Camtek Ltd (CAMT) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Camtek Third Quarter 2008 Results Conference Call. All participants are present in a listen-only mode. Following management's final presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded November 18th, 2008.

I'd like to hand over the call to Mr. Kenny Green of GK Investor Relations. Mr. Green, would you like to begin?

Thank you and good day to all of you. I'd like to welcome all of you to Camtek's Third 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, Mrs. Mira Rosenzweig, the Company's CFO, and Mr. Roy Porat, Camtek's Israel General Manager.

As a reminder, this 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 that information. Actual events or results may differ materially from those projected, including as a result of changing industry market trends, reduced demand for Camtek's products, the timing and development of our new products and their adoption by the market, competition in the industry and price reductions, as well as due to risks identified in the documents filed by the Company with the SEC.

Rafi will start the call by issuing -- by discussing recent developments within the Company and in the market and then also discuss the outlook. Mira will then give the overview of Camtek's performance in the third quarter and summarize the financial results. After that, we will open the call to questions. And Rafi, Mira, and Roy will be happy to answer any questions.

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

Okay. Thank you, Kenny. Hello, everyone and welcome to our Third Quarter 2008 Results Conference Call. On behalf of Camtek management, I would like to thank every one of you for your continued interest in our business and for joining us today.

The third quarter revenue amounted to $19.1 million, at the middle of our expected range. We are especially pleased with this revenue during this time of uncertainty and the continued downturn in our served industry. As the capital equipment supplier to industries feeding the electronic product market, we are impacted by the global economy, like all other companies in our space. We are following the development closely. But at this point, there is no clear view of how severe or how long the effect of the recession on our business will be.

Under the current slowdown condition and overall uncertainty, we have adopted the following four-point strategy. One, focus on cash. We are managing day-by-day activities to generate cash and preserve cash. Two, maintaining quick R&D response to win order related to technology-driven opportunities and to maintain our competitive edge. Three, maintaining close customer support, backing our customer as they struggle strong this tough time. Four, establishing cooperation with strategic partners to develop and market new products.

Let me explain. During slow downs, demand for inspection is driven primarily by technological development. As customers move to more advanced technologies, such as 3D wafer-level packaging, to advance their own competitiveness, they need new inspection capabilities to support their deals. In addition, we are constantly reviewing cooperation opportunities and are seeking strategic alliance.

Camtek has always been known for its responsive customer support. In such challenging times, customers depend on our support even more. We will continue supporting them with application, training and service as they are used to. We believe that this strategy helps build customer loyalty, in particular in these challenging times. And most important, it nurtures further repeat order. We believe that the combination of targeted product development and responsive customer support will enable Camtek to promote its competitive edge. We will make efforts to maintain and further build our core leadership position in all our served market.

Finally, we are paying particularly close attention to our cash flow and cash reserve. We have recently lowered the number of our employees by 12% and have begun taking additional cost reduction steps. Together with the previously announced measure, we estimate that these steps will save $7 million to $8 million in annual expenses. Commencing the beginning of 2009, the combination of an industry down cycle with a global recession is a situation we have never faced before. We review our strategy on a daily basis and we are ready to make adjustments as needed.

And now, I will turn the call over to Mira to review the financials.

Thank you, Rafi. You can find the tables in the end of the press release issued earlier today. Revenues for the third quarter of 2008 were $19.1 million, 5% below the revenues of $20.2 million (sic - see press release) reported in the third quarter of 2007 and 16% below the $22.7 million reported in the prior quarter.

The revenue breakdown in the third quarter of 2008 was 63% from the PCB and IC substrate industry and 37% from semiconductor manufacturing and packaging industries. Our geographical breakdown of the revenues for the quarter was USA 9%, Europe 5%, the total Pacific Rim 85%, which consists of Japan 2%, China 37%, Taiwan 9%, the rest of Asia 37%. The balance of 1% was to the rest of the world.

Despite the ongoing weakness in the semiconductor manufacturing and packaging market in the third quarter, we still recorded a total of $7.1 million in revenues, which is twice the level of the third quarter of last year and a decrease of 29% from the last quarter.

So far, we have seen a significant growth in our revenues from [sem] to the semiconductor industry this year related to the same period in 2007. However, we are beginning to see the effects of the downturn in order performance cancellations and a decline in incoming order stream. Our interpretation to this situation is that few of our key players have put capital equipment expenditures on hold. We believe that in spite of this situation, we will continue to receive a sustainable level of orders from customers who need the new inspection capabilities to support new technology as well as from customers who use automated inspection to help reduce their production costs.

With regard to the PCB and IC substrates, we generated during the quarter a total of $12 million in revenues, contributing about two-thirds of our total revenues. This is a decrease of 28% from the third quarter of last year and 5% from last quarter. Since the demand for AOI systems in the PCB market is directly influenced by the global economic situation, we expect continued softening in demand for such equipment in the coming quarter. However, we believe that we will maintain our market share in this industry.

