Camtek Ltd (CAMT) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Camtek first-quarter 2010 results conference call.

All participants are present in listen-only mode.

Following the management's formal presentation instructions will be given for the question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded May 12, 2010.

Before I turn the call over to Mr.

Ehud Helft, I would like to remind everyone that statements contained in this conference call which are not historical fact contain forward-looking information with respect to plans, projections or future performance of the Company, the occurrence of which involve certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated.

Such risks and uncertainties include dependence on economic and political conditions in Israel; the impact of competition; supply constraints; as well as other risks and uncertainties which are detailed in the Company's filings with the various securities authorities.

I would now like to turn over the call to Mr.

Ehud Helft with CCG Investor Relations.

Mr.

Helft, would you like to begin?

Thank you and good day to all of you.

I would like to welcome all of you to Camtek's first-quarter 2010 results conference call and thank Camtek's management for hosting this call.

With us on the line today are Mr.

Roy Porat, Camtek's General Manager, and Mrs.

Mira Rosenzweig, the Company's CFO.

Roy will start with the call by discussing recent developments within the Company in the market and will also discuss the outlook.

Mira will give an overview of the Company's performance in the first quarter and summarize the financial results.

Before we begin, may I remind all listeners that during this call certain non-GAAP financial measures will be discussed.

These are used by management to make strategic decisions, focus future results and evaluate the Company's current performance.

Management believes that this presentation of the non-GAAP financial measures is useful to investor understanding and assessment of the Company's ongoing cooperation and prospects for the future.

A full reconciliation of non-GAAP to GAAP financial measures is included in today's earnings release.

We'll then open up the call and we'll be happy to answer your questions.

And now I'd like to hand over the call to Roy.

Roy, please.

Thank you, Ehud.

Welcome, everyone, and thanks for joining us.

We are pleased with our first-quarter results and we see it is a good start for 2010.

Our results came in on target and already, as we move through the second quarter, we can definitely say our markets in which we operate in are all now in high utilization and companies are actively expanding their capacity by investing in capital equipment.

Looking ahead into the second quarter we anticipate another consecutive quarter of topline growth of our business and I'll provide guidance for the second quarter later on.

Already last quarter and continuing into the Q1 our semiconductor back end inspection business returned to recovery while the PCB inspection business was still somewhat lagging behind up until March.

However, I think that going into the second quarter we are seeing levels of business in both our traditional PCB and back end semiconductor business that are similar to pre-crisis 2008 levels, implying that both of these markets have now reached recovery and particularly with the PCB there seems to be an even higher level of demand.

Going forward we are expecting to show continued improvement not only from our recovery and expansion of our main markets, but also as a result of the growth from our new products which are targeting brand-new markets for Camtek.

In particular I'm referring to the front end semiconductor market where we are enjoying initial sales of our macro inspection and sample preparation tools as well to the potential in our DMD product line.

Moving to provide a closer look at the markets we sell to, I will start by summarizing developments in the business of the PCB market.

Looking into our PCB inspection business, trends have developed as we anticipated.

The first quarter was slow up until the Chinese New Year and within two weeks after the new year we started witnessing very strong demand for our AOI products and we are seeing customers expanding their capacity.

In addition, our customers' customers that are ordering PCBs these days are witnessing longer lead times and having difficulties getting their needs fulfilled because of capacity shortage.

We currently have a relatively strong booking position in our PCB AOI business considering we are only halfway through the quarter.

We therefore expect to show significant sequential growth into the second quarter of our PCB business.

As I indicated before, the second quarter is our first indication that our PCB AOI business has returned to pre-2009 global financial crisis levels.

Since printed circuit boards are non-inventory products and which are relatively short lead time in the electronic supply-chain, we analyze these demands as real demands for products and not inventory corrections.

We do expect continued strong demands continuing beyond the second quarter and into the third quarter, but it is important to bear in mind that the visibility in this business remains limited at levels of weeks.

We introduced a new AOI model called Dragon Elite in the quarter.

This new system includes significant improvement to our old model and we are already witnessing success with this new product.

I would also like to update you on the status of our Direct Material Deposition business, or DMD for short.

We are still in beta testing and things are taking longer than we anticipated and planned.

It is important to know that it is a new technology and there is still some risk pending proof, but we remain very excited with regard to the technology and the business potential where the total available market we estimate to be at over $600 million.

Although we do see market demand for these systems, to ensure eventual success we are advancing cautiously towards sales of the technology and we hope our plans will materialize into the initial orders in the second half of this year.

Turning to our semiconductor business, we are continuing to see strong demand in our semiconductor business as capacity utilization remains high and technology buys are driving a big part of this business.

