Intevac\'s (IVAC) CEO Wendell Blonigan on Q3 2017 Results - Earnings Call Transcript
Intevac, Inc. (NASDAQ:IVAC) Third Quarter 2017 Earnings Conference Call 4: 30 p. m. on October 30, 2017 Investor Relations Consulting President and CEOJim Moniz Chief finance officer analystsbrian Emissions from Roth Capital Partnership- Noble capital market Peng Peter-Maxim GroupB. Miller-rieymark Have a good day. Welcome to the 2017 financial performance conference call for the third quarter. At this time, all the participants were listening. only mode. We will have a question later-and- Answer the meeting and give instructions at that time. [ Operation instructions] Please note that this conference call is being recorded today, October 30, 2017. At this time, I would like to transfer the call to Claire McAdams, an investor relations lawyer at Intevac. Please continue. Thank you, good afternoon. Thank you for attending our meeting today to discuss the 2017 financial performance of Intevac, which ended on September 30. In addition to discussing the company\'s recent performance, we will provide financial guidance for 2017 and the whole year. Blell Blonigan, President and CEO, joined me in today\'s conference call; And Chief Financial Officer Jim Moniz. Wendell will start with A review of our business and outlook, and then Jim will review the third quarter results and discuss our financial outlook for the fourth quarter and the full year, and then transfer the call to Q &. I would like to remind you that today\'s conference call contains some forward-looking content. Outlook statements, including but not limited to statements regarding the Company\'s recently completed financial quarterly financial results, which remain to be adjusted at the time of preparation of form 10 Q, and comments on future events and forecasts for the future financial performance of Intevac. These forward- Forward-looking statements are based on our current expectations, due to the various risks and uncertainties associated with these comments and our submission to the Securities and Exchange Commission including our Annual Report on Form 10 K and quarterly reports on table 10Q. The phone content of this October 30 includes the time- Sensitive forwarding As of today, forward-looking statements on behalf of our projections. We have no obligation to update and forward- A statement made at the conference call. I\'m transferring the phone to Wendell now. Thank you, Claire. Good afternoon. Today, we report that revenue in the third quarter exceeded $27 million and $0 guidance. Earnings per share 05. Year-to- Compared with the first nine months of 2016, revenue increased by 72%, gross profit almost doubled, and new orders increased by 26%, as we continue to make significant progress in Revenue, annual growth and profit targets. Growth in our equipment sector, execution of our thin The growth strategy of film equipment has brought the company\'s earnings for four consecutive quarters. We booked two new 200 lean systems this quarter, which is equivalent to 200 lean booked in the last six quarters, despite excess capacity in the media industry. We also saw a higher-than-expected upgrade, which accelerated from the fourth quarter to the third quarter, with higher revenue. End of guidance. Backlog and equipment in 7- An annual high of $59 million. Most of these revenues are expected to be realized by 2018. The 2018 backlog includes 12 ENERGi implant systems and 3 of 5 200 are currently in a backlog. In our photoelectric business, new orders have been added to more than $8 million again. The increase in order activity is mainly due to the development of our next- ISIE of the second generation night vision sensor-19. We also added photon revenue, up 12% from the second quarter and 15% from the third quarter of last year. We continue to anticipate that our revenue for the full year of 2017 will grow by about 40% over last year and make a bottom line for profitability. Now, we start with a thin update for every businessfilm Equipment. In the hard disk market, the technical capability upgrade plan for our customer installation base continues. We booked two in the third quarter and shipped two 200 slopes with a backlog of five at the end of the quarter. We have indicated that this is an ongoing technology upgrade plan that we believe will continue into the foreseeable future and provide a solid business foundation for us in the core hard disk market. As a reminder, the system we are currently shipping does not increase the installation base for media capacity in the industry. In fact, as we discussed earlier, the installation base for today\'s media capacity is actually lower than in the last seven years. This leaves some of the industry\'s media capabilities permanently retired. We believe media capacity has fallen from $0. 