Q2 2020 Camtek Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to Camteks second quarter Twentytwenty results Conference call. All participants are present in listen only mode. Following managements formal presentation instructions will be given for the question and answer session. 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 Comtech Camteks Investor Relations team at GK, Investor and public relations at 16466883559 or view it in the news section of the company's website.
Www Dot Camtek dotcom.
I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations Mr. helped would you like to begin please.
Yes, Thank you and good day to all of you Oh director will contribute to come to second quarter 2020 results conference call and I would also like to think complex management for hosting this call.
I would assume denying today are you still roughly I mean can succeed.
So Moshe Eisenberg conflicts CFO and Mr., I mean, dunga something he Ole.
Well if he would provide the overview of complex results, let me discuss market things in the second quarter of 2020 in Moshe will then summarize the financial results over the quarter.
Well then open the call to take your question before we begin to remind our listeners that certain information provided on this call our internal company estimates on this otherwise this site.
This call also may contain forward looking statement.
These days is only predictions and may change as time passes stating on this call are made as of today and the company undertakes no obligation to update any of the forward looking statements contain whether as a result of information future events or changes in expectation or otherwise.
Just a reminder, these forward looking statements are subject to risk and uncertainties that may cause actual events or results to differ materially from those projected including as a result for the heck of general economic condition. The first of the covered 19 crisis and the global markets on the marketing, which we operate including the risk of a continued.
Production to our and our customers providers business providers business partners and contractors business as a results of the outlook outbreak and the effects of recovery 19 pandemic.
Who is creating to the conversion of a significant portion of complex expected business in certain countries, particularly China from which we expect to generate significant portion of our revenues for the second half of 2020, but also Taiwan and Korea, including the risk of deviation from our expectation regarding timing and.
As of orders from customers in this country.
Changing industry market trends reduced demand for services and products the timing development of the new services and products and the adoption better market increased competition in the industry and price reduction as well as due to other risks identified in the company's filing with the SEC.
Please note that the safe Harbor statements in today's press release also cover 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 focus future results and evaluate the company's current performance.
Management believes that the percentage of non-GAAP financial measures is useful to invest understanding and assessment of the company's ongoing Corporation and first look for the future.
A full reconciliation of non-GAAP to give financial measures is included in todays earnings release, and now I'd like to end over the call to come to exceed roughly go ahead. Please.
Hi, everyone.
The second quarter represents continued demand for our system for Emily from his show.
Total sales in the second quarter were $37 million the record quarterly level.
Gross margin was 46.1 in operating margin was over 17%.
Marking a significant improvement in profitability compared with the first quarter. We expect continued improvement in profitability in the third quarter Israel.
The ongoing demand from our customers for various applications point to a strong third quarter was encouraging this low going into the fourth quarter.
Other revenue guidance for the third quarter is $38 million to $39 million.
With.
Assisting improvement in the profitability.
This indicates strong performance in the second half of the year.
We have significantly increases our market compared our market share into the inspection, maybe because our system performance and competitiveness has been dramatically improved in all to the applications.
A key element in our strategy is having in place local professional teams. This can.
Kim in did independently installs and support machines in all our territories and enabling us to continue growing our business even during the Cobiz 19 pandemic.
We've also establish a remote training and support infrastructure.
Following us.
[music] remotely operated systems upgrade machine was recently developed feature and train local team on a regular basis.
We invest considerable development for in providing appropriate technological solutions to our idea is tier one customers, who develop innovative packaging technologies in defeat operator Gennius integration.
We have received a few initial orders and we believe we will soon receiver multiple machines orders for production. We expect this segment to become meaningful to our business.
Let me give you some highlights of the second quarter.
So I want to China continues to be the largest territories in the quarter.
You say in euro are starting to pickup.
We have received multiple machine machine orders for over 30 system from for tier one or subs for two d. applications, mainly for advanced packaging. Some of these machines will be installed in the second half over the year.
