Camtek Ltd (CAMT) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to Camtek's Second Quarter 2018 Results Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

You should have all received by now the company's press release.

If you have not received it, please contact Camtek's Investor Relations team at GK Investor and Public Relations at 1 (646) 688-3559 or view it in the news section of the company's website, www.camtek.com.

I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations.

Mr. Helft, would you like to begin?

Yes, thank you and good day to all of you.

I would like to welcome all of you to Camtek's second quarter 2018 results conference call.

And I would also like to thank Camtek's management for hosting this call.

With us on the line today are Mr. Rafi Amit, Camtek's CEO; Mr. Moshe Eisenberg, Camtek's CFO; and Mr. Ramy Langer, the Camtek's COO.

Rafi will provide an overview of Camtek's results and discuss market trends in the second quarter of 2018.

Moshe will then summarize the financial results for the second quarter.

We will then open the call to take your questions.

Before we begin, I would like to remind our listeners that certain information provided in this call are internal company estimates, unless otherwise specified.

This call also may contain forward-looking statements.

These 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 whether as a result of new information, future events, changes in expectation 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 demands for services and products, the timing and development of new services and products and their adoption by the market, increased competition in industry and the price reduction as well as due to other risks identified in the company's filing with the SEC.

Please note that the Safe Harbor statement in today's press release also covers the content 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 measure is useful to investor understanding and assessment of the company's ongoing core operations 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 hand over the call to Rafi, Camtek's CEO.

Rafi, go ahead, please.

Okay.

Thanks, everyone.

Good afternoon, and thank you for joining us on our call today.

Camtek's result for the second quarter of 2018 include record sales, operating margin, and net profit in the last 10 years.

The performance we have presented are the result of continuous efforts by our management and dedicated employees, as well as direct continuation of the strategy we have adopted to focus on the semiconductor business in general and specifically on segment with high-growth rate such as advanced packaging segment, where new and advanced production technology require advance inspection and metrology solutions.

Q2 revenue of $30.5 million is up 34% year-over-year and ahead of our guidance range.

It is the first time, we have had a quarter of more than $30 million.

Our operating income was $5 million for the quarter representing an operating margin of 16.3%, which is well in-line with our business model.

While hearing rumors about some weakness in the semiconductor market in general, the specific end market segment on which we focus continues to show strong growth.

Looking ahead, our Q3 guidance reflects over a 30% year-over-year growth for the third quarter and for the first 9 months.

I'd like to spend a few moments discussing the business performance itself before handing over the discussion to Moshe.

Our metrology business is maintaining its leadership position.

Our new metrology platform, the EagleT AP is performing in-line with our expectation, and we have been receiving very positive feedback from our customers on the performance of this new system.

We receive repeat business for multiple EagleT AP systems from 4 Tier 1 customers including OSAT and memory manufacturers.

We have started installing tool to these customer sites in the second quarter, and we will continue shipment and installation into the third quarter.

Regarding our 2D inspection, we continue to expand our market share.

We have recently received orders from 3 new customers and have expanded our 2D business in 3 existing Tier 1 accounts.

Our side wall crack inspection technology for post dicing applications, which we announced last quarter is gaining momentum.

Several customers have started to evaluate this innovative technology and we have already secured orders from 2 major customers.

As previously discussed, we are moving into new 2D market segment in the front-end.

We have already installed multiple systems for macro inspection in China, as announced last quarter, and ship systems for inspection of compound semiconductor during this quarter.

Our strategy is to continue focusing on semiconductor industry where new production and packaging technologies need advanced inspection tools.

We see many opportunities in our markets and also in adjacent segments.

These opportunities will expand our total addressable markets.

This strategy has proven itself so far, and we believe it will continue to bear fruits in the future.

I remain very optimistic and excited about the growth potential ahead of us.

And I wish to again, thank all our dedicated employees and management for the excellent job they are doing in capturing opportunities.

This end my summary.

And I would like to hand over to Moshe for more detailed financial discussion of the financial result.

Moshe?

Thank you, Rafi.

Unless I state otherwise, I will summarize the results of the continuing operations on a non-GAAP basis.

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

Second quarter revenues came in at $30.5 million, which is a record for Camtek, up 34% year-over-year.

The geographic revenue split for the quarter was as follows.

Asia was the strongest region during the quarter, representing approximately 81% of our overall revenues.

