Intevac Inc (IVAC) 2016 Q4 法說會逐字稿

Good day, and welcome to Intevac's fourth quarter 2016 financial results conference call.

(Operator Instructions)

Please note that this conference call is being recorded today, February 1, 2017.

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

Thank you, and good afternoon, everyone. Thank you for joining us today to discuss Intevac's financial results for the fiscal fourth quarter and full year 2016, which ended on December 31. In addition to discussing the Company's recent results, we will provide financial guidance for the first quarter of 2017 and our current outlook for the full year 2017.

Joining me on today's call are Wendell Blonigan, President and Chief Executive Officer, and Jim Moniz, Chief Financial Officer. Wendell will start with a review of each of our businesses and our outlook going forward. Then Jim will review fourth quarter results and provide first quarter guidance and discuss our 2017 outlook before turning the call over to Q&A.

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

These forward-looking statements are based upon our current expectation, 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 February 1 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'll now turn the call over to Wendell.

Thanks, Claire, and good afternoon.

Today we reported Q4 revenues of $29 million, near the midpoint of our guidance, with gross margins, operating profitability and earnings per share all exceeding guidance. We had a significant number of systems either in build, installation, or progressing through sign-off in Q4, and ultimately we ended the quarter recognizing revenue on two 200 Leans and one MATRIX PVD system.

Out of all the moving pieces in our revenue guidance, there was the possibility of a fourth 200 Lean shipping in 2016. During Q4 our customer accelerated their overall technology upgrade plans, which resulted in both an additional two-system order placed in November and the shipment of the fourth 200 Lean in December.

Additionally, we experienced increased activity in upgrades near the end of the year, providing upside in our HDD business. The additional tool and upgrades resulted in modest growth in our hard drive business for the year, slightly better than expected.

Revenues in our Thin-film Equipment growth initiatives increased meaningfully in 2016, with significant backlog on the books heading into 2017.

2016 was a pivotal year for Intevac, with multiple systems orders in our new equipment growth initiatives, marking an inflection point in our company's growth trajectory.

To summarize the highlights for the year, we launched VERTEX oDLC, our optical diamond-like carbon-protected coating solution, into the display cover panel market. We revenued our first VERTEX and booked our first multi-system capacity order for volume production of mobile phones and watches. We won a second Tier-1 customer for the VERTEX and shipped all of the VERTEX orders by the end of the year.

We won orders for eight 200 Leans, the highest level since 2010, demonstrating the continued need for advanced technology investments in the hard drive industry.

We revenued two solar systems and ended the year with three more in backlog, helping to bring total Thin-film Equipment backlog to $46 million, the fourth straight year of backlog growth.

In our Photonics business, we developed demonstrators for our latest digital night vision technology, and after successful demonstrations with both the Army and Navy, realized significant expansion of our revenue opportunity pipeline.

And financially, the details of which Jim will go over shortly, we accomplished all of our objectives for 2016: revenue growth of up to 10%; improvement in gross margin; positive cash flow from operations; and a net increase in our cash balance.

Each of these highlighted accomplishments set the stage for the continued positive momentum of the Company, which we have been relentlessly building over the last three years.

Now for an update on each of our businesses.

In our Thin-film Equipment business, the most exciting driver of significant revenue growth over the next year or two is the VERTEX, which deposits our optical diamond-like carbon, or oDLC, protective coatings on display cover panels. The production capacity order booked in 2016 was an important milestone for this business, and winning a second Tier-1 customer for the VERTEX later in the year was equally significant.

It's too early to speculate on the extent of market adoption, what we be able to achieve with these first two VERTEX customers, but we know one is in production, and both customers are highly motivated to achieve success using our oDLC coatings and are evaluating our films for multiple applications.

Our first customer, Truly, added volume oDLC manufacturing capacity to their display cover glass operation, and we estimate they will have an annual oDLC coating capacity online to produce approximately 24 million 5-inch smartphone covers before the middle of 2017. In September of 2016 Truly began marketing its King Kong cover, incorporating our oDLC on 2.5 and 3D cover glass. Their announced product launches incorporating our films include, quote, high-end mobile models of world-class smartphone brands, end quote, which began shipping in the fourth quarter, as well as protective coatings on polar watches.

