Camtek Ltd (CAMT) 2008 Q2 法說會逐字稿

Good day and welcome to the Camtek Limited Q2 2008 conference call. For your information, today's conference is being recorded. At this time, I would like to turn the conference over to your host today, Mr. Kenny Green of GK Investor Relations. Please go ahead, sir.

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

With us on the line today are Mr. Rafi Amit, Camtek's CEO, and Mrs. Ronit Dulberg, the Company's CFO. Ronit will start to 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 to the question-and-answer session.

Before we start, I'd like to remind everybody that this call contains projections and other forward-looking statements regarding future events and 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 our products, the timing and 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 that, I'd to open the call to Ronit. Ronit, go ahead, please.

Thank you, Kenny. Hello, everyone, and welcome to our second-quarter 2008 results conference call. On behalf of Camtek management, I would like to thank everyone of you for your continued interest in our business and for joining us today. We are proud of our ability to moderately exceed our previously announced guidance, considering the backdrop of the global economic uncertainty affecting the industries in which we operate.

Our revenues grew 48% over the last year and were 6.4% higher than that of last quarter with much of that sequential and year-over-year growth in our semiconductor market. However, we faced globally increased cost due to a number of factors, the majority of which were beyond our control. That particularly affected our cost of goods sold, lowering our gross margin.

In past quarters, the cost of raw materials and transportation grew significantly. Additionally, the [5% or 6%] drop in the dollar against the Shekel in the second quarter over the first quarter increased our Shekel-related costs.

Where there is global economic uncertainty, we will endeavor to minimize our cost of goods sold and operating expenses by continuing the implementation of tight control over our expenses. In addition, we have accelerated the process of moving production to China.

Like all players in the microelectronics industry, we are susceptible to its inherent cyclicality. However, despite the current downtrend and (inaudible) our strategy in the past during such periods, we continue to maintain our focus on customer satisfaction and among others, by providing solutions to our customer needs, developing new features, and continuing our intensive R&D effort.

Based on the information available to us, we maintained and probably further strengthened our (inaudible) position in our sales markets. We are facing increasing sizes of almost all inputs across the board, from metal to freight. While this trend has been growing for over a year now, so far, we have managed to absorb this increase in our cost of goods sold. However, we have realized that, in order to continue providing our customers with the level of support and innovation they have come to expect of us, we intend to increase our selling prices by 5% on average across our portfolio. We believe that this move will not have any significant negative impact on the market demand for our products.

Despite the ongoing weakness in the semiconductor market, we recorded a healthy order stream and strong sequential growth of 27% for our wafer inspection systems, generating a total of $10 million in revenues this quarter. These are well above the average levels we saw throughout last year.

Explaining the reason behind this growth, which is in contrast to the decline in demand in the capital equipment market, requires some background. Camtek started its activity in the semiconductor industry but investing extensive R&D effort in order to be able to provide unique features with new technologies used by our customers, features that could not be provided by mainstream vendors at that time. Today, we enjoy the fruits of these efforts by experiencing increased capacity due to these new technologies and receiving repeat orders for these features.

During the quarter, we generated a total of $12.7 million in revenue from the PCB and IC substrate industries. Our sale of PCB inspection equipment was slightly down over last quarter, in tune with the overall market environment.

Since the demand for AOI systems in the PCB market is influenced by the global economic situation, we predict continued softening in demand for such equipment. However, we believe that we will continue maintaining our market share in this industry.

Regarding our new products, in the first half of the year, we installed three new products -- the Mustang, the Planet and the [Streamline]. Mustang is our new AOI system for finished products in the PCB industry. Our first Mustang received acceptance from a key (inaudible) customer followed by a first order in Q2. We predict more orders to come from this customer and also started to invest effort in selling the Mustang in Asia.

The Planet is our high-end AOI system for the most advanced IC substrate. The first order was recorded in the first quarter of 2008, and the system currently performs successfully in the customer's [trial]. We predict more orders to be received within the next few months.

The [Streamline] is our wall-to-wall new AOI system which passed qualification. We recorded sales of (inaudible) system in the second quarter of 2008. We also predict more orders to be received within the next two months.

