Camtek Ltd (CAMT) 2008 Q1 法說會逐字稿

Good day and welcome to the Camtek, Ltd. Q1 2008 earnings conference call. For your information, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Kenny Green. Please go ahead, sir.

Thank you and good day to all of you. I would like to welcome all of you to Camtek's first-quarter 2008 results conference call and thank Camtek's management for hosting this call.

As a reminder, this conference call may contain forward-looking projections and other 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 that information. Actual events or results may differ materially from those projected including as a result of changing industry and market trends, reduced demand for product, the timing development of new products and their adoption by the market, increased competition in the industry, and price reductions as well as due to risks identified in the documents filed by the Company with the SEC.

With us on the line today are Mr. Rafi Amit, Camtek's CEO, and Mrs. Ronit Dulberg, the Company's CFO. Ronit will start the call by giving an overview of Camtek's performance in the quarter and summarize the financial results. She will also discuss recent developments within the Company and in the market and discuss the outlook. We will then open the call and Rafi and Ronit will both be happy to answer investor questions.

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

Thank you, Kenny. Hello, everyone, and welcome to our first-quarter 2008 results conference call. On behalf of Camtek's management, I would like to thank each and every one of you for your continued interest in our business and for joining us today. 2008's first quarter continued the sequential improvement we began towards the end of last year. For the third quarter in a row, we showed improvements most importantly in our gross margin and net income.

Our revenues grew 47% over last year and were marginally higher than that of last quarter with the mild growth in our semiconductor market. We remained profitable, had a positive cash flow, and sequentially doubled our net income. We feel this is a strong achievement given the background of the weak global macroeconomic environment and uncertainty particularly affecting the industries in which we operate.

Like most of the players in our business, we are exposed to the inherent cyclicality in the electronics industry and most notably in the semiconductor sector. However, we believe by adjusting our cost structure we've been able to stay balanced during the downturn. At the same time, we maintain our customer's support and product development activity to secure our growth potential when the market recovers.

As evident from our quarterly results, we have been quite successful in navigating the current downturn. We are consistently increasing our net income and positive cash flow while achieving gross margins among the highest reported recently in our industry. Part of this success can be attributed to our technological advancements and the more efficient cost structure we have implemented over the past few quarters. We are also constantly looking for additional avenues in which we can better utilize our global infrastructure to generate new business.

As has always been our practice, we are exploiting this slower period to develop new capabilities and enhance our product. This practice enables us to maintain our competitive advantage and provide our customers with [mature] assistance.

In terms of our competitive situation and based on the information available to us, we maintain our core industry position in our sales markets. Despite the ongoing weakness in the semiconductor market, we recorded a healthy order stream for our wafer inspection systems during the quarter and managed to grow our revenue and margin sequentially. We believe that our current activity levels are sustainable at least through the first half of 2008.

In terms of PCB, inspection equipment remains stable, slightly below last quarter. In contrast to previous years, this is not a factor which (inaudible) was marginal. At the same time, we remain focused on keeping our expenses under control and improving margins striving to further improve our bottom line.

I will now provide more details on the various sectors of our business during the quarter. First, the semiconductor manufacturing and packaging market. We generated a total of $7.9 million in revenues from sales through the semiconductor manufacturing and packaging industries, about 10% growth over the last quarter and well above the average levels we saw throughout last year. While the semiconductor capital equipment sector remained weak during the quarter, we believe that the reason behind our growth is technology-driven demand for our wafer inspection systems.

We are constantly building and improving our technological capabilities. Our related Falcon product line, the Falcon 1000, delivers increased productivity and detection ability, which as we believe provide our customers with differentiated performance.

We also place significant focus on user-driven development of capabilities. We will maintain a constant dialogue with our clients to develop solutions catering to this specific demand. This enables us to respond quickly to new needs and opportunities in our marketplace. In some cases, the Falcon lines [growth] range of capabilities has enabled us to provide solutions for our customers' application outside the semiconductor mainstream. We expect that this coverage of a wide application space will drive additional growth once the uncertainty in the markets have subsided and the industry returns to normal purchasing patterns.

During the quarter, we generated a total of $13.4 million revenue from the PCB and IC substrate industries contributing two-thirds of our total revenues. This was a little below the $13.8 million which we reported last quarter, but significantly above the $8.2 million reported in the first quarter of last year. We currently observe stability in the PCB sector for our business following the recovery we saw in the second half of 2007.

Our recently introduced lines with inspection systems bring new enabling capabilities to our marketplace. Planet, our new system for inspecting ultra-fine line [IC] PCB panels expand its [inspection abilities] to [geographies] beyond the range covered by PCB AOI systems before. Mustang brings information automation and high detection ability to finished boards mainly for the mobile phone market, one of the fastest-growing segments where inspection has been mostly manual.