3 billion a quarter to less than $265 a quarter. - Millions per quarter The growth of the hard disk market is still at a high level -- Considering that there are a large number of discs in each Proximity Drive, the capacity Proximity Drive is positive for our business. The connection ratio or average number of disks per drive grew to a record 2 at a rate of 13% per year. 2 disks per drive in the first half. If the tie ratio continues to grow at this rate, in about two years, the demand will exceed the installed media capacity in the flat disk unit environment. Compared with the four system shipments in 2016, we expect the shipment to be shipped six times in 2017 with a tilt of 200 and a non- In the first three quarters of this year, we saw growth in the system business, and hard disk revenue was stronger than expected, which will lead to meaningful growth of more than 2016. A large part of our future growth story is our vertex product, and the progress we have made in deploying protective coatings to the Monitor cover market. Vertex deposited optical grade diamond- Like carbon or oDLC, act as a protective coating for the Monitor cover. We believe that the biggest driver of the huge potential for annual growth in the coming years is still at its peak. Our revenue guidance for 40% growth in 2017 includes four peaks of first-quarter revenue and another vertex system in the fourth quarter. So far we have a vertex in our finished stock that will allow us to respond quickly to new orders and ship this extra tool. As we said before, this order may come from an existing customer or a new customer. In 2017, we saw the top five handset manufacturers turn to the glass back cover for wireless charging. This shift has apparently prompted a growing interest in the oDLC. At this point, we can say that every major participant in the industry is aware that we protect the glass on our phones, including the back cover. ODLC sampling and demonstration activities are conducted on and within our client\'s website The houses of the top five mobile phone makers were unusually strong in the third quarter. The interest in helping drive this activity is growing, and the oDLC is integrated with other membrane stacks as a protective coating. The integration of the ODLC with other films is now an important driver of current customer assessment and qualification activities. Over the past few quarters, we have been developing some of the variants of our oDLC film backplates specifically tailored for unique product applications. In some applications, color transparency is the most critical standard, and in others, color transparency is the standard for its impact resistance, while in others, color transparency is the coefficient of friction These variant films are then tested and modified based on the results. This activity of using these films for specific applications is a major factor in the extended evaluation cycle we see. Our first customer is really in production and is actively adding customer projects that contain our coatings. They have also made good progress in getting the top five handset manufacturers to join our oDLC. Our second client. - Continue to deliberately conduct assessments and qualification reviews for multiple applications. The extensive assessment and qualification process in which we are involved continues, longer than we originally expected. It is important that our work is not completed and our customers continue to invest a lot of time and resources to bring our technology to the market. Now, our activities on solar equipment have been updated, and our backlog currently includes 12 ENERGi implant systems for efficient solar cell manufacturing. Our procurement contract requires our customers to deliver all 12 tools by the end of the year, but they have delayed the delivery schedule of the system due to delays in plant construction. We shipped the first three tools in the third quarter, and the schedule for the remaining tools is still being determined. As a result, we no longer expect all 12 tools to receive revenue in one quarter, which was previously expected to receive revenue in early 2018. Based on our current visibility, the first three tools should receive revenue in the first half of the year, and the revenue time for the next nine tools depends on the revised shipping schedule. Now go to photon technology. Revenue rebounded more than $1 million in the third quarter to $9. 5 million, gross margin and operating margin are also normalized within our business target model. It is important that as we successfully book The development contracts we have been pursuing for the first three quarters of this year, orders have increased to more than 8 million. Highlighted an increase of $2 for orders. 