Camtek Ltd (CAMT) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Camtek first-quarter 2011 results conference call. (Operator Instructions). As a reminder, this conference is being recorded April 28, 2011.

I would like to remind everyone that forward-looking statements for the respective Company's business financial condition and results of its operations is subject to risks and uncertainties which could cause actual results to differ materially from those contemplated. Such forward-looking statements include but are not limited to product demand, pricing, market acceptance, changing economic conditions, risks in product and technology development, and the effect of the Company's accounting policies as well as certain other risk factors which are detailed from time to time in the Company's filings with the various securities authorities.

I'd now like to turn the call over to Mister Ehud Helft of CCG Investor Relations. Mister 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 2011 results conference call and would like first to take the opportunity and thank Camtek's management for hosting this call. With us on the line today is Mister Roy Porat, Camtek CEO, and Ms. Mira Rosenzweig, the Company's CFO.

Roy will start the call by discussing recent developments within the Company and in the market and will also discuss the outlook. Mira will given an overview of Camtek's performance in the first quarter and summarize the financial results.

Before we begin, let me remind you 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 the presentation of non-GAAP financial measures is useful to investors understanding an 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.

Following Roy and Mira's comments we will open the call for questions and answers. Now I would like to hand over the call to Roy. Roy, please?

Hello, everyone, and thank you for joining us. We've had a great start for 2011 and are glad to announce that our top final $27.5 million is at a similar range of our all-time record. This quarter is the result of continuous efforts in reshaping our business that started eight quarters ago and has been growing gradually since then. The growth symbolizes our sound position in our legacy business and an inflection point from improving feasibility to actually starting to slowly establish a position in our new front-end semiconductor inspection and sample preparation product lines.

The [exact and the gamma] tools which we recently started to sell are gaining maturity and market acceptance and the core technologies they hold is recognized by the markets we serve as superior. The markets we operate in remain in high demand for our product. The recent Japanese crisis did bring uncertainty and we even saw some push-outs.

Currently it is still difficult for us to assess the continued effect of the Japanese crisis. On one hand we see some push-outs but on the other hand, demand cannot and is not left unsatisfied.

For example, the qualification time of a new process, new vendor or a new material that normally can take a year or more are being escalated to two weeks. Thus, our customers are making great efforts to meet their demands.

For Camtek's specialty, the Japanese business constitutes a small portion of our business so the effect of our -- on our results is not significant. Our first-quarter revenues came in at the high side of our target.

During the first quarter, the markets in which we operate were in high utilization and companies were actively expanding their capacity by investing in capital equipment. As we move into the second quarter of 2011, we see continued high demand in our end markets.

In the first quarter, we also witnessed a high demand across all our inspection products. It is true both in the PCB that [is in] a high demand but at the same levels as last quarter and in the same semiconductor which continues to grow. The first-quarter revenues included an additional sale of an Xact tool and a couple of front-end Gannett inspection tools.

As we have advised in the past, these products are starting slowly to gain traction. I would like to provide a closer look at the markets. Starting with the semiconductor business we continued to see strong demands on all fronts. Our legacy back-end inspection and continued penetration in the front-end with micro inspection and sample preparation tools. Demands for our semiconductor inspection tools in the first quarter grew, compared to last quarter.

It was our best ever record-breaking quarter in the semiconductor business that included high demands in back-end legacy business and initial traction from the new product.

The majority of our back-end inspection business in the first quarter originated from Asia with both OSF and IDMs leading the revenues. We continue to see demand for LED inspection, seamless unit sensors and 3-D IC applications in the first quarter.

We expect to continue to strengthen our position on 3-D IC bump, gaining more orders that are driven by its advanced packaging for flip chip that have very small micro-bumps and require precise 3-D metrology in a fast cost-effective solution.

As I advised earlier, the Japan effect on our legacy back end inspection business did include a few push-outs. But at the same time, we have continued to see orders and actually anticipate continued growth into the second quarter.

Looking out to our new front and front-end semiconductor business that includes our macro inspection tools back-end and Xact. As we indicated in the past, for us these two products are focused for growth going forward into 2011 and beyond.