We believe the demand for AOI in finished mobile phone product will grow significantly and believe that the warm welcome the [market] received from its first customers signals our success in this emerging market segment. Orders from all the new lines have already been installed in [total] customers.

Now I would like to summarize the financials. Revenues for the first quarter of 2008 were $21.3 million, 47% above revenues of $14.5 million reported in the first order of 2007 and marginally above the $21 million reported in the prior quarter. The revenue breakdown in the first quarter of 2008 was 63% PCB and IC substrates, and 37% semiconductor manufacturing and packaging products.

Our geographical breakdown of the revenues for the quarter was USA 10%; Europe, 14%; the total Pacific Rim 74%, which consists of Japan 6%, China 37%, Taiwan 9%, the rest of Asia 22%. The balance of 2% was the rest of the world.

We recorded operating expenses of $9.4 million in the quarter compared with $10.4 million in the first quarter of last year and $9 million last quarter. It is important to know that the last portion of our expenses are in Israeli shekels. During the quarter, the U.S. dollar devalued related to the shekel by 8%. The devaluation increased the dollar value of our expenses. However, we have hedged our exposure in advance and managed to minimize the effect of the dollar devaluation on our net income. The year-over-year improvement in our expense level was due to the contribution of the cost reduction measures that we took in the recent quarters.

Operating income for the first quarter of 2008 was $114,000. This is compared with an operating loss of $4.3 million in the first quarter of 2007 and $126,000 in the prior quarter. Financial income for the first quarter of 2008 was $466,000 compared with $133,000 in the first quarter of 2007 and $66,000 in the prior quarter.

Finally, net income for the first quarter of 2008 was $493,000 or $0.02 per diluted share. This is compared to a net loss of $4.3 million or a loss of $0.14 per share in the first quarter of 2007. For the previous quarter, net income was $247,000 or $0.01 per diluted share. The Company reported a positive operating cash flow of $307,000 in the quarter.

As of the end of March 2008, the Company reported net cash and equivalents of $20.7 million compared with $20 million as of December 31, 2007. Our days sales were 113 days compared to the 102 days that we reported in the previous quarter.

Looking ahead, we believe that our diversified customer base across the industry that we serve makes us less sensitive to fluctuations in one segment to another. Assuming that our current incoming stream of orders will [keep] along the same patterns, we can expect second-quarter revenues in line with our first-quarter revenues between $20 million and $22 million.

We remain pleased with our achievement of growing our gross margin and net profit and especially with our growth in semiconductor revenues despite the ongoing weakness in the semiconductor segment. The PCB side of our business has again proven its value as a relatively solid source of revenues enabling us to maintain our stable position while we continue to support our customers and [preserve] improved competitive capabilities with a focus toward the next market recovery.

Under the current environment, we took specific decisions. For the short-term, to maintain the top-line level while improving our profitability and maintaining positive cash flow. We are achieving these aims while maintaining our R&D investment and improving our strong balance sheet position. We are reducing inventory levels while maintaining an acute level of demo and evaluation systems to support future sales to new customers. We are working to improve our DSOs without sacrificing our top line objectives.

For the long run, we expect to see our top line growing as a result of organic and inorganic growth. Finally, we also announced today the appointment of Ray Porat as general manager at Camtek's headquarters. Ray has served in a series of management roles of Camtek subsidiaries first at Camtek USA and recently as Camtek Hong Kong as president while he ran Camtek's successful activity in all of Asia.

Aharon Sela will replace Ray as president of Camtek Hong Kong. Aharon's previous position was VP of Sales at Camtek Europe. On behalf of Camtek management, I would like to wish both Ray and Aharon success in their new roles.

We will now open the call for questions. Operator?

(OPERATOR INSTRUCTIONS) Mahesh Sanganeria, RBC Capital Markets.

This is (inaudible) calling in for Mahesh Sanganeria. I think your quarter was really strong. Congratulations. I just wanted to see how the shekel has impacted your operating expenses. I mean you said part of it was hedged or was it fully hedged? Because the numbers are higher, both R&D and SG&A expenses are much higher than last quarter. So if you could give as to how high it went up was based on -- was it based on Israeli shekel or was it based on additional investments?

Okay, so the shekel devaluation impact us about $500,000 per quarter. The increase you see in R&D is partially as a result of this but also from other reasons. We added employees and we had salary increase in January 2008.

So this shekel hedging that you have done, is it going to continue for the whole year or you think that the R&D expenses and SG&A expenses will go further in Q2? Or can you give us some color on that?