3 million contract for our next development- Generation sensor ISIE- Through the design and initial prototype phase. We have also booked several additional development projects including the integration of our night vision sensors and free funding Use the Prism forming helmet for the removal of explosives, funding day and night soldier systems and ManTech to integrate our free shape prism into future augmented reality to mature our proprietary free shape prism manufacturing process. We are also continuing to sign contracts to develop the initial prototype delivery of our wireless head Install the monitor for the weapon aiming group service and the M2 weapon aiming program family. Camera System sales made progress as we replaced the contract to provide the Striker II helmet with integrated night vision camera for Typhoon aircraft in Europe and received new international orders from France in the United StatesK. Our digital night vision Israel. On the previous phone call, I have discussed our excitement around the Delta -- Alliance battle plan. In the first week of October, we had a key milestone for this project. With America. S. Government as a Delta sponsor I plan we have an industry survey day in AUSA, Springfield, Virginia. DELTA- My project will provide 24 night vision goggles to four countries and six entities to fund the development or evaluation of operators in the field. This two-barrel telescope night vision will include two of our ISIE on behalf of the sensor-19 and a high- Provides Clarity long-band infrared sensors for fused images. Delta Awards- My contract is expected in 2018. So from the big picture of our photon business, we have made outstanding progress in the development projects needed to address the revenue opportunity pipeline. We delivered our final camera for the Apache fleet in the third quarter and are now working with the Apache project office to not only start developing a second camera for the platform, also includes replacing the current night vision camera with our night vision All of this is in line with our photon technology development strategy. Our opportunity pipeline has taken a long time because the military development plan has been launched long before the production plan to ensure that we are ready to support our army at all times. In our pipeline, there are several development projects that will ultimately drive the abandonment of new product revenue, similar to what we have experienced in the Apache program in the last few years. With the completion of all the new development programs and the initial stages of the Apache program we just talked about, now our revenue from optoelectronic business has grown from product-driven business to funding-supported R & D revenue. This means that our photon results will now tend to the low end of the business\'s profit target range, which is 12% to 15%. So, in general, for the company, our outlook for 2017 is still strong, revenue growth is about 40%, over 2016, and gross profit margin and bottom line have expanded. Given the level of activity in our core and new business plans, it is too early to provide guidance for 2018, and we are confident that our revenue and earnings will continue to grow next year. I will now transfer the call to Jim to discuss the results of our third quarter and provide guidance for the rest of 2017. Jim? Thank you, Wendell. Revenue for the third quarter was $26. 7 million. This is beyond our guidance of $25 million to $26 million. Thin- Movie equipment revenues totaled $17. 2 million, including two 200 lean systems, as well as upgrades, spare parts and services. Photoelectric revenue of $9. 5 million includes $7. 3 Product revenue and $2. 2 million of contract and R & D revenue. The combined gross profit margin for the third quarter was $11. 3 million or 42. 3% and above our guidance. Higher income and guidance resulted in higher gross profit dollars. R & D and SG & A costs $10 for the third quarter. 3 million, higher than the second quarter, but lower than our guidance, mainly due to the reduction in R & D costs. Given that revenue is higher than the high end of the range and the reduction in operating expenses, our third-quarter net income exceeded guidance at $1. $2 million or $0. After dilution, 05 per share. Our backlog is $72. 8 million ended in the quarter. Thin- $59 movie equipment backlog. 4 million includes five 200 lean hard disk systems, 12 ENERGi solar implant systems and non- System hard disk backlog. We have a backlog of $13 in our photoelectric business. 5 million. Our cash and investments as of this quarter included $44 in restricted cash. 8 million, equivalent to about $2. 06 is based on 21 per share. Quarter 8 million unit. The cash flow generated by the business is $2. Q3 period 3 million Capital expenditure for the third quarter was $1 million, while Depreciation and amortization were $900,000. Turn to fourth quarter guidance. We expect revenue in the fourth quarter to be between $24 million and $25 million. In this range, we expect the gross profit margin in the fourth quarter to be between 35% and 36%. Operating expenses for the fourth quarter are expected to be approximately $10 million. We expect interest income for the quarter to be approximately $100,000 and net tax revenue to be approximately $200,000. In the fourth quarter, we lost between $0. 06 and $0. 07 based on the issuance of 22 million shares of basic stocks. Based on our guidance for the fourth quarter, we expect revenue for the full year to be between $0. 