The two Golden Eagle inspection system for 600, with 600 million Mr. partners. This were installed it to tier one customers in Q2 arising from our partners in production.
We expect to deliver additional system later this year, our customers believe the fan out packaging on permanent we've continued to grow as this is the cost effective solution.
So we would start playing our budget and work plan for here 2021.
One of the most significant challenges facing management during Corbett 19 is to assess what would be this core of business activity in 2021.
We base our strategy of achieving continues growth on several drivers and train.
The first is the increase in demand for semiconductor devices.
The main drivers in our markets, our advanced packaging memory, Cmos image sensor and RF filter for Fiveg smartphones.
Fiveg is pushing demand for high end smartphone sales.
Compared to previous generation. This fiveg forms include more silicone more advanced packaging and larger number of of our of RF chips each form.
As a result, we are experiencing demand for fiveg related applications.
Regarding memory, new memory Fabs are under construction in Korea, and China can we expect investment in capital equipment for memory packaging to increase in 2021.
The second driver is the adoption of new packaging technologies by our customers in general we see considerable air force in tier one.
In Q1, I'd him and or subs to adopt new packaging technologies and execute them to production.
Adoption of new technologies require extensive use of inspection and metrology systems for example.
Got you CPQ and graphic Scipio shift so it took tenuous integration package.
Continued transition of DRAM for wire bonding to three D.A.C. advanced packaging or power devices shift to advanced packaging specifically fail.
The third is penetrating to new segment in the front and we have already penetrated to front the front end market in the past two years and we continue to discover more segment. This our system can provide suitable solution for.
To summarize twentytwenty is shaping up to be another solid growth year for competing.
But it is important to stress test, we are still seeing the corona biros pandemic effect, which increased the risk and uncertainties.
Uptick is a dynamic and flexible companies that can adapt to any development in the market.
And to take advantages of the rapid changes in our industry.
Before I hand over to more share for more details on the financial results I would like especially like to say our employees for their dedicated work during this challenging die more share.
Thanks softening in my financial summary ahead, our provides a results on a non invasive.
The reconciliation between the get resolved in the non-GAAP results appear in the tables at the end of the press release issued earlier today.
And Rafi mentioned second quarters 2020 revenues were 37 renewable at a record quarterly revenue level and an increase of 8% compared with the $34.3 million reported in the second quarter, 2019, and 22% increased versus the previous quarter.
Due to the fact with US in Europe were heavily affected during the second quarter Asia accounted for most of our revenues with 95 contributions.
The rest of the world Therefore, only accounted for 5%.
Based on orders on hand, we expect us in Europe to pickup in the second half.
Gross profit for the quarter was $17 million the gross margin for the quarter was 46.1%.
Versus 48.4 performed in the second quarter of plus year and 45% in the previous quarter.
As we mentioned in our last call in the first half of Twentytwenty. We have received orders for multiple to the inspection machine with basically integration with relatively lower ASP, which resulted in lower gross margin will see a changing trend with order for third quarter four machines will.
More advanced capabilities compared with the first six months and Rafi mentioned, we expect continued improvement in the gross margin in the second half of the year.
Operating expenses in the quarter were $10.7 million decrease compared with $9.6 million in the second quarter of last year and to the $10 million reported in the previous quarter.
The increase versus the first quarter is mainly due to increased R&D activities.
The company's 19 environments resulted in certain savings mainly in travel expenses, which were partially offset by higher shipping expenses.
Operating profit in the quarter was $6.4 million, an improvement of over 70% versus the 3.7 million doors in the previous quarter operating margin was 17.2% compared to 12.2% in Q1, mainly as a result of the increased volume.
Overall, we expect a significant improvement in our gross and operating margin in the coming quarters.
Net income for the second quarter of 2010, 20 was $6.3 million or 16 cents per diluted share.
This is compared to a net income of $6.7 million or 18 cents per share in the second quarter of last year.
And $3.6 million or nine cents per show in the first quarter 2000 pinpointing.
