Camtek Ltd (CAMT) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Camtek third quarter 2012 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, November 15, 2012.

Like to remind everyone that forward-looking statements for the respective Company's business, financial condition and results of its operations are 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 would now like to hand over the call to Mr. Ehud Helft of CCG Investor Relations. Mr. Helft, please go ahead.

Thank you, and good day to all of you. I would like to welcome all of you to Camtek's third quarter 2012 results conference call, and I would also like to thank Camtek's management for opting this call.

With us on the line today are Mr. Roy Porat, the Camtek's CEO; and Mr. Moshe Eisenberg, the Camtek's CFO. Roy will start the call by discussing recent development within the Company and in the market, and will also discuss the outlook. Moshe will give the overview of the Camtek's performance in the third quarter and summarize the financial results. We'll then open the call for the question-and-answer session.

Before we begin, may I remind our 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 the presentation of 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.

I would now like to turn over the call to Camtek CEO, Roy Porat. Roy?

Thank you, Ehud. Hello, good morning to everyone. Thanks for joining us. Before I start our third quarter review, please allow me to extend our collective well-wishes and prayers to the fast recovery to all the employees, investors, suppliers and others that were affected by Hurricane Sandy. We are in difficult times in the past few days in Israel, although very far from Camtek, I would like to extend our safe wishes to all the families living under violent fire in our south border.

Turning back to Camtek, let me begin by saying, I'm very pleased with Camtek's business over this quarter. While revenues came in the middle of the guidance and did drop 5% quarter-over-quarter, our bottom line of $3.3 million non-GAAP operating income and our $3.6 million positive cash from operations are good results and we showed a very good progress on all metrics, including gross margins, operating margins, earning per share and various balance sheet items.

The markets we serve are strictly going through some unstable times with limited visibility. We started this year with a slow first quarter and then things picked up nicely in the second quarter. We did report last quarter that we saw a slowdown in the front end of the semiconductor market and that we expected that it will reach the rest of the supply chain to the back end of the semiconductor.

Our expectations did begin to materialize and witnessed a drop in demands already at the end of the third quarter, with very limited visibility to foresee where the market is heading. We are already in the fourth quarter. We could certainly report the markets we serve are in a slowdown and it is expected to extend at least into the first quarter of next year and possibly further. However, I do want to exclude a few areas of specific OSATs, foundries and PCB manufacturers that are continuing to grow despite the general downturn.

The third quarter results demonstrate well our ability to meet our long-term operational model. Overall 14% to 15% operating margins, this while still making a proportionally high level of R&D investments, which we'll continue to make in our future growth engines of Sela in DMD.

I would like to provide a closer look at the markets. The semiconductor business in the third quarter was mainly driven by our back-end inspection tools. As I mentioned earlier, the softness you witnessed in the second quarter of the front-end semiconductor markets has reached the back end in the third quarter. We saw softness in most IDM, logic and major analog players. This excludes specific OSATs and foundries that continued to grow as part of the longer-term plans. As we are already in the middle of the fourth quarter, we do not see signs of improvements and we anticipate continued low demands for capacity expansion buys into the first quarter of next year.

The main drivers that are still generating equipment buys are mainly related to technology in general. The main drivers are still advanced packaging, 3D IC, smaller bumps, through-silicon-vias, RDLs, silicon interposers and various packaging technologies, all trying to enable smaller, faster and reduce power consumption of packages like building logic and memory together in the same package. Although these new technologies creating challenges for our customers and opportunities for Camtek, I believe Camtek has unique competitive position in providing solutions for advanced packaging and as these new technologies mature, Camtek could be in a good position for capacity buys in future.

In the front-end part of our semiconductor business, that includes our macro inspection tool, Gannet and the Xact sample prep tool, we had little traction in the third quarter. The transition from a proven technology advantage of the Xact to a mature tool is taking us more time than we initially anticipated. And the third quarter, we did not record any revenues from Xact sales. We are still continuing our R&D efforts to mature the product, which will enable us to leverage technological benefits.

We would also like to inform you that Mr. Colin Smith, who is the VP heading the Sela division has resigned taking other opportunities. We want to use this opportunity to thank Mr. Smith for years of dedicated work and to wish him much luck in his future. I decided to take upon myself to oversee the division and [PCB] is on track to meet the business potential.

Looking at the PCB inspection business, we witnessed a sharp decline in demands for our products over the past four quarters. However, we are seeing an increase in utilization over installed base and customers are now discussing operational plans for expansion. We have indicated before that there was a difference between the capacity expansions in the back-end semi side as that took place earlier this year and the softness in the PCB inspection side of the business. We anticipated that either the PCB demand would pick up or the semi will drop. Unfortunately, the semi side dropped and the PCB market remained soft.

I do want to report that our Phoenix platform is getting very good traction and response from our customers and it's very positive. There is no doubt that the good acceptance of their system by the market will increase our success looking forward.

A short update to the status of our solder mask inkjet printer or DMD, for short. As we reported earlier, Dr. Boaz Nitzan has joined Camtek as VP leading the DMD division. As you know, Israel has a respectable talent pool of professionals with a proven record in the inkjet technology in the printing industry. Boaz is certainly a tap into this talent pool. In the little time he's been with us so far, he's already managed to set in place a new road map for the product development that we believe will ultimately bring us to a working solution. We plan to continue our R&D efforts to make this dream a reality. We believe it is feasible and the potential to return is worth the efforts. However, we don't expect any meaningful contributions to our topline during 2013.

To summarize, we've had a good third quarter. The results refer our long-term operational plans for higher margins within tangible reach. On the other hand, we expect the next two quarters to three quarters to be more difficult and we are initiating a plan that will come into play in the next few weeks to lower the cost. We hope this plan will align our operational expense with our expected drop in the business.