U.S. and Europe contributed 19%.

Second quarter gross profit was $14.9 million, representing a gross margin of 49%.

This is compared with the gross profit of $11.2 million, representing a margin of 49.2% in the second quarter of last year.

Operating expenses in the quarter were $10 million, or 32.7% of revenues, compared with $9.1 million or 40% of revenues in the second quarter of last year.

The increase in the absolute amount was primarily due to increased commissions we paid on our higher level of revenues.

Additionally, I would like to point out that our G&A expenses were reduced in both absolute terms from $2.2 million to $1.6 million, as well as in relative terms from 9.7% to 5.2% of revenues.

We increased our operating profit in the quarter to $5 million, an increase of 139% over the $2.1 million reported in the second quarter of last year.

Operating margin was 16.3% versus 9.2% in the second quarter of last year.

Net income for the second quarter of 2018 more than doubled over those of last year and was $4.6 million or $0.13 per diluted share.

This is compared to a net income of $2 million or $0.06 per share in the second quarter of last year.

Net cash and cash equivalents as of June 30, 2018, were $41.2 million compared with $47.2 million at the end of the first quarter of 2018.

During the second quarter, we paid $5 million in dividend and used approximately $750,000 in operating cash, which was primarily to support working capital requirements in order to meet the strong level of demand we are seeing in our end markets.

In addition, I would like to point out that during the first week of July, we have collected $8 million of opened accounts receivables.

Guidance for the third quarter of 2018 is revenue of between $30 million to $31 million.

As Rafi mentioned, it represents year-over-year growth of over 30%.

We will now open the call for questions, operator?

(Operator Instructions) The first question is from Edwin Mok of Needham & Company.

First question I have is, I think, you guys talked about very strong demand from advanced packaging.

I'm just curious what type of application that you're seeing a big demand.

Is it around channel?

Or is it around memory that you guys talk about.

Can you give some color on that?

Ramy, could you answer to that, please.

Yes, I would elaborate on it.

Edwin, this is -- we see this across-the-board.

This is not just 1 specific segment.

Definitely memory is an important part of the growth, but we see it in all around applications in IDMs, in OSATs.

So the overall market of advanced packaging is strong, and we continue to see the annual growth.

So we're very positive about this market and no, it's not specific to 1 specific application.

Great.

And then on 2D inspection, well probably you guys have good momentum there.

And on the call I think, you mentioned you have some wins.

Is there a way to quantify the revenue opportunities of those wins?

And is that what you talk about your where market share position right now and how do you, kind of, think you can progress?

Well, I wouldn't like to go over the market share in specifics because it's very hard to judge the market share.

What we're seeing today because of the requirements in the market, the densities, the resolutions and all the different technical requirements.

They are driving an increase in the 2D measurements, 2D inspection in general.

So we see people moving from sampling to 100%.

All of this together is creating a lot of demand.

And this means more machines, and we're seeing this on a regular basis.

We have seen this in the last -- in the previous quarters.

I think, we mentioned it last quarter and it's true this quarter we are selling more machines to read the 2D applications than 3D applications and that's definitely a change in our business and a very positive one.

Okay, just to clarify, is it more number of inspection points along the semiconductor production like from when IDM finish the wafer all the way to package, or is it just more longer inspection time because they just do a 100% inspection?

It's more.

It's more steps during the inspection stages, during the processing stages.

That's 1 aspect and obviously, longer time and going to 100% from sample and this is required in many of the automotive applications and the high-availability applications that we see throughout the market.

Yes, on top of it.

If for example, customer, because they demand now a defined -- it would like to detect smaller defect.

So probably need higher magnification -- higher magnification reduces [throughput].

So there are many, many reason for spending more time on inspection.

It's not only 1 reason.

So we cannot say that there are 1 rule for them.

Okay.

Last question I have on operating expenses.

There is some increase now because of higher-sales level.

Moshe, [what do you think] about OpEx?

Is this the new level we should think about or -- and even more step up anyway, you can give us some color how we should expect OpEx in 3Q, 4Q?

Sure.

So first of all, I would like, I just respoke in my financial section and I mentioned that the guidance is between $30 million to $31 million, and I wanted to correct it, it's between $31 million to $32 million as we reported in our press release and as Rafi mentioned, so please fix it.