Now, I would like to summarize the financials. The tables are at the end of the press release issued earlier today.

Revenues for the second quarter of 2008 or $22.7 million, 48% above (inaudible) $15.3 million reported in the second quarter of 2007 and 6.4% above the $21.3 million we reported in the prior quarter.

The revenue breakdown in the second quarter of 2008 was 56% PCB and IC substrate and 44% semiconductor manufacturing and packaging (inaudible). Our geographical (technical difficulty) revenues for the quarter was -- USA, 15%; Europe, 11%; and the total Pacific Rim, 74%, which consists of Japan, 4%; China, 35%; Taiwan, 15%; and the rest of Asia, 21%. The balance of 0.4% was rest of the world.

As I explained earlier, our gross margin this quarter declined to 38.9% compared with 40.8% in the second quarter last year and 44.5% last quarter. However, while the revenues grew, we kept operating expenses at $9.3 million in the quarter, marginally below the $9.4 million reported both in the second quarter of last year and the last quarter.

Operating loss for the second quarter of 2008 was $487,000. This is compared with an operating loss of $3.1 million in the second quarter of 2007 and operating income of $114,000 in the prior quarter. It is important to note that, in the last quarter, we had a hedge on our shekel/dollar exchange rate exposure which benefited our financial income. However, this hedge was exhausted during the current quarter, and the shekel/dollar exchange rate caused an increase in our expenses.

Our net loss for the second quarter of 2008 was $490,000, or $0.02 a share. This is compared to a net loss of $3.5 million or a loss of $0.12 per share in the second quarter of 2007. For the previous quarter, net income was $493,000 or $0.02 per diluted share.

We anticipate higher legal expenses in the second half of 2008 in connection with the patent-infringement lawsuit that Rudolph Technology Inc. of Flanders, New Jersey has filed against Camtek. (inaudible) maintain that Rudolph's patent #6298 is invalid and unenforceable. We further maintain that, based on the (inaudible) claim construction, it doesn't infringe on the claim in question and we look forward to having this matter resolved by the court in its favor -- in our favor.

The Company reported a positive operating cash flow of $530,000 in the quarter. As of June 30, 2008, the Company reported a net cash equivalent of $20.7 million, or the same as last quarter. Our DSOs were at 114 compared with 113 days as we reported in the previous quarter.

We, too, share the concern of the global slowdown and its potential affect on the industries we operate in. Therefore, we estimate revenues in the third quarter of 2008 between $18 million and $20 million.

Finally, I would like to note that the Board of Directors approved the share repurchase plan in the amount of up to $2 million. We believe that, at the current trading level of our shares and with our current cash reserves, this move represents an opportunity for increasing shareholders value and express management's commitment to the Company's shareholders. We believe that, given our net cash position following the implementation of the repurchase plan, we will still maintain sufficient working capital for our ongoing needs, as well as enough cash in order to realize merging and apposition opportunities, should they arise.

In summary, we are pleased with our business performance and financial results and are confident that we are taking the correct measures to ensure the Company's continued success and growth. At the same time, we intend to tighten our control over our expenses while continuing our investment in R&D. As in previous downturns, we aim to emerge from this one in a stronger position with leading technology and a broader product portfolio.

We will now open the call for questions. Operator?

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions). Mahesh Sanganeria, RBC.

Thank you very much. Rafi, can you talk a little bit about the semiconductor business (inaudible) business there, how that's going to track and how is the competitive landscape in terms of your market here? Are there any incremental gains?

(technical difficulty) As I mentioned in the last time or from time to time, that most of our penetration inside the products in the last few years, we sold them based on what we call technology-driven, meaning we invested a lot of efforts in the customer side to build and adapt our system to their needs. So such projects took a lot of time, and when it qualified by customer, and roughly such a process can take six months, sometimes a year, and any increasing of capacity from this customer always will continue using the same qualified systems.

So since we focus on very high-end technology from one year, two years, three years ago, now some of these technologies start to increase. Then we can see today the fruit of this investment.

So I would say that a major part of our income comes from repeat orders. It is a result of this investment.