Our revenues in the first quarter included one Xact. We continue to see other interests and confirmation of the leading capabilities of this technology. We continue to actively demonstrate our capabilities into new customers and we expect these leads will mature into more orders in the next few quarters.

The front-end macro inspection Gannett tool has had a good quarter. Although we are currently only selling a couple of tools a quarter we continue to penetrate new customers. It is a long process but I expect 2011 will bring continued growth. If we continue to qualify more tools with more customers, we will be able to show more significant growth looking into 2012.

Looking at our PCB inspection business, we continue to see high demand for AOI with customers that are expanding their capacity. In the first quarter, the PCB business sustained a high level of demands. Most of PCB manufacturers are running at high utilization with a lot of larger customers expanding.

Looking into the second quarter for the PCB AOI market, it is looking good with continued high utilization demand. But we need to keep in mind that this industry has very limited visibility. As anticipated, the Chinese New Year came in early in the quarter this year, so its effect on the first quarter was thus significant.

I would also like to update you on the status of our direct material deposition business or DMD for short. It has been a longer road than we originally anticipated. We have gained some confidence with the maturity of the product although it is not yet available for market, and we have started to focus introduction process in a few selected accounts in the US and Europe.

We anticipate the anticipated sales process of the first tools is expected to last about three to six months and the first test includes qualification of being. While we remain cautious going forward on the estimation of the time-to-market of the GreenJet we are targeting a few installations of this product in the second half of 2011.

We do have to keep in mind that the great potential of this new business will hold risk and until we have multiple tools running in production we can't eliminate this risk completely. We will keep you updated as things develop.

To summarize, I believe Camtek is in a good position in our traditional tool verticals businesses of PCB and back-end semiconductor inspection, exploiting the current high demand in these markets. Meanwhile we are growing additional verticals in the front-end semiconductor business. We are moving in the right direction with these two new verticals. And we expect to start generating additional revenues going into 2011.

With regard to the outlook of Q2 2011, we expect a flat to moderate growth of revenues between $27 million to $29 million.

Now I would like to hand over the call to Mira. Mira?

Thank you, Roy, and hello, everyone. You can find the detailed results in the press release issued earlier today. Revenues for the first quarter of 2011 were $27.5 million, 8% above the $25.4 million reported in the prior quarter and 56% above the $17.6 million reported in the first quarter of 2010.

Revenues from sales and service to the semiconductor manufacturing and packaging industries were 58%, amounting to $15.9 million, 22% above the previous quarter including revenues from the Xact tool this quarter. With regard to PCB and IC Substrate, we generated the $11.6 million in revenue during the quarter, contributing about 42% of our total revenues, $0.8 million below the previous quarter. This slight reduction in the quarter was mainly due to the decrease in our revenue from service in China which, according to the Company's accounting policies, are recognized only upon signed contracts.

Delay by our customer in signing these agreements can cause fluctuations in our revenues from services [has cost] almost always fixed the fluctuations in revenue recognition from services influence our gross margin. Our geographical breakdowns of the revenues for the quarter was total Pacific Rim 85%, which consists of China 30%, Taiwan 21% and the rest of Asia 34%, USA 7%, Europe 4%, and 4% for rest of the world.

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

The reconciliation between the GAAP and non-GAAP results appear in the tables at the end of the present press release issued earlier today. Gross profit for the quarter totaled $12.9 million representing a gross margin of 47%, compared to $12 million or a gross margin of 47.2% in the previous quarter and $7.3 million or 41% in the first quarter of 2010.

As explained earlier, the slight reduction in gross margin despite increasing revenues was due to fluctuations in our PCB service revenues. Operating expenses in the quarter were $9.8 million at similar levels to those of the previous quarter and compared with $7.4 million in the first quarter of last year. Although outstanding expenses increased due to increasing revenues, our G&A expenses decreased this quarter.

