Camtek Ltd (CAMT) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Camtek fourth-quarter and year-end 2011 results conference call. All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. (Operator Instructions).

As a reminder, this conference is being recorded February 21, 2012. I would now like to hand over the call to Mr. Kenny Green of CCG Investor Relations. Mr. Green, would you like to begin?

Thank you, operator. Good day to all of you. I would like to welcome all of you to Camtek's fourth-quarter and full-year 2011 results conference call. And I would like to thank Camtek's management for hosting this call.

You should have all received the press release. If you have not please check Camtek's website at www.camtek.co.il.

With us on the line today are Mr. Roy Porat, Camtek's CEO; and Mr. Moshe Eisenberg, 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. Moshe will give the overview of Camtek's performance in the fourth quarter and summarize the financial results.

Before we begin, may I remind our listeners that certain information provided on this call are internal company estimates unless otherwise specified. In addition, this call may contain forward-looking statements. These forward-looking statements are only predictions and may change as time passes.

Statements on this call are made as of today and the Company undertakes no obligation to update any of the forward-looking statements contained herein, whether as a result of new information, future events, changes in expectations or otherwise.

Investors are reminded that actual events or results may differ materially from those projected, including as a result of changing industry and market trends, reduced demand for services and products, the time of development of new services and products and the reduction by the market, increased competition in the industry and price reductions, as well as due to other risks identified in the Company's filings with the SEC.

Please note that the Safe Harbor statement in today's press release also covers the contents of this conference call.

In addition, during this call, certain non-GAAP financial measures will be discussed. These are used by management to make strategic decisions, forecast future results and evaluate the company's current performance. Management believes that the presentation of non-GAAP financial measures are useful to investors' understanding and assessment of the company's ongoing cooperation and prospects for the future. A full reconciliation of the non-GAAP to GAAP financial measures are included in today's press release. We will then open the call and be happy to answer questions at the end.

I will hand the call over to Roy. Roy, go ahead, please.

Thank you, Kenny. Hello, everyone, and thank you for joining us. We ended 2011 with an all time record year on our top line. Although our business dropped in fourth quarter compared to last quarter we are optimistic we are at our long-term outlook for the business moving forward. I'm also very pleased with our collection and productive operating cash flow.

Our continued growth depends on two factors -- the demand in our two core businesses of back-end semiconductor inspection and PCB inspection, where we enjoy a number one leading and number two position, respectively, and our rate of penetration in our three new product lines. I will give more details on each one later.

I have to emphasize that in the product line in which we enjoy a 30% to 40% market share, there is nowhere to hide if the market drops, while in the new product line that our yearly target is to sell less than 10 tools a year, the overall market conditions have much less influence on our ability to meet our goals.

Looking ahead into 2012, we do expect to continue to strengthen our position in the three new product lines. However, a question ahead is the extent of the slowdown in our core markets compared to our ability to grow the business with the three new product lines. The answer to this will determine our ability to continue and show top-line growth on a year over year in 2012. Although we do not give yearly guidance and our visibility into the second half of 2012 is limited, we do have indications that the end of the fourth quarter and the beginning of the first quarter are the bottom of the cycle for our businesses.

Although the visibility in our core business of backend semiconductor and PCB inspection is normally limited to 48 weeks, we do see indications of demand picking up in the second quarter of 2012.

In our business, continuing the investment in R&D is necessary to maintain and improve our competitive position and some development projects take years of investment until new products is born.

At the end of 2011 we launched three new products in both our PCB and semiconductor businesses. Such significant milestones do not come into place very often, and we expect these new products to be an important milestone in our long-term growth plan.

We do need to keep in mind that the introduction of a new product line did have a one-time effect on inventory write-offs, on which Moshe will elaborate later on.

I would like to provide a closer look at our markets.

In the fourth quarter we had the drop in our semiconductor revenues, mainly as a result of a drop in our back-end inspection products. The majority of our drop in the business related to repeat orders that are capacity driven in the back end, while we still enjoy the variety of technology buys.

We did have a few push-outs in the first quarter, although looking into the second quarter we see demand improving. The improving demands are coming from various IDMs and OSATs, mainly in Asia.

Looking now to our front-end semiconductor business that includes the macro inspection tool, Gannet and the Xact sample prep tool, as we indicated, these two products are engineered for growth going forward. We are very active in both of these areas and expect our fourth -- or future growth to come from these products.

In the fourth quarter we recognized revenues for one more Xact tool, although this time it was the newly launched Xact200. This new version of Xact allowed us to achieve sample preparation of a specific site with a very high resolution STEM. We ended 2011 with seven installed Xact tools at six different customers, five of which are top 10 leading players that have evaluated Xact technology, recognized its value proposition and purchased the tools. Obviously, our challenges looking forward is expanding the installed base and recognition of this new revolutionary technology. We believe that as the investment in the 22 nanometers and 14 nanometers take off our position in the market will improve.