Okay. On the legal expense side, can you give us an idea of what is going to be the magnitude of the legal expense?

It's very difficult to predict. As you know, we have trying to predict it for about a year and not very successfully. But we (inaudible) getting into a trial which is a situation right now will increase our expenses for at least the next two quarters. Right now, we feel that this will be a few hundreds of dollars.

Okay, (multiple speakers)?

Yes, [hundred thousand].

Okay. On the gross margin side, with your 5% inflation prices, when does that go in effect and how should we look at the gross margin going forward? Should we for now assume it's going to stay at the June level?

No, the June level is very low, and I think, with the shekel exchange rate going up again and with also with the fact that we have also one-time expenses, right now, we estimate that it will be higher, more close to what we used to have, maybe a little below the first quarter, but for sure higher than the second quarter of 2008.

Okay, thank you very much.

Sergey Vastchenok, Oppenheimer.

Congratulations on good execution in such a challenging environment.

I would like to ask regarding the PCB business. Do you see some changes in the competitive landscape? What do you anticipate going forward? Do you see an improving seasonality in Q4, or it could be pressured by a decline in demand in the end markets?

We take under consideration that the PCB market right now suffers from some softening based on the global economy because, from our experience, I would say this industry in real-time response to any change of the global economy, unlike the semiconductor that has more buffer between the production and the end-user, and basically we don't have such a buffer. So this is why we reduce our guidance for the next quarter, because we do not know exactly what will be the strength of the global economy, so we try to be a little bit conservative and to estimate a little bit lower.

So by the way, when we talk about the guidance, we still believe that the semiconductor will remain at least the same and most of the decline will come from the PCB based on the assumption (inaudible) we cannot base on leads because, most of the case, the PCB, the response time from order to delivery could be two, three, four weeks. So we are right now in the beginning of the quarter or the middle of the quarter, so it could change any day. But based on the global economy, we cannot take such risks, so this is why we estimate a little bit slowdown of the PCB.

What about the HDI? What was the impact of this business this quarter and how it's going forward?

HDI in the last year is up very flat. We don't see anything really demand for [this system] from this industry. (inaudible) in the last year, it's very flat, the demand for AOI. From time to time we get some requirement but definitely this industry right now is looking under softening. As I mentioned before, also the PCB -- that although it was in the first and the second quarter still okay, I would [say] a little bit. We cannot estimate exactly. But on the other hand, we feel very comfortable with our position, so it means that we maintain our market share. It's not something that we lose market share to other vendors; it's just the overall environment we believe will change the demand.

Okay. The last question regarding (inaudible) the stock has been trading for a while below $1. I think it's, in coming days, you are supposed to get a notice from NASDAQ. You know, it's close to 30 trading days, so you are trading below $1. What I think -- any things you are planning to do to cope with this reverse split or any other action to improve the situation?

Okay, well, what we believe is based on this price, the Company and the Board feel it's a very attractive price, so we decided to make a buyback. We allocated up to US$2 million to make this buyback. I don't know right now how that is affects the market though, but let's see what's going on.

We tried to do our best in developing the business and monitoring our expenses to bring more profit and actually, hopefully, the market will respond based on the results.

Okay, thank you. Good luck.

(Operator Instructions). [Eric Best], [Best] Holdings.

Yes, I had a question regarding the buyback. When do you expect to start the buyback process? Do you need to get an approval from the Israeli courts, or because you have profits, you can start it almost immediately? Thank you.

Technically, we can start it immediately. We didn't finalize the exact date. We don't have any limitation right now to start the buyback.

Wonderful. Thank you very much.

(Operator Instructions). As there are no further questions, I would now like to turn the call back over to Mr. Rafi Amit for any additional or closing remarks.

Okay. As we announced today, Mrs. Mira Rosenzsweig will join Camtek's management on September 2008. She will replace Mrs. Ronit Dulberg as the Company's CFO following the transition period. I would like to thank Ronit for her significant contribution over the past years. We wish her the best of luck in the future. At this opportunity, I would like to welcome Mira Rosenzsweig on board.

To the rest of you again, 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 good-bye.

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