Our second customer, which we announced on our Q3 call, is a Tier-1 company currently evaluating our films and our tool for multiple applications.

Combined, the four VERTEX tools ordered in 2016 are all part of our six-year record backlog exiting the year. All four tools shipped in 2016 and were in varying states in the build to revenue process at year end. I'm happy to report today that we've achieved the required customer acceptances within 90 days of shipment and revenued all four tools in January.

This is significant not only by the fact that they were installed and qualified quickly, but we have completed the last of our perfunctory sign-offs for VERTEX. This means that we will revenue similar configured VERTEX tools at shipment going forward.

Building on the momentum of these four systems, our in-house coating operating continues to process hundreds of samples per week for multiple cover panel applications, and we believe our strategy to market our tool's films through this in-house operation is a key enabler in securing additional new orders for VERTEX.

Based on the success in new tool orders in 2016 and the ongoing sampling activity in-house, we have increasing confidence that the Intevac VERTEX system incorporating our oDLC film can address multiple applications in the cover panel market and represents the largest near-term growth opportunity in our Thin-film Equipment business.

Based solely on VERTEX systems in backlog, we will at least quadruple our VERTEX revenue this year versus 2016, and as we look further out into 2017 we see potential new orders shipping inside of this year, as well. We believe our five-year revenue opportunity for the VERTEX is approximately $500 million, based on 25% adoption in the smartphone and tablet cover glass application alone, with additional opportunities on cell phones, wearables, auto infotainment and more.

Beneath this exciting growth opportunity for the VERTEX is a strengthening base business in our core HDD market. Many who follow the industry were surprised to see an additional two-system order for 200 Leans booked in Q4, bringing the total orders to eight 200 Leans in 2016.

These tool sales demonstrate the strategic technology improvements required for our customers' product roadmaps, our close partnerships with our HDD customers, and the technology leadership of our systems and products. Our 2016 system order activity for 200 Leans led to better than expected sales growth over 2015.

The four systems currently in backlog support our view that 2017 will be a similar year in our HDD business. As a reminder, these systems are part of an ongoing technology upgrade of existing manufacturing capacity, which is not increasing the installed base of media capacity in the HDD industry.

Fundamentals in the hard drive industry once again exceeded expectations in the fourth quarter, with both PCs and hard drive units surprising to the upside, showing encouraging evidence of stabilization. We believe media shipments had their strongest second half growth in the last seven years and also grew year on year.

The second half of 2016 showed the most significant growth over the first half in all three categories -- PCs, hard drives and media units -- that we have seen in at least even years. All were up double digits. Media units were unique, and they actually showed year-over-year growth in both Q3 and Q4.

The tie ratio, or average number of media disks per drive, has also exceed expectations, exiting the year over two, by our estimation. In an HDD unit volume environment of 100 million to 120 million drives per quarter, the installed industry media capacity would be utilized once the overall HDD tie ratio gets to the range of 2.5 to 3 disks per drive.

The growth segment in overall HDD unit shipments continues to be the high-capacity nearline segment, which is positive for media units, given that the number of disks in each drive is significant, and is forecast to grow from four to over seven disks per drive by 2020. As we look into the near future, our HDD business is profitable, relatively stable, and is forecast to drive $200 million to $300 million in total revenues over the next five years, dependent on the timing of return to capacity system orders.

In the solar market, which has continued to be challenged over the last several quarters, we made significant progress in 2016 as we revenued our MATRIX PVD system with a new customer in advanced n-type solar cell technology, as well as progressed with our joint R&D program on MATRIX for ion implantation. We believe that many customers have been reassessing their n-type strategies and are focusing on upgrading existing p-type lines for backside passivation.

Given that some high-efficiency n-type capacity was announced to be coming offline, we expect the market for our solar products focused on high-efficiency n-type solar cells will be soft over the next year and until overall weakness in solar module pricing has stabilized.

In spite of the current challenging environment in the solar industry, we announced two energy implant systems in 2016 for a new solar cell technology utilizing phosphorus ion implant doping for monocrystalline p-type cells. These tools are progressing through the installation and qualification process, albeit it at a slower pace than we had anticipated as we work through incremental system upgrades to meet customer specifications.

While there are many moving parts in the solar business, we continue to monitor the environment for n-type solar investments and have left our five-year solar revenue outlook unchanged for now, at approximately $175 million.