The $9.3 million in revenues from this business in the quarter, growing 11% since last quarter, is a continuing indication of healthy expansion in the business.

Activity level on new leads and new customer penetration positions us in a continued growth trend looking forward into the second half of the year.

We are also witnessing a big capacity expansion and, as a result, we are getting repeat orders from customers on projects that we were already selected in the past as leading vendors.

Most of these capacity increases are in Asia, more specifically Southeast Asia, China and Korea.

We are seeing continued high capacity expansions with LED customers and we are in a penetration position with three new potential customers while waiting orders for existing customers that are currently expanding their capacity.

Our new designated inspection tool for the LED market has been well accepted by the market and we bring significant competitive advantage to this market.

Looking now to our new front end semiconductor business, that includes our newly launched macro inspection tool, Gannet, and the SELA product portfolio.

As I indicated earlier, these two new markets are a major focus for growth and open up a new potential business that we estimate the total available market at over $450 million.

On both of these markets we have started recognizing revenues and it is only a question of how long it will take us and to what marketshare position we can reach.

Looking at the first indications of first installations and acceptance of these products by the market we are very optimistic with regards to their growth and contribution that these two products will eventually make to our top line.

With regard to front end macro inspection, we reported the first sale of our Gannet tool at the end of last year and we are happy to report an additional sale in the first quarter of 2010.

It is important to note that the sale process is long and we are currently working on numerous additional opportunities that we expect to materialize in the second half of the year.

In the SELA division we reported earlier this year that we received our first purchase order of the Xact which makes it the second tool to be installed.

We expect to install more tools going into the second half of the year.

The average selling price of these tools vary between $1.1 million to $1.5 million.

So every sale is significant by itself, but it is a good indication for the maturity of the Xact technology and our ability to penetrate this new market.

To summarize, I believe Camtek's traditional PCB and back end semiconductor business will return to high levels we saw in 2008 in the coming quarter.

With it we are positioned to start generating additional revenues for growth from our three new growth engines.

Our traditional business of PCB and back end inspection has potential which is limited by our marketshare and also the size of the total available market which we estimate is not bigger than $300 million.

Our penetration into additional market segments with these new three growth engines opens the door for us for a much bigger total available market that we estimate is not smaller than $1 billion.

Looking ahead to Q2, we expect our non-GAAP operation expenses to remain more or less flat with a possible small increase mainly around areas that correlate to our current level of business either direct labor in manufacturing variable sales costs and engineers that supports increased installation.

With regards to our outlook for Q2, our guidance is for revenues between $20 million and $22 million, we do anticipate continued growth into the second half of the year.

And with that I would like to hand over the call to our CFO, Mira Rosenzweig, to summarize the financial results.

Thank you, Roy, and hello, everyone.

You can find our results in the press release issued earlier today.

Revenues in the first quarter were $17.6 million, in the upper range of our guidance.

It was 2% above the $17.2 million reported in the prior quarter and 90% above the $9.3 million reported in the first quarter of 2009.

The revenue breakdown in the first quarter of 2010 was 47% from the PCB and IC Substrate industry and 53% from the semiconductor manufacturing and packaging industry.

Our geographical breakdown of the revenues to the quarter were -- the Pacific Rim made up 85% which consisted of China, 35%; Taiwan 14% and rest of Asia 36%; USA 10%; Europe 3% and the balance of 2% was to the rest of the world.

Revenues for the first quarter of 2010 from sales and service to the semiconductor manufacturing and packaging industry were $9.3 million.

This is 11% higher than the previous quarter.

With regard to the PCB and IC Substrate inspection, we generated $8.3 million in revenues during the quarter contributing about 47% of our total revenue.

I will now summarize the rest of our results on a non-GAAP basis which excludes expenses mainly with respect to the acquisition of SELA and Printar.

The reconciliation between the GAAP and non-GAAP results appears in the table at the end of the press release issued earlier today.

Gross margin in the quarter was 41% compared with 37% of revenue in the first quarter of last year and 43% in the prior quarter.

The improvement in gross margin compared with that of the first quarter of last year was primarily due to the higher level of revenue.

The decrease in gross margin as compared with the previous quarter was mainly due to the decrease in our revenues from services.

Operating loss for the quarter was $0.1 million and net loss for the quarter totaled $0.3 million or $0.01 per share.

As we discussed in previous calls, our OpEx in the current quarter increased mainly as a result of the return of service to the former great global crisis level before we took across the board reductions that were initiated during 2009 as well as due to additional load of the sale activity.

Cash and cash equivalents at March 31, 2010 increased by $0.4 million and totaled $16.2 million compared with $15.8 million at the end of the prior year.

During the quarter the Company generated positive operating cash flow of $0.8 million and spent $0.4 million in capital expenditures.