Second regarding your question about the operating expenses level.

Yes, I believe that we will see some increase in our operating expenses level in the next couple of quarters.

As we see revenue going up, and as we use some of the channels that we use, agents and distributors, this may require a higher level of commissions, and we believe that this level of operating expenses will be -- will remain with us in the next couple of quarters.

The next question is from Craig Ellis of B. Riley.

The first question that I wanted to focus on with the business performing at a very strong 30% year-on-year growth rate.

Can you highlight what some of the faster-growing businesses are around that average?

And what would be coming in below the 30% year-on-year growth rate?

Just looking for a sense of what some of the relative performances within the portfolio.

Rafi, you want to answer?

Or let me answer?

No, you can start answering I will let -- [think about it].

So I think what characterizes our business is a relevantly high number of customers and the very high number of applications.

So from that sense, it is very hard to pinpoint a specific application.

I think what characterizes these quarters and the previous one and as we move forward this year is first of all we see business from all of the geographies.

From all the different regions, they're all contributing a business in a very good way.

Meaning, we don't have a specific weak region.

That's number 1. From applications point of view, a -- definitely the 2D became larger than the 3D and as the 2D market, in general, is bigger than the 3D metrology.

That is a big important -- it's a big important addition.

In parallel, we went into 2 new applications or segments.

One is the compound semi or many people call it the VCSEL.

And the other one is the front-end, the macro inspection.

So all of this together obviously, builds a much better I would say application portfolio for Camtek as we move on into the year as we see contribution from all the different applications.

Did I answer your question, Craig?

Yes, you did.

Ramy that was very helpful.

And the follow-up question really goes along with the way you concluded that.

So it looks like there are a number of things that are driving growth, that are fairly early innings for the company, macro inspection just getting started there on the front-end.

VCSEL technology that seems to be in the early phases of adoption.

As we look at 30% year-on-year growth and that level being achieved on a calendar '18 year-to-date basis, how would you characterize the businesses ability to sustain that growth as you look out over the second half of 2018 and then into 2019?

Okay.

Maybe I will answer to you.

I would say that right now that what we can see through the eyes of our customer.

We cannot really identify the all segments in the semiconductor.

We can sit with our over 80 customers.

And we mentioned before, there are few parameters that it's -- I would say this is today an evolution.

And definitely, when the front-end move from 20 to 10 to 7 nano, the densities of wafer become much more dense.

More density is more inspection time.

If you talked about even bump, the density of bump become more dense.

So increasing density is 1 big parameter.

Throughput, more wafer, second parameter.

New technology Fan-out wafer level package, compound semiconductor, [leap chip,] memory -- stuck memory, you can see so many new technologies that already adopted and move to ramp-up in production.

Altogether, all these factors give us a very good feeling.

On top of that, there are a lot of talking about the [few] generation of the cellular that will bring a lot of order.

The industry talk about the automotive that increasing using electronic component and more chip in each car.

So on one hand, we see a lot of applications, new applications on the other hand, we can see a lot of new technology, reducing density and all this together give us a very, very confident that we can continue maintaining such growth.

That's very helpful, Rafi.

The final question I have before going back into the queue and I don't want to ignore our CFO here.

So Moshe, just a question for you.

As we look at the performance of the business, you're seeing very good margin expansion as we get revenue growth.

Can you just give us your view on the potential of the business to attain 50% gross margin and your visibility into the potential to get to the high-teens operating margin?

Craig, so gross margin levels are more factor of -- function of sales mix and I'm sure that within the next few quarters, we will reach this level of 50%.

With respect to operating margin, we have spoken few times in the past about our operating leverage that we have in our business model.

And the second quarter results definitely reflect this leverage that we have in the model, reporting over 16% operating margin.

And we believe that as we grow the business towards the end of the year, this operating margin will improve and we'll get closer to 20%.

(Operator Instructions) There are no 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.com beginning tomorrow.

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

Okay, I would like to thank you all for your continued interest in our business.

Again, I would like to thank all of our employees and my management team for their tremendous performance in the past 2 quarters, and we look forward to continue it.

For our investor, I thank your long-term support.

I look forward to talking with you again, next quarter.

Thank you and goodbye.

Thank you.

This concludes the Camtek's second quarter 2018 results conference call.

Thank you for your participation.

You may go ahead and disconnect.