To sum up the environment in our Thin-film Equipment business, 2016 marked an inflection point in terms of new tool orders in both our core market and new growth initiatives, which will drive the future growth of our company, most notably with the traction of the VERTEX oDLC systems.

Moving to Photonics, we continue to achieve strong financial performance in our Photonics business, which again saw profitability above expectations. Based on all the new program activity in 2016 and what we are working on with the US and foreign militaries as well as our customers for dismounted soldier systems, we have expanded our revenue opportunity pipeline to over $1.4 billion over the life of the programs we are engaged with and are pursuing.

I would encourage you to review our latest version of our investor presentation, which details the opportunity for our digital night vision cameras, integrated night vision systems and ground force applications.

We had several highlights for the quarter in our Photonics business. First, we're pleased to report that both the US Navy and Army are engaged in funding discussions for the development of our next-generation night vision sensor, the ISIE19.

In previous calls I've discussed both the ISIE12 and ISIE14 would be our new sensors as we moved into the future. Now, after getting both branches of the service together, we have been able to merge the requirements and settle in on a single new sensor design to meet everyone's needs, called the ISIE19.

After funding the new sensor development internally early in 2016 and seeing a pause in contract R&D revenues during the year, we are optimistic that the engagement with the two branches of the military for this development activity will generate the required funding going forward.

On each call in 2016 I have been discussing two new technology demonstrators that we have developed and have been demonstrating in the second half of the year. This activity has been a great success for the future trajectory of our Photonics business. The successful demonstrations and the positive reactions to our latest technology enhancements have helped grow our overall revenue opportunity pipeline.

Our 2K x 2K high-resolution digital goggle developed for NAVAIR's EVA, or Enhanced Visual Acuity program, was well received, and has not only generated an increase in the potential of the overall program itself but will also serve as a technology upgrade socket for the next-generation ISIE19 sensor. Additionally, we now see opportunities for the digital binoculars in aircraft that currently fly with analog night vision goggles.

Our digital night vision binocular demonstrator, which is targeted for the ground force ENVG4, or fourth-generation enhanced night vision goggle program, was also well received, and its advanced capability generated interest from the US and foreign special operations forces for a binocular version and also demand for us to productize the demonstrator for unique applications prior to the introduction of the ISIE19 sensor, which will be the core technology for the ENVG4 application.

Rounding out the increase in our opportunity pipeline are additional camera systems for Apache and LIVAR, an increase in Joint Strike Fighter volumes, increases in opportunities with BAE's Striker II Gen 5 helmet-mounted displays and an increase in daytime systems using our optics design. Also in our product sales we were awarded the sixth option for Apache foreign military sales and additional production awards for both Joint Strike Fighter and LIVAR.

To sum up our progress in Photonics for 2016, we made great strides toward securing government funding for our next-generation sensor and made significant progress in expanding our revenue opportunity pipeline.

While 2016 Photonics revenues nominally decreased from 2015, product revenues were up. And with the return of contract R&D spending and additional production awards, we believe 2017 will be a similar year for Photonics, with the growth potential dependent on funded development levels and timing.

So, in summary, 2016 was an outstanding year for our company. In our Thin-film Equipment business we achieved six-year record highs in orders and backlog and have built the foundation for significant revenue growth outside our core HDD business. We expanded the revenue opportunity pipeline for our Photonics business by investing profits to develop technology demonstrators that showcase the advantages that digital night vision brings and put that technology into the hands of the user.

On our last call, I commented that given the momentum we were building in our businesses, we were on the path to profitability for 2017. In the fourth quarter, we continued further down that path. With both the hard drive and Photonics business forecast to generate similar revenues compared to 2016, we would achieve a minimum of 15% revenue growth in 2017 by recognizing the revenue currently in our equipment backlog.

Given our current engagements with both new and existing equipment customers, we are forecasting revenue growth of at least 25% and a return to profitability in 2017. As we move further into the year, we will have greater visibility on potential upside to our current outlook and will communicate accordingly.

I will now turn the call over to Jim to discuss our fourth quarter results, provide guidance for the first quarter, and to discuss the outlook for this year. Jim?

Thank you, Wendell.