Turning to some high level balance sheet and cash flow metrics, we generated $11.1 billion in cash from operations in the quarter. This quarter. We have received a significant amount of down payment from one of our customer which positively affected our cash flow.
Net cash and cash equivalents in short term deposits as of June 32020 increased to $101.5 million compared with $90.6 million at the end of March two Duncan waning.
With the current business momentum, we expect revenues of 38 to 39 million doors in the third quarter.
It is important to mention the $37 million reported in Q2 included approximately $3 million.
The result offered the covered 19 related delays from Q1 as discussed in our previous core so practically our guidance for Q3 represent significant increase of around 15% over Q2.
And with their philosophy, Rami and myself will be opened to take your questions operator.
Thank you ladies and gentlemen at this time, we will begin question and answer session. You have a question. Please press star one if you wish to cancel your request. Please press star too. If you are using speaker equipment kindly lift the handset for pressing the numbers questions will be pulled in the order they are received.
Please standby, while we Paul for your question.
The first question, it's from Quinn Bolton of Needham and company. Please go ahead.
Hi, guys.
Congratulations on the nice results I wanted to ask just just in terms of the demand environment.
Have you seen any disruptions from euro said customers.
From the E Commerce Department actions against Wall way, one of your competitors on too.
Last evening discussing some order delays.
As a result of those comments carbon actions just wondering if thats had any impact on your business and then I've got a couple of follow ups. Thanks.
Hi, This is rami.
Yes, I saw the discussion last night.
We have not seen any disruptions from our outsourced customers early other customers and these specific discussion about why we did stages not affected our business.
Great.
A second sort of business is really a question.
Look or two systems for panel level inspection in the second quarter in.
Expect more in the second half just wondering how meaningful can that.
Panel level inspection business become over the next couple of years.
And it's hard to say because it depends who UASC. Some people believe it will be significant other people to think that it will be minimal. So I think we'll need to wait and see at this stage at least if I look only 12 months ahead I don't think it will be significant.
Okay, great and promotion.
You talked about.
Meaningful increase in gross and operating margins into the third quarter and I think beyond.
Any chance you might be able to quantify what what you think.
Gross and operating margins may have theyve held the trend in the third quarter and whether that trend will continue into the fourth quarter in the 21.
Hi, Quinn.
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Typically we don't provide specific gross margin guidance or operating margin guidance.
Specifically no third quarter end fourth quarter that we we are starting to shape up.
His populated with.
More sick more favorable product mix.
With more machines are coming with more capabilities.
And as a result, we see a better gross margin.
Coming back to the more normal.
Gross margin that we have seen in previous quarters. This is probably we obviously will affect.
Our operating margin as well.
I understand the Leslie you talked about your backlog give me some visibility into the December in being supportive of pretty healthy December.
Quarter is should we interpret those comments that the fourth quarter, maybe sort of flattish.
Third quarter or how should we interpret those backlog comments.
Okay.
It's a bit too early for us to provide specific guidance for the fourth quarter, but don't currently.
It's looking goods I can't really quantify exactly how the fourth quarters going to look like.
Understood. Thank you guys.
The next question is from Craig Ellis from B. Riley FBR. Please go ahead.
Yes, thanks for taking the questions and team congratulations Tom real nice second quarter execution.
The first question just a follow up on the earlier gross margin inquiry.
I think camtek and most other companies where were impacted by adjustments to our corporate 19 with cards costs. Since my freight costs have been higher Moshe can you just help us understand to what extent those costs are our lingering in the business in the third quarter and the fourth quarter and to what extent.
Are you seeing any abatement in any of those costs.
First question.
Yes.
Hi, Craig.
It's.
There are some ins and outs as you usually use the terms.
The positive is that we have certain savings related to travel expenses entertainment conferences and things like that on the same time, a higher level is there is a higher level of expenses. All this mainly on the shipments.
So all in all we do see some savings and this will take us all the way through the end of the year on PD.
The covered 19 will be over.
Okay and then another part.
For a couple inquiries to rafi so.
There was a our customer deposit in the quarter that's helped.