Operating income for the first quarter of 2011 was $3.1 million or 11.5% of revenue, compared to an operating income of $2.3 million or 8.4% of revenues in the previous quarter and an operating loss of $0.1 million in the first quarter of 2010. Our net income for the first quarter of 2011 was $3.1 million or $0.10 per share compared to $2.1 million or $0.07 per share in the previous quarter, and a net loss of $0.3 million or $0.01 per share in the first quarter of 2010.

Cash balances, including the restricted cash, at March 31, 2011 totaled $14.4 million of which restricted cash was in the amount of $5.2 million. This is compared to $14.8 million as of December 31, 2010, with the same level of restricted cash as the current quarter.

Operating cash flow in the quarter was positive and was $0.2 million. The low level was mainly due to lower level of collection in the quarter. However, collection improved during April and we, therefore, expect the operating cash flow to increase in the next quarter.

Our DSOs increased to 109 days based on our current level of revenues compared with 103 days that we reported in the previous quarter. That ends my summary and we will now open the conference. Operator?

(Operator Instructions). Edwin Mok, Needham & Company.

Thanks for taking my question. So my first question is, a few of your larger peer, semiconductor companies talked about some orders pushed out by some chipmakers. I was wondering if you guys have seen something similar on the IC side of your business -- semiconductor side of your business?

Yes, I understand. As I have indicated, yes we did have some push-outs from selected accounts. But, as I've indicated, this is really -- it's our best-ever quarter in terms of semiconductor revenues. So, it demands a very high on all fronts and, as I also indicated, we expect the second quarter to be even better on this. So, we've had actually some push-outs but the overall environment is still with very high demands and actually, actually we have other problems. We have actually customers fighting on delivery times.

So, and I can't really categorize for you where we see the push-outs and where we have actually customers calling in and want to -- an earlier delivery. And, I think it's more related to technology and less to significant specific segment or specific end customer.

Great. That was helpful. Then just kind of baked into your guidance, it sounds like the growth that you expect in the coming quarter is more coming from the semi-side than the PCB side. Am I correct on that?

We say we plan for the worst and hope for the best. We really --. I think we're going to see growth in all segments. I think we're going to see growth in both segments. I do think mainly in the semiconductor for sure.

But we still see very high demand in the PCB as well. We see very high demand in the PCBs and we have some -- we are competing on some pretty big orders and I think some of it will fall our way and I'm pretty sure we're going to keep levels in the PCB at least flat, maybe a little bit higher. Semiconductor will grow, for sure.

Great. Very helpful with that. And then on the front-end shipment that you mentioned on your prepared remarks, right, can you remind us how many customers do you have now on the front-end side and those shipments that happened in the first quarter, were those shipped to newer customers or was that some of the customers that you guys have been working with purchasing more equipment from you guys?

Well, we don't give all the details normally but in general I can tell you that we did recognize one more sample prep tool, an Xact tool, which is a new customer. It's a top I think 10 semiconductor player very significant customer. And as I said, each penetration (technical difficulty), the first one is one tool but, the potential for looking forward is more tools.

Once we qualify and we prove ourselves, so next expansions, these guys will do and actually some of them are already talking to us about the additional tools. So, I think things are looking good on the -- on this front of the sample prep and fab.

And on the inspection, it's an ongoing process. Really I think every quarter we sell a couple of tools. Some of them are repeat orders. Some of them are new customers. It's just a long process of getting qualified and competing and getting a better position.

You know, I think last year it was maybe one tool a quarter and then one-and-a-half tools, and now it's two tools. And, looking forward into Q2 I also --. We expect continual orders from the front-end inspection as well.

Great. Just one more question and I'll circle back. So, just a question on LEDs. I think last quarter I [want to say] you guys talked about LED will eventually be an area that can drive growth in the coming year. Just kind of wondering if you have any updates on that end and how you think about that market going through 2011?

We are very active in the LED arena. There's not a lot of players that -- there's a lot of -- there's a few established players and there's quite a few new players. I think we are well positioned in the established players and we're very active in the new players in both mainly China and other places in Asia, we are very active there. I think we don't have advantages in all our segments that we operate in. But I think in the LED specifically, we do have a technology advantage that we are able to really outperform our competitors and we are taking pretty good business in LED.