First I'll reiterate a few highlights about our full-year financial performance. Revenue increased 7%, with significant growth in our new Thin-film Equipment markets and better than expected sales to the hard drive market.

While total Photonics revenues were similar to 2015, off by 2%, Photonics product revenues actually increased during the year, and operating profitability increased to 17%. Gross margin improved 300 basis points. We kept SG&A nominally flat, while increasing our R&D investments by 16%, and reduced our operating loss by 13% compared to 2015.

We generated $3.8 million in cash flow from operations and achieved a net increase in total cash and investments of $1.4 million during 2016.

Now let me turn to the fourth quarter results. Consolidated fourth quarter revenues totaled $29 million, near the midpoint of our guidance. Thin-film Equipment revenue totaled $19.3 million and included two 200 Leans and one MATRIX PVD system, along with upgrades, spares and service. Photonics revenue of $9.7 million included $7.7 million of product revenues and $2 million of contract, research and development revenues.

Q4 consolidated gross margin was $11.9 million, or 41.1%, above guidance, with favorable contributions from both business units. A more favorable mix in the Thin-film Equipment business and favorable yields in Photonics both helped margins exceed guidance.

Thin-film Equipment gross margin was 38.9%, up from the third quarter of this year and down slightly from the fourth quarter of last year. The improvement over last quarter was primarily driven by a higher mix of higher margin upgrades. The decline from the fourth quarter of last year was primarily driven by a higher mix of systems sales versus higher margin upgrades.

Photonics' gross margin was 45.5%, slightly lower than last quarter and higher than the fourth quarter of last year. The decline from the last quarter was primarily driven by lower margins on contract research and development revenue. The improvement, however, from the fourth quarter of last year was primarily driven by higher margins on contract research and development.

Q4 R&D and SG&A expenses were $9 million, similar to Q3 and below our guidance due to the timing of engineering materials purchases.

Our Q4 net income was $2.8 million, or $0.13 per share, better than our guidance, driven by better gross profit from both business units and lower than forecast Q4 operating expenses.

Our backlog was $68.5 million at year end. Thin-film Equipment backlog of $46.3 million included four 200 Lean hard drive systems, four VERTEX display cover panel coating systems, one pilot MATRIX solar ion implant system, two ENERGi solar implant systems, and non-systems backlog in our hard drive business.

The four VERTEX tools and the two ENERGi tools were installed in our customers' factories by year end. The four VERTEX tools revenued quarter to date, while the two ENERGi tools are still awaiting customer acceptance.

The backlog in our Photonics business was $22.3 million.

Now turning to the balance sheet. We ended the year with cash and investments, including restricted cash of $49.8 million, equivalent to approximately $2.38 per share, based on 20.9 million shares at year end.

Cash flow provided by operations was $6.8 million during the quarter and $3.8 million for the year, enabling us to achieve our objective of a net increase in our cash balance for the full year in 2016.

Q4 capital expenditures were $838,000, and depreciation and amortization was $1.1 million for the quarter.

We did not repurchase any shares during 2016, and our total plan repurchases stand at $28.5 million.

Our year-end cash balance for 2016 is in line with our minimum cash objectives of approximately $50 million on the balance sheet.

Now let me turn to the full-year outlook for 2017.

In 2016 we made significant progress towards diversifying our Thin-film Equipment product portfolio, which makes our revenue growth less dependent on new-capacity systems in the hard drive market. Our equipment backlog grew for the fourth straight year, and new equipment orders for the year grew 76%, to the highest level since 2010.

We currently expect our hard drive and Photonics businesses to see similar levels of revenue in 2017 compared to 2016. Given these forecasts, and based on solely achieving revenue recognition on the year-end backlog and our new Thin-film Equipment growth initiatives, 2017 revenues would likely increase by at least 15% over 2016.

Our current outlook is for revenue growth of at least 25% and achieving net profitability for the year. At this revenue level we would expect gross margins in the range of 37% to 38%, with operating expenses of between $37 million to $38 million for the year.

For Q1 specifically we are projecting consolidated Q1 revenues to be between $28 million and $29 million. We expect first quarter gross margins to be between 37% and 38%. Q1 operating expenses are expected to be between $9.7 million and $10 million, higher than our normalized level due to higher research and development spending, along with some typical seasonal increases.

We expect minimal tax expense.