112 billion and $0. 113 billion. According to our previous guidance, net income will increase by about 40% over 2016. We expect the gross profit margin to be between 39% and 40% this year, with operating expenses of about $41 million for the whole year. Below the operating line, we expect interest income for the full year to be approximately $400,000 and net taxes to be approximately $1 million. This completes the formal part of our speech. Charlotte will ask questions. Question-and- [Answer] Operation instructions] Our first question comes from Brian Alger, a partner at Ross capital. Your line is now open. Brian algelgoodThank you. Good afternoon, everyone. congratulate a good quarterly player. I would like to delve into the timing of the ENERGi system and it is clear that this has been a bit overstocked and, as far as we know, at least here at Ross, it seems that the customer has at least received a lot of money for most of the capital expenditure, curious what you know about the additional nine systems at this point. Is this something we saw earlier in the next calendar year going into the field, or is it just extensive --open? We are discussing with them. We started these discussions. The next four tools are- We will finish it soon. So we expect better clarity. But I know their factory has been delayed. I think it’s -- As we know now, they haven\'t moved the tools in yet. So, given where we are, that\'s what we call the first three tools that are not yet installed. The first three may have been delayed by at least one quarter, so, assuming they move in again, it could have been a while since the second quarter, then we will have a better idea of where the rest of these tools will land by the end of the year, of course. Brian algelGreat. I appreciate the extra color. In the quarter, the photon technology business was a little better than expected. I\'m curious to sound like it\'s for this because we don\'t have a lot of hurdles in terms of product sales, at least the backlog is now, and you expect revenue to drop. Can you please quantify, I mean, what you\'re saying is that the gross margin is going down quite a bit? Jim MonizYeah. The -- So there are a few things. Thanks, Brian. Of course, as Wendell said, Apache\'s production business itself, we saw most of the ship in the third quarter. So as we move into the fourth quarter and next year, we have positioned the photon business. It will see a higher portion of the funded R & D, while a higher portion of the funded R & D is essentially only a lower gross profit margin, we are still trying to set the gross profit margin of Photon Technology at around 35%. Sorry, according to our business portfolio in the fourth quarter, we will see a little lower in the first quarter, and based on our remaining business portfolio this year, we should see revenue actually falling, compared with what we saw in the third quarter, the fourth quarter fell by $2 million, which is one of the factors driving the guidance of $24 million to $25 million and the impact of the fourth quarter overall gross profit margin Okay, Brian algel. Okay. Got it. Then, as far as these other projects are concerned, it is clear that you have a lot of different projects that are being pursued, whether it is upgrading the system for Apache or the next- New generation land fighter When we see that the product side of it or the production side of revenue start to fall, is it the second half of 18 years, or is it further? I\'m Wendell. I\'m Wendell. Don\'t forget, I think, that we do have a product business and we are shipping cameras for the Joint Strike Fighter. This is really the Apache program it plays. Of course, I think when we see the project we are working on. What I\'m talking about is weapons targeting the family wireless head- It can be said that in the development process, the installation of the display may be the most distant, because they are shooting the prototype, starting to do some limited prototypes for 18 years. Brian algelGreat. If you can, there\'s the last one, in front of the oDLC. Yes, Wendell bronegan. Brian AlgerYou said you have a tool and finished stock, do you expect something to come up with the transformer just in case it\'s just a prudent plan? This is-- We talked all year about how to manage inventory and observe lead times. In fact, in a particular scenario, we believe that something very fast is needed to basically come up with another vendor. So we want to make sure we have this tool to do that. Brian algel Then we also manage our inventory. We have some long 10- As far as some of the components we have are concerned, it can be said that --- These were placed at least in line, but nothing crazy. Brian algelYeah. Great. Thank you, Wendell. Good Wendell bronigan. Thanks, Brian. Thank you. The next question comes from Ben Klieve of the noble capital market. Your line is now open. Ben KlieveHi. Thank you. A few questions, first of all, the hard disk market, you discussed that the production capacity dropped to less than 0. 