Increased the cash balance above 100 million.
Is that kind of customer deposit something that we could we should expect in the future or is this.
More of an unusual circumstance that we shouldn't expect to occur either in the back half Fisher next year.
No it's kind of for one time events and this is why we obviously disclose these.
Typically we don't get.
Significant amount of down payments.
In advance so no we're not we should not expect.
Something like this in the next few quarters.
Got it and then.
Turning to go out some of our.
Our product dynamics and end market dynamics Rafi you had mentioned the visibility for the fourth quarter, what I was hoping to understand this is how that is.
Shaping up from an end use standpoint, you've had a real strong Cmos image sensor business year to date high bandwidth memories little acquired or it sounds like RF. This really picking up with fiveg any color on what you're seeing bottoms up for the fourth quarter would be helpful.
I would say that in general the mix application very similar.
We see to both there are three major driver as we mentioned is the.
And speaking to seamlessly with sense, so and the RF and RF related devices. These three almost take most of the capacity here.
Got it and then as we booked a calendar 21.
It seems like it should be just a real strong year for Camtek. Because in addition to what should be a doubling in fiveg smartphone units from 200 plus million over 410, and the strong RF Cmos image sensor demand that would imply.
But it seems like we've seen a lot of indications more broadly that high bandwidth memory on I knew.
Memory capacity, a new memory.
Products, it's going to see an increase so if we were at it look at calendar 21, how would you rafi rank the growth drivers and the business largess to less significant.
On a year on year basis from what you see today.
Look as I mentioned before there are few I would say is element of parameter that affect our gross.
With this technology is the level of support our positioning install base. All this we are in very good position.
The only thing that we cannot predict is the market behavior.
We definitely do not know what is this all the corona.
Virus effect toward the TEP and with the the amount to the demand in the industry. This is something that we cannot.
Cannot expect but as I mentioned, we are very flexible and we are ready for any any change any trained.
And I think it's very important because if we believe that today, we are ever very large installed base. We are in very high position is tier one supplier to the industry. I think this this is a very important to growth. We are very in good position to take it.
Vantage of any any demand.
So in general as I mentioned before we talk about advanced packaging. This organise integration memories Cmos RF. All this continued to grow up definitely.
Got it.
And then the last question for me and it goes back to a clarification, but I had to might shape up but the different span.
Very significant cash balance so congratulations I think that 100 million plus just as easily a record for the company.
How should we think about the way the company will deploy that cash balance to create value for shareholders. So I think in the past there've been some special dividends.
The company's also in the past expressed M&A interest.
How do we think about the priorities and how quickly the company could act on those priorities. Thanks, Tim I.
I think definitely the first priority before we consider dividend is to look for opportunities and the M&A.
But we don't want to go to when you know to venture. We you know some time you make him in a and then all the management and invest all defaults and attention and its Ken affecting our potential to grow and to take advantage in the organic growth. So it to do is very care.
Finally, we are looking for mature companies Copel is you don't have to do micromanagement companies that.
Show staple profit.
This is okay for us and also of course, we would like to look for company in the semiconductor Arena, we don't want to start with companies that we have no clue to both market what they do or things that we have no we cannot contribute these.
It was a very strong organization and definitely we can take small midsize companies and lever and give them a lot of tool to leverage their success. So so there right now we are evaluating few companies.
But as I said, we do it very carefully and we don't intend to make any any venture by looking for start off a company. This is at this stage of investing in losing money. This is not the top of women M&A. Thus we are considering.
Helpful color good luck guys.
Thank you.
The next question is from Gus Richard Northland Securities. Please go ahead.
Yes, thanks for taking the questions I just wanted to dig into the advanced packaging opportunities.
You know co packaging chip whats CPQ GPU high bandwidth memory and span out.
Could you sort of.
Talk about where each of those are in terms of.
Demand and sort of what you expect in.
2021.
Well go through this is rami.
If we look at 21 on a first of all I think we talked about the memory did we believe there will be an opportunity in the memory space in the sandwich memory.
