Camtek Ltd (CAMT) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Camtek, Ltd. first-quarter 2006 results conference call. (Operator Instructions). As a reminder, this conference is being recorded May 16, 2006.

I would like to remind everyone that the conference call may contain projections or other forward-looking statements regarding future events or the future performance of the Company. These statements are only predictions and may change as time passes. Camtek does not assume any obligation to update this information. Actual events or results may differ materially from those projected, including other results of changing industry and market trends which use demand for our products, the timely development of our new products and their adoption to the market, increased competition in the industry, and price reductions as well as future risks identified in the documents filed by the Company with the SEC.

You should have all received by now the Company's press release. If you have not received it, please call Gelbart-Kahana at 1-866-704-6710.

I would now like to hand over the call to Mr. Ehud Helft of Gelbart-Kahana. Mr. Helft, would you like to begin?

Thank you. Good morning and good afternoon to everybody. I would like to welcome you all to Camtek's first-quarter 2006 results conference call and take the opportunity to thank Camtek management for hosting this call.

With us on the line today are Mrs. Ronit Dulberg, Chief Financial Officer, and Mr. Yuval Attias, Director of Finance. Mr. Dulberg -- Mrs. Dulberg -- sorry -- will start with the call by giving an overview of Camtek's performance in the first quarter of 2006, followed by Mr. Attias, who will summarize the financial results. Finally, Mrs. Dulberg will discuss recent developments within the Company and in the market, discuss the guidance and then we will open the call to the investor question-and-answer session.

I would now hand over the call to Ronit, please.

Thank you, Ehud. Hello, everyone, and welcome to our first-quarter 2006 conference call. On behalf of Camtek's management, I would like to thank every one of you for your interest in Camtek and for joining us on this call. This quarter, we beat our own expectation again, achieving another record revenues of $24.9 million and breaking our previous revenue record set last quarter by 28%.

On top of that, we substantially improved our margin across the board and we achieved our highest net income of $4.4 million, beating our previous best which was achieved in the third quarter of 2004 by 35%. The quarter-over-quarter increase in our income more than doubled, and this was on top of the great results for the fourth quarter of 2005. Our net margin this quarter reached 17.8%, which is impressive by any standard.

These results demonstrated fantastic operating leverage inherent in our business model. There were a number of reasons for our substantial success during the quarter -- stronger and faster increase of activity in the PCB sector than we had anticipated a quarter ago. The PCB sector contributed $15 million of revenue, having grown 36% sequentially. The Falcon contributed $10 million, representing a CAGR of 33% on a sequential quarter-by-quarter basis since Q2 2004. The Falcon has solidified its position and continues to win new customers and repeat orders from existing customers. We attribute this success to the Falcon competitive performance across the board in a range of applications as well as our ability to provide our customers worldwide with close support.

During the last quarter, we contributed to build up our manufacturing capacity, customer support, organization and R&D staff. We believe that this buildup will not only enable us to supply the growing demand for our products but also improve our ability to maintain and further develop our technological competitive advantages.

Other highlights of the quarter included -- our earnings per share grew substantially in the quarter. We managed to earn $0.16 per diluted share compared with $0.07 per diluted share in the previous quarter and a loss of $0.09 a year ago. Our previous best was $0.12 a share, which we achieved in the second and third quarter of 2004. We had a positive operating cash flow of $1.3 million in the quarter, which indicating that our strategy to increase inventories and allocate funds for evaluation machines is beginning to pay off.

Finally and more recently, we received a strong vote of confidence from the capital markets. We took the opportunity to raise $15 million for a pipe offering to Israeli institutional investors. We strengthened our balance sheet and will increase the free flow of our shares. I will talk more about the markets which we compete in later. But, first, I would now like to turn the call over to Yuval to go through the financials. Yuval?

Thank you, Ronit. Revenues for the fourth quarter of 2006 were $24.9 million -- 172% above $9.1 million, as reported in the fourth quarter of 2005, and up 28% sequentially from $19.4 million reported in the fourth quarter of 2005. The revenue breakdown in the first quarter of 2006 between the sales of PCB, HDI, and semiconductor manufacturing and packaging products was 56%, 4%, and 39% respectively. Our geographical breakdown of the revenue for the first -- for the quarter was USA 10%, Europe 13%, and the Pacific Rim 77%, which consisted of China 39%, Taiwan 25%, and rest of Asia 36%.

Gross profit for the first quarter of 2006 was $13.1 million, representing a gross margin of 52.5%. This is compared with $3.8 million or gross margin of 41.2% as reported in the first quarter of 2005 and $9.6 million for gross margin of 39.5% as a total in the previous quarter. Operating profit for the first quarter of 2006 was $4.4 million, representing an operating margin of 17.7%. These represent sequential growth of 112% compared with an operating income of 2.1% -- $2.1 million or operating margin of 10.8%, which we reported in the previous quarter. In the first quarter of 2005, we reported an operating loss of $2.4 million.