265 billion units in the third quarter, my problem is that in the last quarter, you said that the production capacity dropped from 0. 38 billion units to 0. 265 billion units, and then, so a rather big jump and then it\'s here in the third quarter. I would like to know if you can describe what you think is driving this, if you think 0. 265 billion units are a stable base, if you have any views on capacity in the coming quarters? Wendell BloniganOkay. Sure. So, Ben, I think, we have-- We gave the same number of 0. 265 billion units, basically counting the machine, and we have completed the installation base. What happens is that you specifically add another metal layer or another step to the media process on our device, which requires what we call a process module, or a non- System business. I want to say that we started working on that particular project, that was in 2015, starting at 2016, and then the project was stopped because they-- They actually take away the machines that currently account for part of the overall capacity, then disassemble the models, and then install other tools using these modules. So we know that basically machines are retired. We know that when a particular customer closes their business in Singapore, we know that some of these machines never show up when they are stored. These people may be back now, but we have to wait and see. So this is where we are at 16 and-- In 16 years, we saw the reason why these machines went offline. Ben klieveget you. Thank you. One more question for me is about the two parts of the evaluation process for vertex products. First of all, I would like to know if you can describe the assessment process that really relates to your second client. Then, when you step back after this long time- I think, as you play quarterback on Monday morning, it\'s been a long process with the second customer, have you seen anything you can definitely see for your future customers, is this way of accelerating the assessment process more proactive or is this just something you basically have to do --- If you are, you have to deal with it? I can answer the quarterback question for the second Monday morning first. We are doing what we can. But specifically, when you work with some of the big end customers that really push specifications and standards, the amount of push you can do is very limited. We want to make sure we respond very quickly and return the demo the way we need it. They have machines and we have to move on, and as I said in my comments, we have been working on different variations of the film, it depends on whether the app is for the wearable device, the front cover or the back cover, the tablet, whatever the app is, we are continuing to do so. I will answer your first question in the second client. One thing I -- You should see the real me. - We are involved in this work as partners and they will be involved in this work, which is a real strategy and they want to be the first company in the market to have this capability. What we\'re seeing now in the third quarter is some very smart back cover activity, because what they\'re seeing is customers who might not have installed or didn\'t have this feature before, so, they have been very proactive in doing so. The -- When I see the second customer, their process is more driven not from the lid glass operation, but by who their end customer is and what they tell them to do,- They don\'t necessarily promote it in this case, but they \'ve got the machine and they \'ve connected it and know how to run it, when they have the ability, they will be ready to do so, but they will not necessarily do so in advance. I hope your question is answered. Ben KlieveOh! No. Very much. I like the color. that\'s all I have. I will be back in line. Thank you. Good Wendell bronigan. Thanks, Ben. Ben, Jim. Thank you. Our next question comes from a line of Nehal Chokshi from the Maxim Group. Your line is now open. Nehal chokshiyes. Thank you. Good quarter. I think, first of all, I\'m going to start with the last quarter that you\'re really after. I want to know if you have- If you can provide any incremental customer wins that really make progress to measure how they deal [inaudible](28:32)tool? Yes, Wendell bronegan. I think, from the prepared comments, and of course, the third quarter, this is the announcement of the iPhone 8, you \'ve seen the glass back cover app, especially some players, and we\'ll wait and see, look at what\'s going on in the announcement and start the sampling campaign so sure it\'s already there and in terms of their engagement with top players, their strategy of owning diamonds -- Like carbon in some other critical devices, this is well rewarded. They are in -- I call it a sample set for some projects, and they are actually more proof that you can make this thing with some volume, so the original engineering volume running unit is moving forward. In addition to good progress, there is still some work to