For Q1 we are projecting earnings per share in the range of $0.03 to $0.05 per share, based on an estimate of $22 million diluted shares outstanding.

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

(Operator Instructions)

Nehal Chokshi, Maxim Group.

Congratulations on a great 2016 and a fantastic outlook for 2017. In your Needham presentation it said that you expected the production capacity at Truly to be 24 million and to be effective in mid-2017. Does that still apply, or did you revenue that even sooner than you had expected relative to what was stated in that Needham presentation, and can you just give some clarity around that?

I think it's pretty much exactly the same. We're targeting by the middle of the year all that production capacity would be online and in production. Right now there's two systems in production. The other tools are in their install.

But, as I discussed in the prepared remarks, the fact that we got the perfunctory sign-offs done on VERTEX, the other tools that are in installation also revenue, and as we move forward they revenue at shipment.

Okay. So if you've got the perfunctory sign-offs for all four tools now, and they're already recognized in revenue, why are we looking at full capacity being realized by mid-2017, five months out from basically now? Can you help me understand that?

It'll be no later than that. I think that it'll be most likely in the first quarter.

I see. Okay.

But both machines will be up.

Yes. And then in your prepared remarks you stated that your two vendors that have the VERTEX tool now, they are motivated to demonstrate success with the oDLC tool. Obviously Truly already has, so you're really referring to the second OEM customer.

Can you discuss what's the driver of that motivation? Is it perhaps that they have some customer overlap and they're trying to compete for that same end customer?

I think in more general terms what I mean by that statement is both of these customers have purchased tools. So once you get to the point where you actually are going to buy the tool, you believe that you've got a solution to go out to market with, and they're very motivated to get those tools up and running, qualified and in some type of production.

So that's really what I mean by that motivation. I mean, there's times in the equipment business if you're just trying to introduce some new feature, people give away machines or just do extended sampling. We're talking about two customers that have actually purchased the equipment and are moving forward.

Understood. All right, I'll cede the floor.

Brian Alger, Roth Capital Partners.

Congratulations on a great year. Obviously there's a bigger opportunity coming down the pike here in the Photonics business than you guys said, by the expansion of your TAM. I'm curious as to the tenor in your engagement with the various departments here if you think this is going to be realized in an acceleration in this calendar year, or are we really looking at something beyond this calendar year?

Well, when we look at the outlook right now in 2017, as we move into this year, we think it's going to be a similar year for our Photonics business, but we think there's also some upside potential, depending on funded R&D levels and timing. I think what's very positive for us is that we've got both sides, both branches of the military that are extremely interested and in discussions with us about having this next sensor, the ISIE19, funded and under development to tail into some of these long-range programs that I talked about.

So I think that in itself gives us some optimism about funding levels in 2017 for this technology, which, in reality, for the new sensor, last year we funded that internally from profits from the Photonics business for the first half, and the program paused to some degree in the second half. So we're very optimistic that we've made some real progress in 2016 about getting that sensor funded, because it's a big program.

So I guess if we're going to have similar revenues but a greater mix through funded R&D, I guess that would imply that the Photonics gross margin should be closer to where they finished the year versus where they finished the prior year.

Jim, do you want to answer that one?

Yes, I think obviously the products margins on Photonics are a little bit higher than they would be on the funded R&D. So I think we'll see for the year you obviously have the gross margins will likely be down at Photonics, but keep in mind, so will their OpEx, because we internally funded more R&D in 2016 than we have typically seen, and we are forecasting that in 2017 the government will fund more of that. So we will take our OpEx down, as well.

Okay, got it. Got it. And then just coming back to the VERTEX, which, frankly, I'm much more excited about, just because the numbers get silly big silly quick, to the degree a major phone platform adopts it, given your involvement to date with your current customers, Truly and the unnamed other Tier 1 here, is there an expectation on your part that there are major platforms evaluating the oDLC?

As far as the expectations that we -- we have decent visibility of who's taking a look at it, and certainly everybody that you can mention that is working on cell phones is certainly aware of what we're doing and has had some look at it at this point.

Well, I guess where I'm going is now that we've got them through qual and we've got them reved here past January, it would seem that if someone were to decide to go ahead for call it a second half holiday production, they would probably need to place an order, because of the size of the orders, for multiple tools within the not-too-distant future. Is that right?