We have not seen an increase in demand in 2008 for automated finished product inspection as we expected earlier in the year. This is true for both demand to support capacity increases and for new IC substrate technologies. The reason may be that many new technologies of advanced IC substrate are still at the R&D stage or in very low volume production. We will not see this reality changing in the foreseeable future.

As a result, we decided to write off $1.5 million in inventory of order components and products. We will monitor this market closely and will take further action as it develops. This write-off came out of our cost of goods sold. Our gross margins, including the write-off, were 34.2%, but excluding it was 42%. This is compared with 37.6% in the third quarter of last year and 38.9% in the prior quarter. The improvement was primarily driven by our recent product price increases across the board and decrease in raw materials and other expenses.

Our operating expenses reached $10.4 million in the quarter, made up of R&D at $3.2 million and selling and G&A of $7.2 million. Operating expenses in the third quarter of last year were $7.4 million and in the prior quarter were $9.3 million. The increase in operating expenses resulted from legal expenses related to the patent infringement lost through the Rudolph Technologies, as filed against Camtek, as we discussed in last quarter call, as well as certain legal and professional expenses with respect to the potential acquisition that we pursued but decided to abort. Together, these amounted to approximately $1 million.

Operating loss for the third quarter of 2008 was $3.8 million compared with an operating income of $216,000 in the third quarter of last year and an operating loss of $0.5 million in the prior quarter. Our loss for the third quarter of 2008 was $4 million or $0.14 per share. This is compared to a net income of $85,000 or $0 per share in the third quarter of 2007. For the previous quarter, net loss was $498,000, or $0.02 per diluted share.

Excluding the $1.5 million write-off and the legal expenses discussed earlier, we would report on a non-GAAP basis a net loss of $1.5 million, resulting mainly from the decrease in revenues and the non-GAAP basis of net loss of $4 million in the quarter.

As of September 30, 2008, the Company reported a cash and cash equivalents balance of $60.7 million. As discussed by Rafi and as announced a few days ago, we have reduced our headcount by 12%. In addition, we have begun taking additional cost reduction steps. Together with the previously announced measures, this step will result in a total reduction of $7 million to $8 million in our annual expenses level commencing the beginning of 2009.

During the quarter, the Company commenced its previously announced share repurchase, buying back a total of 812,900 shares in the third quarter at a total cost of approximately $685,000. During October 2008 and until today, we purchased additional 258,000 shares for a total consideration of $200,000. As announced, the repurchase program allows for total aggregate purchase of up to $2 million.

Our DSO were at 111 days compared with the 140 days that we reported in the previous quarter. Looking ahead into the fourth quarter, we expect revenues between $12 million and $14 million. However, the current low visibility may result in significant deviation from this guidance.

And now, I would like to turn the call back to Mr. Rafi Amit to close the call.

Thank you, Mira. In summary, we believe we are so far mitigating this downturn well. However, as I said earlier, we have never faced such a situation. Therefore, we are taking a conservative approach and focus on maintaining our cash reserve and minimizing our expenses.

We will now open the call for questions. Operator?

Thank you. Ladies and gentlemen, at this time, we'll begin the question-and-answer session. (Operator Instructions).

The first question is from Sergey Vastchenok of Oppenheimer. Please go ahead.

Hi, guys. Just wondering, given the tough market conditions, what do you see as the breakeven point on the new OpEx level?

The breakeven -- okay, first of all, we have to predict what is going to be the -- this is sum -- we are not -- we really cannot predict right now. We maybe can see the Q4. But I don't think that Q4 is going to represent the whole 2009. So, we prepare a few models depending on the revenue. And we'll answer for each model. But I don't think that we right now can predict exactly what will be the level of the revenue.

So, given your guidance -- revenue guidance for Q4, $12 million to $14 million, are you going to be breakeven on this level, taking into account your cost cutting measures?

I would say -- okay, right now, I would say that after we made all the -- because right now, we made some 12% cost reduction of the -- by the level of employees and some other cost reduction. But this is just the beginning. As I mentioned before, we're also working on few more steps to make more cost reduction. So, if -- I would say that right now, we believe that if the market will be something between 15 to 17, we feel very comfortable with it, okay, very close to breakeven. But if the market goes down, we have to do more aggressive steps to adjust our cost or our expenses level to this revenue.

Okay. And in terms of strategy, what do you think about the Company which is really trading very cheap prices? You did a buyback. And I think it's very appreciated by investors. Do you think about any kind of takeout, given the large stake of Priortech in the Company?

Okay. I'm just making sure that I understand your question. Do you mean if we would like to make anything in order to privatize the Company?

Right.

I would say right now, we -- as I mentioned before, we try to maintain our cash to run the business right now until we see better visibility about the business. So, we are not considering any other activities, except this.

Okay. Thank you. Good luck.

Thanks.

Thank you. (Operator Instructions). There are no further questions at this time. Before I ask Mr. Amit to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available on Camtek's website at www.camtek.co.il in three hours.

Mr. Amit, would you like to make your concluding statement?

Okay. 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.

Thank you. This concludes the Camtek Third Quarter 2008 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.