sold a good part of their holdings to an investment firm. I'm just trying to understand the implications. What does that mean since they heavily invested to get that implant tool out and now to sell a good part of the ownership to someone else just was a surprise to me.

Well, I think I will comment -- it is probably a good question for them to answer, but what I will say is what we determined and we have talked about publicly about implant in general for the solar application, that we believe that blanket implant is not the application that's going to fly. We really feel that implant has an advantage in very high efficiency sell, designs, and architectures, and it's a small [tamp], but it's also a technology that we have and it just so happens that the way our tools are designed and the way the technology is applied, it has some very strong interest with the tier 1 customer.

Thank you.

Thanks, Mark

Nehal Chokshi of Maxim Group.

Thanks. Congratulations on getting that second tier 1 order on the smartphone cover glass. That's really great.

Thank you. We think that's a really significant and large step.

Yes, and I think you also make a very good point, eliminate that single-source supplier concern. So, could you help range what do you think is the probability that smartphone OEMs now adopt a solution, given that you did get over the significant hurdle? And what are the next major hurdles that you need to drive your customers and your customers' customers to get that acceptance basically?

Okay. Well, I think probability wise I'll touch in a minute, but I think what I'd like to highlight about this particular order is it is a completely different engagement with the end users of the film and as where our first tool sale, there was more of a firewall between us, the Intevac and the customers, and that was being managed, the value proposition was being managed by the company that bought our equipment. And this sale we partnered with this new customer and really made strong technical presentations with data on what the film could do in different applications, how it can be adjusted to suit a particular need, and the end customers were quite excited about the film and it was enough of an excitement to generate a tool order from us.

So probability-wise, I feel -- and this is all estimates, but I feel that we are in a much, much stronger position to get into more mainstream applications because we are able to work together and access the end customer and make sure we've got the right film for their more mainstream applications.

Okay. That's great. If I may follow on. You mentioned that you got rid of that firewall. You were able to do the go-to market activities with your customer jointly, and plural is the key there, and so what percent of the smartphone market were you able to make the joint presentation towards?

On the cell phone side, what I can say is that we certainly have had engagement with at least one top five cell phone maker.

Okay. Great. And then I have one other question. You guys provided cash flow thoughts for CY 2016 of breakeven. Clearly there are multiple leverage to drive that such as revenue growth, margins, cash conversion cycle, control of other cash items. Are you assuming that you will have the ability to pull all of these levers when you put those initial thoughts together or is the confidence in saying, hey, we think we can go to cash breakeven by calendar 2016? Is that being driven by one of these levers?

I think when we look at that statement, number one, we manage our cash very carefully and we have been able to demonstrate that over the last couple of years actually. We look at the forecast and both on the hard drive side and equipment and then the new initiatives in equipment and then, of course, the Photonics is in there as well.

But when we look at the revenue streams and where the cash is coming from and that type of a preliminary forecast, there is a significant amount of it that is coming from our new product initiatives and business, none of which was actually revenue when they ship because they are -- as we talked earlier about the PVD tool, they revenue after customer acceptance. So when we look at all of those pieces put together and not necessarily doing anything extraordinary in our cash management, we can see the path to return to cash flow positive.

That's great. Thank you.

Mark Jordan of Noble Financial.

A question relative to governmental-funded R&D. You stated you're looking to expect the catalyst to be the FY16 budget. Obviously the governmental fiscal year starts October 1 but many people are assuming a continuing resolution funding for at least a number of months as Congress and the administration go to battle. Under a CR, would you be able to receive incremental funding on R&D or would you have to wait for a new budget for, in essence, a new start?

I think it depends on what's in the CR, but when we look at our R&D funding in our programs, I think we are reasonably solid that we will get the funding when we think we're going to get it.

Okay. On the new VERTEX order, was that included in second quarter backlog or was that a third quarter? I know it was just announced in July.

It was definitely a third-quarter order because we didn't get it until after the second quarter. So it's not in the backlog.

Okay. Final question. Relative to the upgrade visibility you have in the hard drive market, obviously you saw pull-in from Q3. Is your window into customer needs on the upgrade side limited to just their 2015 CapEx plans or do you have some idea of what they might be thinking about for 2016?

It depends on the specific upgrade, but I would say out of two of the significant upgrades that we have out in the field there, one of them is more budgetary year to year. The other one, which is the higher revenue upgrade, is part of a multi-year rollout plan, so we have some more visibility on that one, but it's kind of case-by-case.

Okay. Thank you very much.

Thanks.

Thank you, Mark.

(Operator Instructions)

Aaron Rakers of Stifel.

Thanks for taking the question. Just as a follow-up to Mark's last question there. When you look at the industry for hard disk drives and the installed capacity out there, how much would you say or how much would you estimate currently stands in capacity or rather what maybe the capacity utilization looks like at this point in? And I think you also mentioned that positioning yourself for potential future generations or technology changes, what might we be looking for as a catalyst for that business to do further upgrades going forward?

So we don't have all of the media numbers at this point, but we are looking at forecasts and estimates. And given what came out last week, we would guess right now probably right around the high [60s], maybe [68] is what the models show. That is industry-wide, obviously. Differs customer to customer.

And then on the technology inflections, two things deriving. One is our solutions in carbon where we continue to make advances in our carbon films but the big one is the transition to Hammer, which requires some pretty significant upgrades to the overall tool, particularly in additional stations and the ability to run the tool at quite high temperature, which also as an inflection would take some of our Legacy 250 tools out of service.

Okay. And relative to Hammer, the upgrade demand that you are seeing or the multi-year potential demand that you are seeing, is that already positioning itself for Hammer or when do you expect Hammer to be something that actually drives some of those upgrades in particularly that Legacy 250 system install base?

Certainly we're not seeing any capacity upgrades in Hammer. The work we have been doing and continuing to do is the R&D and the development work for the actual drives and we've been doing that for quite a while, and we also believe that our equipment is being used across the industry as the production tool of record for Hammer. So we see -- that's one of the things when we see some incremental market share gains that we think we can capitalize on.

Very good. Thank you.

All right. Thanks.

(Operator Instructions)

There are no further questions in the queue. I will turn the call back over to Mr. Blonigan for closing remarks

Thank you. Before I sign off, I'd like to take this opportunity to thank our employees for their hard work and their dedication as we navigate the current environment, and also thank our customers for their continued partnerships and business. Thank you for joining us today, and we look forward to updating you again during our Q3 call in November. Until then, so long.

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