I think this was definitely be significant in 21.
Aim.
The rest of the industry.
This is a major re a segment this year and we'll continue to dominate our business in 21.
I think the area of cheaply its or heterogeneous integration definitely is growing people are getting into it.
It's very hard to see at this stage, how significant it will be but it's definitely going to become significant over the next few years and we are a any too we we understand it and we're going to be a major player in DC.
Got it in.
Is there a higher intensity.
Spectrum metrology on the chip side of things versus fan out.
And HBM.
Yes, and no rate additional steps that we don't see on A.H. begins and on the regular Phantom. So I would say there is another level of say metrology and inspection doesn't currently exists. So yes definitely we think.
This will be heavily a.
In both in few steps of inspection and metrology and Thats no doubt an opportunity for us I will rule I will I would like to it you know few Commons is ideal for tokens integration.
Actually you take very expensive expensive component and put them together.
So nobody wants to take any risk that such module will be rejected because some something that doesn't work properly.
So this is why customer cannot keep any sampling inspections, the must make even 200% inspection to be sure that this model. We're perfectly it's very expensive model talk about $200 cost per module, so definitely everyone needs to make inspection it's not.
The only inspection it inspection is maturity the many steps interposer the chip sales the hybrid memory. So there are many steps in this package. The inspection metrology is a must so this is why we believe that when this trend who is going up.
We will see a lot of machine the doing this job.
Got it and then on the panel level inspections.
You are sort of on written about the demand for that is that a function of panel level versus wafer level or is that.
Paid over the.
Flip ration of Santa.
No I tell in general dependent level is something new for the industry.
First of all the beginning of this process you know the industry need to wait for the equipment supplier to build the machine for for this size of Prime is.
No the focus on material you talked about organic materials. The most of the cases and organic material is not silicone you cannot make the cell density the target is to make one to micro inline space.
Yes, it is impossible right now to make it an organic material.
So today most of the line space is about 10 micron the claim to achieve five eight micron soon but not yet. So I think the density is a key factor or tools to increase the use of bundled level.
And it takes time take time for the industry to know how to make it in in high yield. This is why we don't see that acceleration in this process customer now I would say in the learning curve and they want to make a good yield and probably after that they would go step by step.
So we don't expect pick to see no dramatic needs for pioneer. It's go step by step and I cannot even predict how long it takes I believe it in the next two years, we will see more and more use of this technology, but it is not.
Extremely cold silicone you know the industry know how to handle it very well.
All the process the everything is actually is.
Very experience so industry know how to do it Tommy is totally new new equipment, you process, new material and by definition to takes more time.
Got it got it that was very helpful. And then you mentioned in the front end that you are starting to trip over new.
Applications for your equipment can you give a little bit of color you moved from macro defect to metrology in the front end, what what what are you seeing there.
Aim.
You know, obviously I don't want to get into too many details, but the applications, where we are focused we are focused in the area. What we call the back end of Tonight.
And in that in that space. We is more we can experience. We you know uncover other applications that customers are doing it it's around the macro to you called the macro in space inspection, but not only macro inspections definitely there is room to grow there.
Got it okay. That's it for me thanks, so much.
Thank you.
Thank you.
There are any additional questions. Please press star one if you wish to cancel your request. Please press star to please standby, while we Paul for more questions.
There are no further questions at this time before I ask Mr. Amit to go ahead with his concluding statement I would like to remind participants that a replay of this call will be available on contacts web site at.
You Dot Camtek dotcom, beginning tomorrow Mr., Amit would you like to make your concluding statement.
Okay I would like to thank you all four interest in our business and to our investors I think you long term support. Unfortunately, we are unable to meet face to face during these challenging period.
So we will continue to up this you on our activities through virtual as conferences.
Thank you and goodbye.
Right.
Operator.
Concluding the calm.
Thank you. This concludes the Camtek second quarter 2020 results conference call. Thank you for your participation you May go ahead and disconnect.