Great. Actually just one more and see if I can squeeze that in. It looks like margin is trending quite well and if I look at it all pretty much, I think it's actually one of the highest you guys have reported. Just wondering, how do you kind of think about your offering expense going forward? You've got something in your business that you can track well and you have some of these new penetrations and even excluding the potential upside from the [ink] business.

How do you kind of think about OpEx? Do you see that continued trend as a percentage of revenue or do you expect that to level off or how do you kind of think about it?

you know, I think (technical difficulty) we did increase our operational expense on areas where we must increase its manufacturing. We need more people to build more machines and we need more engineers to install these machines. So, in these areas we did show growth of operating expense and we will probably increase the expenses moderately in specific areas.

But we don't have any plans for significant increase in other areas. We don't expect to increase our sales force or our G&A cost or something like this. This should be stable pretty much.

The segments that will grow more is really what you call -- it's a fixed cost for us because, you know, we don't hire and fire all the time. It's pretty much a fixed expense. But really, in service engineers and in operation manufacturing we are growing as the business grows.

And the rest of the operating expense in the Company, it's really selected areas and very closely monitored.

Okay. Great. So it sounds like if revenue continue to grow you expect a little bit more leverage on your model then? Is that correct?

Yes, that is great, yes. That is correct.

Great. Very helpful. That's all I have. Thank you.

Jay Srivatsa of Chardan Capital Markets.

Thanks for taking my questions. Congratulations on a good quarter and good guidance. You mentioned some delays in the recognition of revenues in the PCB side.

Could you tell us, is that something that you expect to materialize in Q2 or is it going to be further out?

Actually yes. It depends on the -- as I say, it's a timing issue and it depends on the signing date of the agreement. So, from time to time we have rare fluctuations but, I expect it can close in Q2 and Q3. But not more than that.

Just to elaborate on what (Multiple Speakers). Just to elaborate on what Mira is saying, basically on the operational level there is no change. We are -- it's really I would say a business environment or business culture, specifically in the PCB arena in China where we continue to give support to customers who continue to service their machines. We utilize the same headcount and the same spare parts, and it sometimes takes three months or four months for them to actually give a purchase order for the service. And when they do give it, they give it retroactively.

So, and even though we know we're going to get the order and we know and that's why we are giving their support if we don't have a signed contract, we actually can't recognize it. So I would say on a yearly basis, I think it pretty much even out. On the quarter here, quarter there you can see fluctuation of maybe $700,000 per quarter. It's a lot.

So, that is why maybe we should've expected that if there wasn't this fluctuation, we could expect an improved, even better improved margin.

Sure. So that $700,000 you expect now to materialize either in Q2 or in Q3 if I heard you right. Is that correct?

I think so. In rough estimate, yes. Okay?

There have been some reports about some shortages in Japan following some of the disruptions there and specifically related to some epoxy material and stuff which impacts some of the end customers in your space. Can you give us an update on where things are? Do you expect that to impact your business in the second half of this year or not?

It's a good question. I can give you an example from one of our customers.

You know, for example, an epoxy-based material that is used by our customer, the qualifying new material in many cases can take a year or even more than a year. Now, these --. Our customers have orders and they don't have the material.

So, what they do is they actually qualify new material. Instead of qualifying this material in one year they qualify it in a couple of weeks. Because they have no choice. If they don't qualify the new material, their business will stop. And their customer will be --. So as we see really in the industry in general, we see a lot of adapting and overcoming by our customers to try to supply their demands. So I [can] tell you it doesn't stop everywhere. You know in some places we did see push-outs because of shortages, because of customers' customers. They are holding back orders. But, on the other hand we do see a lot of I'll say adapting and overcoming, especially in Asia, by different customers who really don't like to leave money on the table and they adapt and they qualify and they find other solutions, and they keep their business running.

All right. Last question. Any update on your legal proceedings with Rudolph?