Looking at the PCB inspection business, we witnessed a sharp decline in demand for our products in the fourth quarter. During the quarter, most of the PCB customers were running a relatively low utilization compared to the first three quarters of 2011. Expansion plans were pushed or put on hold or pushed out. We are a few weeks after the Chinese New Year and indications are of a slow ramp up in utilization that is most likely coming to play in the second half of 2012.

The launch of our new AOI Phoenix is advancing as planned, and we have recognized revenues from the first few tools sold. We believe the Phoenix platform will bring a major performance advantage in inspection to leading-edge customers. The Phoenix technology brings an affordable value proposition to our customers that will be willing to pay more and get more. As this new platform gains traction in the field we expect an improvement in gross margins from our PCB inspection product.

Finally, I would like to update you on the status of our direct material disposition business or DMD for short. We have launched this product for sale in November, and we are currently active in pursuing the first tool sales. We expect to obtain the first conditional orders in the next few months. Although I do not expect this new product will have a significant influence on our 2012 top line, I do think each and every installation will symbolize a significant milestone, improving market acceptance of the technology.

We do need to keep in mind this is a revolutionary technology and the sales time cycle is long. We also need to keep in mind that the great potential of this new business still holds 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, we've had a great 2011, our best ever on the top line. I think 2011 symbolizes that we are on the right path and headed in the right direction. The markets in 2012 have started off challenging. Our main 2012 challenges are in the front end semiconductor sample preparation, new market penetration with the Xact200 and in the proof of technology feasibility for the GreenJet products in the PCB market.

Given the tougher market we are carefully examining and keeping tight control over our level of expenses, and to the extent needed, we will make the necessary adjustments in our cost structure. I believe that Camtek is in a good position in its traditional two vertical businesses, back-end semi and PCB.

The fact that we have passed one more milestone with the GreenJet project should start to have effect on the business in 2012. As I've mentioned in the past, the diversification in our business will allow us to continue to grow.

In the fourth quarter, we were able to sustain a 30% drop in business and still not lose money on an operating level or burn cash, while keeping in mind our operational model includes a very high investment in new ventures that are yet yielding proportional top-line income.

Finally, with regards to our outlook of Q1 2012, given the weakness in the market, we expect revenues between $17 million to $19 million. Having said that we do see things starting to improve going into the second quarter.

I would like now to hand over the call to Moshe to review the financials. Moshe?

Thank you, Roy. Hello, everyone. You can find the results in the press release issued today.

Revenues for the fourth quarter of 2011 were $21.1 million. This is compared with $29.7 million in the prior quarter, which was our all-time record quarter, and $25.4 million in the fourth quarter of 2010.

Revenues from sales and service to the semiconductor manufacturing and packaging industries were 60%, amounted to $12.6 million. With regards to PCP and IC substrate, we generated $8.5 million in revenues during the quarter, contributing about 40% of our total revenue.

Our geographical breakdown of the revenues for the quarter was total Pacific group region, 80%, which consists of China 28%, Taiwan, 14% and the rest of Asia, 38%. US accounted for 8% of our revenue, Europe, 7% and 5% for the rest of the world.

Just summarizing our revenues on a full-year basis, 2010/2011 was a record year for us, with revenues of $107 million compared with $87.8 million in 2010, a growth of 22%.

I would now summarize the rest of our results on a non-GAAP basis, which may lead to the amortization of intangible assets and revaluation of liabilities with respect to the acquisitions of Sela and Printar, share-based compensation, and a write-off of inventory amounting to $685,000, the large portion of which is related to discontinued product lines, following the introduction of Phoenix, the new PCB tool. The reconciliation between GAAP and non-GAAP results appears in the tables at the end of the press release issued earlier today.

Gross profit for the quarter totaled $8.9 million, representing a gross margin of 42.1%. This is compared to $13.5 million or gross margin of 45.5% in the previous quarter and $12 million or 47.2% in the fourth quarter of 2010.

The reduction in gross margin compared with the prior quarter is primarily due to the lower revenue level, as we have certain production and service-related expenses included in the cost of goods sold, which are fixed.

For the year, gross profit was $48.6 million or gross margin of 45.4%, compared with a gross profit of $39.3 million or gross margin of 44.8% last year.

Operating expenses in the quarter were $8.8 million compared to operating expenses of $9.5 million in the previous quarter and $9.9 million in the fourth quarter of last year. We are continuously focusing on keeping tight control over our operating expenses, especially during quarters where we see lower revenue levels.

I know that our operating income breakeven point on revenue is currently between the $21 million to $23 million depending on product mix and timing of some of our operating expenses.

Operating income for the fourth quarter of 2011 was $[115,000] compared to an operating income of $4.2 million in the previous quarter and an operating income of $2.3 million in the fourth quarter of 2010.

For the year, operating income was $10.5 million or 9.8% of revenues compared with 6.4% or 6.7% of revenue in 2010.

Our net loss for the fourth quarter of 2011 was $0.5 million or $0.02 per share compared to a net income of $3.4 million or $0.11 per share in the previous quarter and a net income of $2.1 million or $0.07 per share in the fourth quarter of 2010.

For the year we reported a net income of $8.9 million or 8.3% of revenues compared with $5.7 million or 6.6% of revenues in 2010.