be done. Nehal chokshiok. Then, you say, you have a vertex and some finished products, which is to be able to provide new to customers in a relatively short lead time. If I remember correctly, I think the number of smart phone case glasses that can be produced in a year is like in the range of 5 million or 6 million per year. So, my impression is that if one of your end customers is going to be pushing forward with production, there is a need to install multiple systems quickly. So, help me build a bridge of understanding between a system ready and possibly multiple systems ready? Yes, Wendell bronegan. Well, we can\'t build a bunch of finished stock, so, I guess where we expand, our lead time is reduced from about six months to less than four months we want to go. But beyond that, as I discussed in my previous answer, there is a scenario where we want to capture a specific end customer, their requirements for how many suppliers we have, and the maturity of these vendors so that they can make a commitment, basically as I said in the script--a new -- Some new features include some extra movies. We hope to be able to get rid of this obstacle as soon as possible where we can achieve this goal. Nehal ChokshiI saw it. Okay. Understood. Two more issues, backlog, up $4 million. o- On the same unit backlog, it is actually the same composition. So the backlog is due to photons or thin Spare parts for film equipment? Jim monnezi got up because he was thin. Film equipment and many non-film equipment That\'s why the break we gave in the system didn\'t change because we booked and shipped on the hard drive and ENERGi was still overstocked, which was actually based on the fact that we were in non- Thin system- Movie equipment, but don\'t lose it, I should probably expand a little on Brian\'s issue. We have more than $8 million bookings in the photon field and $9 bookings. 5 million of the revenue and most of the $8 million revenue comes from funded R & D, and if you look at the results for the third quarter, the revenue for photon technology is $2. 2 million of the R & D funding, which is the most we have in nearly three years, as we said when we pushed forward some products, such as the decline in Apache production, we will focus more on funded R & D, we had some good success in booking and increasing revenue and we continue to see revenue grow again in the fourth quarter. Nehal chokshiok. Understood. My last question is the introduction of microwave in the hard disk field Western Digital auxiliary magnetic recording. Could you please discuss if this means anything to Intevac? Yes, Wendell bronegan. I think, from what we know about it, we don\'t know about it, but we will definitely repeat the announcement. - Understand what will be required. From the system point of view of the Intevac tool, if you are in the process of transition and are mainly around the high temperature deposition of the material, we need to make a similar upgrade. So we said the damage is now-- There are some microwave ovens that are a kind of cleaning for us. Nehal chokshiok. But what\'s interesting is that this higher density- The area density technology is certainly correct to some extent because we want to sell the system instead of upgrading. Nehal ChokshiRight. Further, my impression is that MAMR and SPMR are the same material, but different recordings have technology, and the damage is completely different material. Therefore, I think people will think, using completely different materials, new tools are needed in order to adapt to damage, while using MAMR-- Is it possible to accommodate MAMR using the existing traditional installation base? Wendell BloniganWe believes that these two harmful media are also system upgrades, mainly near the operating temperature. We have put some development into this field. Nehal chokshiot got it. Okay. Thank you. I think you\'re right. There is some -- Something happened between the material itself, but at this point I couldn\'t find anyone to tell me exactly what happened over there with the material. Thank you. Wendell BloniganOkay. Thank you. Our next question is Craig Ellis from B. Riley. Your line is now open. Peter PengThis is the question that berpeng asked Craig Ellis and thanks for accepting. The first question is, just in the fourth quarter guide, what kind of effort and effect does the device seem to grow or be flat? Jim monnizi would say, as I said in a couple of previous answers, the biggest difference is probably that photon income will drop. We don\'t usually give that kind of guidance, but it\'s down from $9 to $2 million. 