There is not a lot of update. We've had an appeal hearing in Washington a couple of weeks ago. I think our lawyers and us actually feel, even after the hearing after the appeal hearing, feel very confident that it is -- I think the legal term is it is more likely than not that we will win this appeal. And we feel even more confident than we did before going through the appeal, through the appeal process.

So, I think and that this is a feeling and this is the estimations of lawyers. Our position really is the same. There is no change. We're actually waiting for the appeal decision and this could take, I don't know -- between three months to six months. It's difficult to estimate.

It's not up to us. It's up to the court.

But in general not a big change. There was one hearing and we feel more confident than we did before we walked in there.

Bill Ong, Merriman Capital.

Congratulations on a nice quarter. Just a few questions. So with a strong CapEx spend taking place this year among the chipmakers, can we expect the second half to be stronger revenue-wise versus the first half?

Wow, I wish I knew. We have pretty good visibility into the second quarter. I don't see any slowdown going into the third quarter and forward. But it's very difficult to say how the second half will look like. You know, it's very difficult to say.

You're right on the estimations. There is, I think, Intel announcing and TSMC and other people are talking about a pretty good plan for going forward. I hope it will materialize.

Let me ask it another way. You mentioned utilization rates are very high. Can you quantify that? And given that utilization rates typically are low during the early part of the year, it's just -- I mean, we should expect to remain tight through the rest of the year and that's the reason why there should be some confidence that we should have a better Q3, Q4. Is my conclusion correct?

You know, I can view on the same thing from a different angle if I can try to answer it differently. You know, we have a pretty wide observation on the electronics market. We have an observation from the PCB segment. We have an -- and in substrates. We have observation from the back-end and the front-end.

So if you look at the whole supply chain, I think that the closer you are to the OEM to the end customer the better you have indication; and the closest thing is the PCB. So from the PCB, we do see high demands right now. Keeping in mind, PCBs are not inventory products.

So, my interpretation is that really I think demands in general are at high levels right now. And these are real demands going to real customers. Because as I've said, the lead time on the PCB which is a non-inventory product is very short, and we do see high demands right now's right now for PCB products.

On the front-end, going to the other -- to the far end of the food chain which is maybe the front-end, and the CapEx is bigger numbers, you do sometimes have longer lead times and longer planning cycles. So, we do see a lot of investment, we see investments in Japan, we see investment in the US. We see global foundries, and you have -- you have Yokkaichi Yokkaichi and you have Samsung and you have other front-end guys expanding and continue to expanding and these are over a year projects.

So we are positive looking forward. But, to guess, I think my guess is as good as yours.

Appreciate the insight. And then my last question is that since you did ship a -- one Xact tool in the March quarter that's what give you better revenues, ASPs of the Xact is about $1.3 million to $1.5 million if I'm correct, guessing it properly. Are you dependent on shipping another Xact tool [now] to hit your guidance of about $27 million to $29 million?

You know, guidance is something we try to be conservative on and, it's -- you are right. If you talk about the higher priced tool it can influence your guidance a lot. If you fall short of $1.5 million on your plans, it can influence, then, maybe you come at the low end. We do our best estimations and I think up to now we are pretty much hit the targets and not bad. And I think we'll be okay.

What's the anticipation of shipping Xact tool in Q2 and beyond, at least the next few quarters out?

You know, from Q2 we have a range, which is we have a range. We don't have an exact number and I think this range takes into consideration all the elements as we can see them at this point in time. And that's why I say I feel comfortable with the range and with the targets we've set.

Looking forward on the Xact specifically, we do have a few leads and I hope we will exercise and turn them into orders in the next couple of quarters going ahead.

That's helpful. Thank you very much, everyone.

Thanks a lot, Bill.

(Operator Instructions). There are no further questions at this time. Before I ask Mister Roy Porat to go ahead with this including 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.

Mister Porat, would you like to make your concluding statement?

I just want to thank everyone everybody for joining us tonight or this morning in New York and thank you very much.

Thank you, ladies and gentlemen. This concludes the Camtek first-quarter 2011 results conference call. Thank you for your participation. You may go ahead and disconnect.