Cash and cash equivalents and short-term deposits as of December 31, 2011, were $26.3 million, including approximately $7 million of bank loans compared with $14.7 million, which included $5.1 million in restricted deposits and approximately $2.6 million of bank loans as of December 31, 2010.

We generated a positive operating cash flow of $8.2 million during the fourth quarter. This was a result of improved processes as well as placing increasing focus on collections in the quarter. For the year the company generated a positive operating cash flow of $9.8 million.

Our DSO is 110 days based on our current level of revenues, same as in the previous quarter.

We will now open the call for questions. Operator?

(Operator Instructions). Jay Srivatsa, Chardan Capital Markets.

Good morning, and congratulations on finishing out the year. My first question, and you've commented somewhat about this, is that -- several comments. Some other companies have commented about Q1 being the bottom of the semiconductor market. What is your view, and when do you expect to see order activity pick up?

Hi, Jay. Well, we're talking in terms of quarters, but I think we kind of get a sense of break it down to months -- I think really the end of the fourth quarter we really felt a drop in the business and the beginning of the first quarter where we are right now felt relatively weak. I think the first quarter should be the bottom of the cycle that we see. And keep in mind there is a shift in time between front-end the activity and back-end activity.

So at least we're seeing first indications of a few capacity repeat orders that we will probably deliver at the end of this quarter and the beginning of second quarter, so again, truthfully our visibility going into the second half is very limited. But in general the business conditions, the utilization that we see is picking up.

You know for example we have a very large installed base in the PCB side of our business, and we normally monitor the utilization of our tools -- of our existing tools, our existing installed base. And from a PCB side, for example, we see maybe a 10% up in utilization from the last say two months. So things do look better I think going into the second quarter, so if I had to guess, and it is a guess, obviously, we're depending a lot on global environment, but if things continue as we're seeing right now, I would definitely say that first quarter will probably be our bottom.

Thank you. And then just in terms of Q1 guidance are you seeing weakness in semiconductors or PCBs or is it a bit of both?

I think a bit of both -- I think a bit of both. As I've said booking is a little bit higher right now towards the end of the quarter, I think, but most of the orders we are getting right now will probably (inaudible) second quarter.

And the PCBs -- relatively flat. I don't see a big increase in PCB. Keeping in mind that, you know, up until a few weeks ago we waited for the Chinese New Year, a few weeks past up in Chinese New Year, and I don't really see a significant change in our PCB business. So I would say both in general, back end and PCB.

Okay. And then finally, competitively has the landscape changed much at all during this downturn?

No, I don't think there is a significant change. Obviously, we follow our competitors' reporting, and I think it's pretty consistent of what they reported and where we stand. We file it quarter by quarter, and I don't think there's any significant change in the competitive market share position point of view. It's very stable.

Okay. Thank you, I appreciate your questions, and, again, congratulations on finishing out the year.

Thanks a lot, Jay.

Sean Chaitman, Shelter Rock Management.

Yes, how are you doing? Just I guess a follow-up to try to understand -- I guess the initial thing I was wondering is, do you give a book-to-bill ratio? What was the book to bill?

No, we don't give a book-to-bill ratio. We don't, sorry.

Okay. And just secondly, it sounds like you're saying that things are getting better, and we've seen that in some of your competitors; Rudolph reported a pretty strong order increase and a number of other ones. And so it actually seems like you're being conservative on your guidance; would you say that that's extra conservative, given what we're seeing throughout the industry?

Obviously, in times where the markets are a little bit crazy, we call the guidance as we see it. So I don't think we are I don't know to say conservative or not conservative. It depends on your point of view. It depends on the point -- I think we're comfortable with our guidance, you know.

It just seems given -- a lot of -- pretty much almost all of the competitors are saying things are going to be increasing next quarter and yet you are guiding for a sales decline. So it seems to be a disconnect based on the industry conditions.

I think -- and I do listen to our competitors' conference calls -- I think we need to differentiate between front-end play and back-end play.

At the end, these chips -- you know if you make silicon you're going to need to assemble it and package it, so I think the increase of both of the players in this industry that are on the front end, you're right, they already in Q4 showed an increase in the business. But even if you look at our main competitors and you listen to their calls, they have definitely said that they don't see -- at least in second half, I am saying a little bit before the second half we're going to see an increase in the back end.

I think there is a difference -- there is a time gap between when markets, say, go up or go down between front end and back end. There is a big difference, in time, at least. So most front-end players already in the fourth quarter showed improving business, and going from the fourth quarter to the first quarter also showed improving business. Because I think back-end players -- and again our front-end business is still related to the new products and it's not that significant. Hopefully in the long term it will be more significant as the new products come in. But right now if we focus this back end, I don't think the players in the back end have shown yet an improvement in the first quarter.

Okay. Thank you.

(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?

I just want to thank everybody for participating in the call. And thank you very much.

Thank you. This concludes the Camtek fourth-quarter and year-end 2011 results conference call. Thank you for your participation. You may go ahead and disconnect.