Finally, first-quarter net income was from $4.4 million or $0.16 per share, which is a net margin of 17.8%. This represents a sequential growth of 120% over fourth quarter of 2005, which was $2.1 million or $0.07 per share and net margin of 10.6% in the first quarter of 2005. We reported a net loss of $2.4 million or a loss of $0.09 per share. On all accounts, these results set new records for Camtek.

Turning to the balance sheet, our net cash and equivalent at the end of the first quarter stood at $12.2 million compared with net cash we had at the end of 2005 at $10.8 million. During the first quarter of 2006, we had a positive operating cash flow of $1.3 million and the receivable -- our DSO decreased to 112 days, which is within our target range, down from 124 days in the first quarter of 2005.

With that, let me return back the call to Ronit.

Thank you, Yuval. As we mentioned, the Falcon continues to progress according to our plans. Various Falcon models have been already qualified and purchased in multiple -- by major semiconductor corporations and the [family and desktop contractor] in Asia, US, and Europe. The market for the Falcon is expanding as we develop more and more applications.

The Falcon versatility and ability to integrate metrology capability with surface defect inspection capability opens for it many market segments. Current customers cover a wide range from wafer manufacturing fabs through bumping and gassing houses to packaging and assembly fab contractors. The applications they inspect range from [form marks] and [flip-switch] pumps to [post-acting] microelectromechanical system sensors and medical instruments.

We share the positive outlook of our appeasing the industry that the demand for inspection equipment, it feels healthy for the foreseeable future. The PCB and HDI substrates business began to reflect improvement from the beginning of the year. We noted a rising interest in inspection equipment for finished product inspection of the high-density substrate, which we expect will turn into orders in the near future. We continue to focus R&D efforts on the high-end segment to support high-end margins by growing faster. Our technological advantage provide us with a great competitive edge to this. We expect to see an additional growth into the second quarter.

I would now like to review our guidance. We issued our guidance of 26 to $29 million for the second quarter about three weeks ago. As the time goes by, we become even more comfortable with this range. Regarding the entire year, you may remember that in November 2005, we announced our estimate of between 85 to $95 million revenue for 2006. Later, we adjusted it upward to 90 to 100 million. We now believe based on the current demand for our products and under the assumptions that market condition remains favorable that our 2006 revenues will be between 100 million to 110 million or roughly 10% higher than our previous estimate.

Finally, I would like to mention our Investor Relations activities in the coming quarter. Firstly, we will be representing Camtek at the CIBC Conference in Tel Aviv next week on May 21st. Secondly, we will also be on an institutional investor roadshow in the United States in the second week of June, and we hope to make meet with many of you out there. And as usual, we will exhibit at the Semicon West Tradeshow in San Francisco this coming July. You are welcome to meet us there as well.

On that note, we will be happy to take any questions that you may have. Operator?

(Operator Instructions). Stuart Muter, RBC Capital.

Congratulations on some nice results. A couple of questions for Ronit. First, what is your view for the growth this year for the PCB/HDI market?

Yes, as you know, the PCB market is -- the availability in the PCB market is very limited. So, it is very difficult for us to answer this question, since we can see only about a quarter ahead in this market. We can say that right now, we see high demands in the market. So, we don't have any reason to assume that the next quarter will be different than this quarter. But, it will be very difficult and I could say to you, stay cautious optimistic in this area.

Fair enough. Then a question on the financial model. I believe this quarter, you have exceeded or you have met your financial model targets. So, do you have new targets for going forward that you would like to share?

Not at the moment. Even though you are right and you see our net income percentages higher or the margin is higher than in our model. But still, you have to remember that the income comes very fast and the expenses follow this. We are not sure that we are in full expense level. And if the income will continue to grow -- the revenue will continue to grow the same way, probably we will have a better result than our target model.

Excellent. Then one final question, do you have an estimate for stock compensation expense for Q1?

Yes. The compensation expense for the stock options, according to the new -- actually, it would be 123. The revised line was only $150,000 for us.

Do you have an estimate for what it would be in Q2?

Because in Q1, we have to do actually the full impact of the new implementation of the rule, this would be the highest amount. In Q2, it's supposed to be not more than $60,000.

Fantastic, thank you.

Sergey Vastchenok, CIBC.

Congratulations on an excellent quarter. I have several questions. Can you provide the breakdown per product lines number, not the finished [wife]?