The markets we serve are softening and we expect revenues next quarter to be between $15 million to $18 million. The guidance range is wider than normal, since our visibility is more limited than our previous quarters.

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

Thank you, Roy, and hello, everyone. You can find the results in the press release issued earlier today. Revenues for the third quarter of 2012 were $23.7 million. In keeping with the industry trend, this revenue level represent a decrease of 20% compared to $29.8 million in the third quarter of 2011 and a decrease of 5% compared to $25 million in the prior quarter. Revenues from sales and services to the semiconductor industries were $15.1 million or about 64% of revenues. Revenues from PCB and IC substrates were $8.6 million, contributing about 36% of revenue.

Geographically, China was the strongest region during the quarter, representing approximately 28% of overall revenues. Korea was 22%, Taiwan 11% and rest of Asia accounted for 7%. US sales were 14% and the rest of the world was the remaining 18%.

I will now summarize the rest of the results on a non-GAAP basis, which mainly excludes expenses with respect to the acquisition of Sela and Printar and share-based compensation. The reconciliation between GAAP and non-GAAP results appear in the table at the end of the press release issued earlier today.

Gross profit totaled $11.5 million or gross margin of 48.5%. This is compared with $13.6 million or gross margin of 45.9% of revenue in the third quarter of last year, and $12.1 million or 48.6% of revenue in prior quarter. Our gross margin was on the high side, mainly due to the large contribution of sales to the semiconductor industries in the quarter.

Operating expenses in the quarter were $8.2 million compared to $9.5 million in the third quarter of last year, and $8.7 million in previous quarter. We are cautiously focusing on keeping tight control over the operating expenses. I know that our operating income breakeven point on revenue varies between $21 million to $23 million level, and it depends on the product mix sold in the quarter as well as the timing of some of our operating expenses.

As Roy mentioned, we have started a restructuring plan with the aim to reduce our OpEx level and bring our breakeven point down to be aligned with our expected revenue levels.

Operating income was $3.3 million or 14% of revenues. This is compared to operating income of $4.1 million or 14.1% of revenues in the third quarter of 2011, and operating income of $3.4 million or 13.8% of revenues in the prior quarter.

Net income was $3.1 million or $0.10 per diluted share. This is compared with a net income of $2.6 million or $0.09 per diluted share in the third quarter of 2011, and net income of $3.4 million or $0.11 per share in the prior quarter.

Cash and cash equivalents and short-term deposits as of September 30, 2012 were $25.3 million, or $18.6 million net of bank loans. This is compared with $21.6 million, or $15.7 million net of bank loans as of June 30, 2012. During the third quarter, we had strong collection and this together with our strong profitability brought us to report a strong positive operating cash flow of $3.8 million.

We will now open the call for questions. Operator?

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. (Operator instructions) Jay Srivatsa, Chardan Capital Markets.

Yes, thanks for taking my question. Roy, it looks like the PCB business actually grew a little bit in Q3. And the question is, as I look at Q4, given the guidance, where is the drop-off coming from, in the semi side or on the PCB side?

Hi, Jay, thanks for the question. You're right. First of all, the PCB side did come up a little bit, but if you compare it to, let's say, two years ago or further back, there is still -- I would say the PCB is kind of stable but flat. Even our current revenue level and demands, and it doesn't matter how you count it, in number of machines or dollars, it's still low compared to what we used to in the past. So, the big drop was mainly in the semi side.

And on the other hand, I have to tell you that there is a light at the end of the tunnel looking at the PCB side of the business. This is one -- we see it in two things, one, utilization. As you know, we follow our [apparently] over 1,000 tools we have installed at different customers and we follow the tool utilization that's been coming up. And second, if you look at some of the players that are publicly traded are actually guiding up Q4. So it's only the beginning; some of them will only report next week, but I hope that the PCB side is a good indication maybe to what's coming up in the future, but definitely I wouldn't -- cannot tell how long and to what extent.

Right. On the semi side, I know Teradyne guided [mass] really lower, which points to potential delay in the recovery in the semi side. What's your expectation? I know you said the next two quarters', three quarters' outlook is pretty bleak. What's your expectation in terms of when you expect the semi market to recover as you look at 2013?

Well, it's a million-dollar question. Our visibility right now is probably Q1, beginning of Q1 and it depends on who. If you look at OSATs themselves, most of them are kind of a hold. One specifically is maybe expanding more than others, and I don't think we have that much of a visibility going into next year.

Fair enough. On the DMD side, I know you've been working on that quite a bit. I mean what's the decision point in terms of when you decide to cut bait and when you expect to continue to invest in this business?

I think as long as we believe that we're in within grasp of making it work, we're going to continue the investment. The point in time is, is no sense looking back. We're only looking forward to where we are in the point of time. I think as I said before, Boaz came in with a lot of know-how and talent from the printing industry and I think put us on a new track. I think by next quarterly call, I'll update you guys of where I think we are. I think it's a little bit too early for us to give estimations. But in general, I can tell you I'm very excited and positive on where we're going with this right now.

All right. Last question for Moshe, you mentioned about cutting OpEx to come in line with revenues. What does it do to the breakeven number and when do you expect some of the operating expense reductions to start to hit the financials?

So we did not provide an exact target for that in the call. However, we do believe that we can drop it by about 10% or so. I think it will be in full force in Q2.

Okay, thank you. Good luck.

Thank you.

Okay.

(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?

Yes, thank you, everybody, for joining the call. Thank you very much.

Thank you. This concludes the Camtek's third quarter 2012 results conference call. Thank you for your participation. You may go ahead and disconnect.