In Q2, we do not have full impact, but we had about 75% of (inaudible).

75% of $0.5 million? Is that anything or --?

Yes, but the difference or the changes at least I see now in the rate is not the same as it is as we saw it in Q1. So the percentage is totally different and the impact is different. It is not the same as we saw in Q1. Q1 was really -- it was actually 8%. Hopefully we will not be again the same percentage in Q2.

Can you quantify how you think your operating expenses and gross margins you expect to look like in Q2?

At the moment we don't expect any major change.

Thank you.

(inaudible), Oppenheimer.

Hi, guys. [Sergei] (inaudible) of Oppenheimer. Congratulations on a good quarter, good execution. First of all, can you please provide the breakout of PCB separately? And IC substrate separately?

(inaudible) IC substrate were around 300,000.

Okay, so it was not significant this quarter?

No, it was not significant. Actually almost the same level as in Q4.

Okay, how do you see the competitive environment both in PCB and semiconductor business? PCB, your main competitor had a slow quarter in Q1 and on the semiconductor business one of your competitors could -- was taken out recently. So how do you see this environment right now and going forward?

Let me answer it, Ronit. Regarding the PCB, okay, between us and [Orbit], as we mentioned before, we together took about 90% of the market share. So sometimes they have more order or a better quarter because of some what we call house customers. Okay? to -- place more orders, sometimes customer that prefer Camtek can place more orders. So it is something I would look into as not something major. I think -- plus mine was two company actually continue maintaining very similar market share and so we don't feel any tough competition. I think two company has their on installed base customer base and we maintain them in roughly in the same proportion.

Regarding the semiconductor, what is the company that you mentioned that they are out to the market?

ICOS.

ICOS, I would say they are out of the market. It was acquired by KLA but there are continually acting as an active company. So we couldn't say that they are out of it. But I would say that in the semiconductor, most of the orders that we can see today as we mentioned is by technology driven. When we mean technology driven there are a few segments, one of them is all the analog devices is we can see that this segment is really booming and they need a lot of inspection.

We can see some CMOS image sensor also as a trend. We believe that all the trend to go to 32, 45 nanometer line require much more inspection than in the past. They would like to see smaller defects that they used to see in the past. The automotive industry requires zero PPM defects also requires more inspection, so all these segments are asking for more inspection.

We believe that one of the benefits of Camtek is our ability to look for very fine defects without affecting the throughput. We developed some fuel very advanced algorithm, so by still maintaining very similar throughput, we can detect very fine defect. So we believe that we have some advantage compared with our competitors especially in the fine defect segment. So this is roughly how -- although there are some slowdowns in the semiconductor, we can feel more demand and even we can see more growth in our semiconductor.

Okay, thank you. Another question is regarding speculations which have been speculated recently about a merger possibility between you and (inaudible), one of your European competitors. How do you comment on it and is it synergistic for the business?

Okay, first of all, as far as you know right now, the part of Mania at least they are in solvency process right now and every act are running by administrator and the management together. Definitely after this process, the insolvency in the AOI, we don't see any activity right now. We believe it takes some time for the administrator in Mania to decide how to manage all the divisions. We are in contact with them. We still try to make some collaboration with some acquisition part of it, not all of it. But it has not finished yet, so we cannot announce anything at this moment.

Do you have a timeline for an acquisition?

Right now, we are just talking like we are talking with many other organizations. When we will have something to announce, we will.

Okay, thank you. Good luck.

Thank you. As we have no further questions, I would like to hand the call back over to Ronit Dulberg for additional or closing remarks.

Pardon me, we have one follow-up from Mahesh Sanganeria from RBC capital.

I just wanted to see if you can give us more color on the gross margins. They were significantly stronger than last quarter. Is it driven by product mix or are there some other factors driving this gross margin upside?

Yes, these are (inaudible) partially as a result of the mix but also as a result of increasing ASPs for our product in the PCB segment. So it was a major impact on our gross margin.

Okay and I think I just missed the comment about possible acquisitions. So is that an acquisition that you can make or you are planning to make in the near future or --?

As I said, we are -- (inaudible) talks about Mania Technologie, but as I said, we are working on inorganic growth and we are in contact with a few organizations about a few opportunities. It's not only this on the table, but it is still very early to say anything about the opportunities there and we will announce when we will have something.

Okay, thank you very much.

Thank you. As we have no further questions, I will now turn the call back over to Ronit Dulberg.

Thank you. Ladies and gentlemen, on behalf of Camtek and its management team, I would like to thank you for your continued interest in our business. We look forward to speaking with you again over the next few quarters. Thank you and goodbye.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.