We will now open the call for questions.

Operator?

(Operator Instructions).

Abba Horwitz, Old School Partners.

Hi, congratulations on a very nice quarter.

I'm just wondering, the gross margins for the quarter were 40% and I'm wondering if you could comment on the sustainability of those margins on a go-forward basis.

Well, obviously we'd like these margins to go up going forward.

You have to understand that there is a significant part in our cost of goods sold is a fixed cost.

So as we increase the revenues the gross margin should improve.

So it could even be higher than 40% on a go-forward basis?

Definitely.

Is there a target gross margin you have in mind?

I think we said in the past it should be somewhere between 40% and 46%.

The mix is very influential on the exact number and definitely the top line itself.

Okay.

But if you start to get sales I guess in Gannet and SELA, as those increase you're going to have a much higher gross margin I assume?

I think your assumption is correct.

Okay.

Just also the DSOs, what were the DSOs for the quarter, if you don't mind?

106 days.

Okay, and that's come down, right?

I think so, yes.

Okay.

And if you could just comment on the two growth divisions, new growth divisions.

Can you give us a sense how much of that guidance of $20 million to $22 million includes orders from those divisions?

Not a big part but a small part, small part.

On the front end, for example, we know we sold one tool in Q4, we sold another tool in Q1, we have a few beginnings -- it's onesies and twosies at the beginning.

And we advertised I think a couple of weeks ago about the SELA first order and, as we said before, that order is going to be actually installed and recognized in the second quarter.

So I think going forward into the second and third quarter it's going to be just a few tools of each in the beginning.

Hopefully somewhere in the second year or the second half of the year the DMD product will kick in as well.

But as I said before, this is a little bit premature to anticipate this time with regard to the DMD.

Okay, thanks very much.

And again congratulations on a very nice quarter.

Thank you.

Sergey Vastchenok, Oppenheimer.

Hi, guys, congratulations on a good quarter.

Can you specify what kind of revenues you got in Q1?

And do you anticipate in the next quarter and the second half of the year from the front end systems you started to supply for the last quarter?

We don't give the breakdown of front end and back end, we just give the breakdown in terms of general semiconductor.

But in the beginning at least I think we're pretty much letting you guys know of every order we get in this.

As I've said before, in the front end parts we recognized already two systems, one in the fourth quarter, the second one in the first quarter.

And I did say in my discussion that we have currently in the pipeline quite a few other ones.

So, I do anticipate this to grow.

I expect that we will notify the -- issue a press release on the first couple of machines just to ensure that this business is picking up.

Later on I don't expect we're going to issue a press release on every tool we sell.

Okay.

And what is your revenue recognition policy on those machines?

Is it on installation?

Yes.

Yes.

Okay.

Where is the demand coming from in the [semi] industry?

Do you see more LED guys?

Do you see some specialty providers?

Do you see some foundry orders?

Where's it coming primarily?

It's kind of a mix.

On the back end business it's I would say more application and specialty, technology kind of demands, LED is one of them, CMOS is another one, [bump] is another one, and MEMS is a big business.

So that's the back end, it's more segmented.

The front end is usually more capacity buys, just normal capacity buys and it's a mix -- there's a little foundry there, we have quite a lot of IDM business, Asian IDMs that (inaudible).

Okay.

In terms of OpEx, do you feel it will be capable to keep it flat as you anticipate the orders coming in or it should go up eventually?

We plan to try to keep it more or less flat.

The ones that we do expect to grow are, I would say shouldn't be a big difference, but it's operators assembling machines and engineers installing these machines.

Possibly variable sales -- variable sales expenses like agent commission and shipping cost.

If we sell more that's going to grow high.

But on the general fixed cost we are -- we don't plan to increase our fixed cost, I think more or less keep it the same level.

Okay, fair enough.

Can you give us an update on your loss Rudolph Technologies where it's -- what's the status of it?

Sure.

Actually it's pretty simple, there is no news.

And basically we're still waiting for the final judgment from the Minneapolis court, that's been unexplainably delayed.

But once we get the ruling, the final ruling we will be in the position to start the appeal.

We cannot start the appeal before we get the final ruling.

So basically we're waiting on that.

Okay, thank you and good luck.

And see you on our conference next week.

On Sunday, yes.

Thanks a lot.

(Operator Instructions).

There are no further questions at this time.

Before I ask Mr.

Porat 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, www.camtek.co.il, beginning tomorrow.

Mr.

Porat, would you like to make your concluding statement?

Just say thank you for everyone joining us today.

Thank you very much.

Thank you.

This concludes the Camtek first-quarter 2010 results conference call.

Thank you for your participation.

You may go ahead and disconnect.