Okay, for the PCB, we had 14 million. For the HDI, we had 1 million and approximately 10 million for the microelectronics.

And services?

Services were 1.5.

So, the services were a part of [sorry] PCB?

(multiple speakers) Yes, yes. This time, it is still related to the PCB industry. The Falcons are quite new systems in the market, and most of them are still under warranty.

Okay, and from PCB mix, what was -- if you can provide this -- the [place tech] wanted a qualitative breakdown by product lines -- what part of the PCB sales were Dragon sales or Fine Line sales?

We usually do not supply this information, as you know.

Okay. So, Dragon, you can't specify. But can you just give a color of which business in PCB mix were strong this quarter as compared to the previous one?

As I said in my review, in the PCB, we see request and demand actually all over the portfolio of the product. We see a higher interest in the HDI factories. But, it is too early to say -- to actually give you a trend. We probably will see it next quarter.

Okay, so we can assume that HDI will be a larger part of -- should be in this next quarter?

Probably, yes.

Okay, fair enough. You feel you taken market share in PCB business or it's the market to which you have grown faster than expected?

As much as we -- the information that we're getting from [the frills] is that it's the same way. We still continue to take the same opportunity used to have and our competitor taking its own. We don't see any change or major change in the quarter and the last quarter. You know, it could be this one [bill]. They still can gather the -- we think you know it was always -- the changes -- there could be minor changes from quarter to quarter. But, the global picture is that actually, we always are on the same market share as we used to be before.

Regarding Falcon, can you provide the data about the backlog for Falcon machines at the end of Q1?

I'm sorry to disappoint you again. But, it's another information that we are not supplying. But, I can tell you that we started the quarter with some backlog out of the Falcon. We started 2Q with a backlog.

Okay and the book-to-bill this quarter was larger than one, I assume.

Again, I cannot answer.

Okay, okay. The DSO, can you repeat what was your DSO number this quarter?

Yes, 112 days.

112 versus 124 on the previous quarter, right?

Previous quarter, yes. We have the change -- even though we have higher activity with higher revenue and a higher AR number, I think our DSO is less than we used to have last quarter.

Okay, on balance sheet, is inventory -- which part of your inventory is attributed to PCB and to Falcon and the same for receivables?

Of the receivables or in of--?

Both. Both receivables and inventory.

Again, receivable, we cannot -- actually, we're not publishing this information. I think you asked this question on a previous call. No doubt, our competitor as well.

Okay, okay, probably. And the same for inventories, you can't disclose this data?

Yes.

Yes.

Okay, in terms of expenses, which run rate do you expect for R&D and SG&A? Shall we assume the same level of expenses all of the year, or which growth rate are you assuming for R&D and SG&A?

Right now, the R&D is 14% from our revenue. Right now, we have about 10% of our revenue is in R&D. We assume that we will have higher expenses. But, I think we will keep the target that we gave in our model, which was between 11 to 13% (multiple speakers).

Another estimate, I just would like to clarify one issue about the HDI substrate. When we talked about increasing the sales, when I said next quarter, I meant Q3 and Q4, not in Q2 -- just to clarify.

Okay, okay. So, the SG&A, you see the same -- I mean the percentage will be proportionate to the Q1 probably a little bit more.

SG&A?

Yes.

Yes, probably will be the same.

The question regarding visibility, so you see in -- from what you receive from your customers, you see the lead-times are lengthening? Do you see the better visibility than you've seen the last quarter? So, you see some improvements in this area?

Unfortunately not. Still, the visibility is very limited.

But you still -- you feel comfortable with your guidance for Q2?

Yes.

Good luck.

Rami Rosen, Oscar Gruss.

Congratulations, Ronit and Yuval. My first question relates to ASP trends in the PCB area. Is it stable or is it declining? Can you discuss it?

As we said about the PCB, again, our visibility is limited. As we see right now, we still see high demands in the market for Q2 and to the middle of Q3. But, we do not have visibility longer than this.

No, my question was in relation to the prices.

Oh, about the pricing?

Yes.

The pricing -- right now, there is some stability with the prices. We don't see any pressures down or up or upside. So, we believe that we will not face a major or dramatic changes in the prices.

My second question is regarding -- you obviously achieved very nice gross margin this quarter. Is it sustainable for next quarter or for the remainder of '06?

Again, it depends on the revenue. Right now, our fixed costs will not increase -- will not majorly increase. Probably, it will be a moderate increase. Though, if we will keep this level of revenues, we probably will keep the same level of margin.

Okay. What was the headcount by the end of the quarter and how many employees do you expect to recruit during '06?

For the end of Q1, we had about 435 employees all over the world. We still need to recruit many employees through the end of the year. Roughly, I would say that for all over the world, we are expecting to recruit additional 25%.