5 million, which is one of the reasons driving the decline in revenue, the level of equipment is relatively similar between the third quarter and the fourth quarter, and then, due to the slightly different combination of equipment, then in the fourth quarter, the number of research and development funded by photon technology was higher, and even the combination of research and development funded was unusual, below our normal level target profit margin that\'s why margin is down to 35% to 36% in the fourth quarter. Peter PengOkay. The power of the upgrade seems to be strong-- We included three quarters in December, running at $8 million to $9 million. How sustainable is this from 2018? Jim monizzi does not believe that the growth of 2018 is so great, we think that the 2017 we want is stronger than 16 years, and it turns out to be. In the third quarter, we almost withdrew some from the fourth quarter, which is why we did not have the guidance to increase growth by more than 40%. But we have seen the necessary pull of the 17 events of \"18 years\", and we hope that as long as the plans we discuss with our customers have not changed, we expect \"18 years\" to become physically strong. Said Peter penghthanks. Photons, so it looks like this is a meaningful step in the fourth quarter, is it normalized in the first half of 2018, or should we expect a new speed of operation? Wendell BloniganWe did not guide 18 years at this point, but I will let Jim comment on what we can do. Jim MonizYeah. I would say that in the fourth quarter, this is a little lower than the normal operating rate we would like, and as we said in 2017, we expect the revenues of photon technology to be 16 years with them. We haven\'t guided to 18 years yet but based on our activities working with a variety of clients and some of the success of our booking for funded R & D in the third quarter, we would like to see an acceleration, however, when we entered 2018, most of them came from funded R & D. Peter PengOkay. Last question, I will re-queue. Your inventory looks like $6 million. over- What other reason is this peak, besides a vertex? The biggest problem with Jim MonizThe, if you remember we received a large order over $22 million-- For 12 ENERGi tools, our customers and contracts require us to ship by the end of the year. So we purchased most of the inventory, we are building and shipping most of the inventory, we shipped three of them in the third quarter, but the customer wanted to see the billing plan after their factory moved out, so they are trying to work with us to determine when we should ship the nine remaining tools. But, as you said, most of this growth, there\'s a vertex that does a good job, but it\'s really in the ENERGi tool. Peter Peng Wei Thank you guys. Thank you, Peter. Thank you. The next question comes from Mark Miller at Benchmark. Your line is now open. Mark Millery just wants to go back to the discussion of MAMR and HAMR now predicted by Western Digital companies, which will start in 2019. Do you still expect a sustained increase in the number of discs, as both technologies will represent a significant increase in area density, making them a quarterly leap. I think that, even if there are some different situations, the defense effect of Wendell bloogan will be achieved and you will not one day transfer all the tools to HAMR or you will do that, you will be there to introduce a specific product or product line, which will be a step-by-step product or product line. But I think now that we have the path to upgrade, I think we just have to wait and see how mature these technologies are and when they are ready to roll out because they are sliding right all the time. Mark milleryou\'s lower margin guides lower revenue growth for the quarter, but does mix have any impact, especially do you think there is a decrease in spare parts and upgrades for the quarter? Jim MonizWe did see slightly less Spears and upgrades, some of which were due to the fact that we pulled some spears and upgrades in the third quarter. Winder BloniganCustomer. Jim MonizCustomer asked them to enter q3. Then, as I have said several times the answer, we do expect that if you come from photon R & D with lower profit margins, the overall revenue of photons will decrease and the revenue will increase. Mark Miller finally, the tax has gone up this quarter, can you explain that? Jim MonizYeah. Some of the reasons are that hard disk revenue is strong, and most of our hard disk business is through Singapore, so we need to pay taxes, even if we have $60 million in NOLs and $13 million in tax R & D credit we do need to pay statutory taxes, and most of the taxes are driven by Singapore\'s strong hard drive business. Not very material. It\'s not a lot of money. But this is driven. Thank you, Mark Miller. Welcome to Jim Moniz. Thank you, Mark. Thank you. I have not raised any further questions at this time. I want to transfer this call back to Mr. Blonigan. Thank you, Wendell bronegan. Therefore, before I sign, I would like to thank Intevac dedicated staff around the world for their great efforts and successful results in this dynamic environment. I would also like to thank our customers for their continued business and partnership. Thank you all for joining us today and we look forward to updating you again in the fourth quarter conference call in January until then. This is the end of today\'s conference call. You can disconnect now.