In that particular scenario, that would be correct. I think one thing we need to keep in mind, as well, as we move and look at a bigger end application that would drive a significant number of tools, we also have to have the running data on the tools that are in place, because depending on how many units you're going to commit, that's going to be a certain amount of yield, a certain amount of uptime, and a certain amount of validated running costs that need to be accumulated before you make those kind of decisions.

Okay. But if it were to come in, what would it take lead time? I know like with your Lean systems you've said in the past that your normal lead time can be accelerated to some degree because the spares business or whatnot. Can you pull forward that normal lead time to the degree you got a big, a high volume order?

Yes, and with -- what we're working on internally is we certainly recognize that there could be some step function activity on this business, that we won't have six months' worth of visibility, possibly, on. So internally we've been working to pull the lead times down from where they are right now is about five months, and our objective is to get those under four and closer to three. So we're working on that internally, but we certainly recognize that that's an important project that we need to tackle for this particular product line.

Well, that's all I have. I appreciate you guys. Nice job getting us up over the hump on the profitability, and it's good to see it flowing through into next -- into this year.

Rich Kugele, Needham & Company.

Great to see the profitability return. I just wanted to ask a few questions. I guess first, Jim, on the R&D side, it looks like the R&D increased, what, 16% year over year in 2016, but you're forecasting more or less flat OpEx in 2017. Is there anything that you need to do on the R&D side, or you basically have done it all?

Oh, no, no, we'll still be spending money on R&D. There's no question about it, on both sides of the business. But we accelerated some R&D in the first half in Photonics absent of government funding because we wanted the results that we've seen and we wanted to be able to show those demonstrators to the military.

And you don't feel like that you would need to do that in 2017, because the government is onboard now?

Not to the same level we did in 2016. And obviously we're going after that funding with the government.

Yes, and I think maybe, this is Wendell, just to expand on that a little bit, as we move into 2017 we certainly are going to continue to invest to bring out our next version of our diamond-like carbon, 2.0, so we've got activity that we're ramping on that, in that particular area.

And then we have our standard product development processes that are moving in different markets that we're going to continue to develop and innovate here. We're not finished. So we're going to continue that spend roughly at the rates that we have in 2016, and then we'll see how the year develops as far as what gets approved for additional resources through our product development processes.

Okay, thank you for the clarification. And then when it comes to just the outlook if I wanted to parse that up, the pieces here, so HDD more or less flat, Photonics more or less flat, and then if the growth is coming from some of these newer initiatives, are we talking about needing an extra five VERTEX systems? Or what are the composition to get you to the more than 25% that you're talking about here in the guidance?

Yes, we're going to set the floor -- this is Wendell -- at 25%. We think we'll be over 25% is what our comments are. And depending on what the tool is, I mean, there's a mix of hard drive upgrades, 200 Leans, VERTEXes, but realistically you're looking at just a couple of systems and equipment to get us to that number. And that's where we talk about upside as we move through the year, and we'll discuss that as we continue further.

Okay, so you don't need very much to exceed.

Well, we certainly don't need very much to get to the up 25%, but obviously we want to end 2017 backlog, so we would hope to get quite a bit of orders in the year.

Okay, just lastly, as you've been ramping your equipment shipments significantly, are there any tightness areas on components, anything supply chain oriented, that we should be aware of?

I think that we are certainly following that very closely, especially as part of our lead time reductions that we're looking at. I think in general on the equipment business as a whole there is tightness in aluminum and machine chambers just because of the fact that I think you see semiconductor equipment as well as LCD equipment installing for OLED.

There's a lot of activity right now and a certain -- a finite amount of machinery that can machine that -- those chambers that large, and availability of aluminum billets that large. So we're taking that into account, and we're taking proactive action anywhere that we see there could be tightness in the supply chain in order to meet our plans.

Excellent. Congrats again, guys.

(Operator Instructions)

I'm not showing any further questions at this time. I will now turn the call back over to Mr. Blonigan.

Thank you.

As we now close the chapter that was 2016, I would like to thank the hardworking and dedicated employees of Intevac all around the world for their tremendous effort and successful work last year. I also want to thank our customers for their continued business and appreciated partnerships.

Thank you all for joining us today, and we look forward to updating you again during our Q1 call in May. Until then, so long.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.