Just a clarification, you've already said that you've had $12.2 million. Obviously, you are not including the $16 million raised lately, right?

Oh sure, not yet, not yet.

Thank you and congratulations for the results.

[Ken Frezenlenz], [Everlife].

Just to follow up a question from before about book-to-bill. I certainly would understand if you didn't want to talk about it on a product basis. But, surely, you should be able to tell us what the book-to-bill was on a corporate basis for the quarter, no?

Since we are not announcing the bookings data, we cannot supply it right now. But we will consider it for the next call (multiple speakers). Thank you for raising the question.

Just a follow-up if I could. Help me understand -- you clearly talk about some limited visibility. How are you able to up your guidance for the full year to 100 to $110 million, given the fact that you talk about visibility into the middle of Q3. Help me understand; reconcile that for me.

First of all, our customer expects a short time delivery. This is something -- this is how it works in this industry. So, we are not receiving long-term orders. This is why it was very difficult for us, and this is why this visibility is limited. But, right now, we can see -- as I told you Q2 and Q3 -- and there is a high demand in the market. In the MFP, it's also -- it's the same with the customer requests to have a -- to receive the machines immediately. But, it's better. It's a little bit better.

We feel comfortable with the guidance that we gave for the year since right now, we can see three quarters, which is 75% of the year. It gives us comfort with our yearly guidance. We hope that it is something that we're not -- if something will not happen in the market, like a big crisis that we cannot focus at the moment, it's probably -- it's probably a guidance that we can live with.

[Nathan Puwa].

First of all, congratulations for your excellent performance. My first question would be -- I mean, it was touched already before -- your excellent profit margins. And I am looking especially at the net income to revenues, which is 17.8%. Would you say that this is a very exceptional quarter going forward? You think you're going to achieve similar numbers?

As we said, we are not expecting a high increase in our operating expenses. If the revenues will stay at this level, this is not exceptional.

The second question I have is the tax situation. I've seen the Company not paying taxes for the last two years at least. Obviously, you probably had some loss carry-forwards from previous years. What is the situation right now and when do you anticipate having to start paying taxes and how much?

Yes, you are right about losses that we're carrying forward. We are expecting actually for the whole year -- in the first quarter, we made a provision of only $100,000 and it's not going to be higher than about 2% for the whole year for our current estimation.

Looking forward, when do you think you will have utilized your loss carry-forward?

Probably by the end of the year. Next year, we're going to pay higher percentage of tax, around 5% I would say roughly.

My next question would be -- looking at your recent private statement with these very institutional investors and possible exercises of warrants, which are well into the money and conversion of your senior debt, together with your current cash balance, you may look at the possible cash balance of $40 million. Here, you're going all together richer in the US and maybe you are looking at where the [additional] money. What possible investments are you looking for? You're looking at acquisitions? Will you maybe look at to pay dividends? Or do you have any other plans?

Okay, we -- actually, the last pipe that we made, we raised the money in order to stabilize and to strengthen our working capital structures. We probably will need part of it in order to finance our growth. In addition then, we are checking the possibility to expand our activity to other areas, which are in our market range.

Are you looking on any possible dividend payment?

Not at the moment.

Thank you very much and again excellently done.

(Operator Instructions). Arnon Rubenstein, Shore Capital.

Some very, very basic questions. The first one is regarding the Falcon. What would be the average price per unit that you are selling?

We are not providing this information by product. We're just giving the revenue for this segment.

Is it something around 100,000 or closer to $1 million per unit -- per machine that you are selling?

It depends on the applications. There are a few applications, so it's very difficult to answer this question. The range is big.

Then, another basic question -- following the recent fundraising, what would be the total number of shares that you have at the moment outstanding?

Fully diluted?

Fully diluted and non-diluted and outstanding.

In outstanding shares right now, we have about -- actually, we have 28 million shares. But, some of them, we bought back in a buyback in the past. So, actually, we have net outside 27 million.

Above the 2.5 million?

Sorry, sorry. This is before the 5. So, after the 5, you have to add additional 2.5 million shares. And, we have some options as well pending.

Fully diluted is around 31 million.

31 million. Okay, thank you very much.

Thank you. There are no further questions at this time. Ms. Ronit Dulberg, would you like to make your concluding statement?

Yes, thank you. Ladies and gentlemen, on behalf of the Camtek and the rest of the management team, I would like to thank you for your continued interest in our business. We very much look forward to continue reporting positive results to you over the next few quarters. Thank you and we look forward to speaking with you next quarter.

Thank you. This concludes Camtek, Ltd.'s first-quarter 2006 results conference call. Thank you for your participation. You may go ahead and disconnect.