Q3 2020 Camtek Ltd Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Camteks third quarter 2020 results Conference call. All participants are present in a listen only mode. Following management's 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.
[noise] release, if you have not received it please contact Camteks Investor relations team at GK Investor <unk> Public relations.
16466883559 or view it in the news section of the company's website Www Dot Camtek dot com.
I would now like to hand over the call to Mr., Kenny Green GK Investor Relations Mr. Green would you like to begin please thank.
Thank you good day to all of you I would like to welcome all of you to Camteks third quarter two thousands when she results conference call I would also like to thank Camteks management for hosting this call.
With us on the line today are Mr. Rafi, Amit Camteks, CEO, Mr., Moshe Eisenberg, Camteks, CFO and Mr. Rami Langa Camteks.
Rafi will provide an overview of camteks itself and discuss market trends in the third quarter 2020.
Moshe will then summarize the financial results.
We will then open the call to take your questions before we begin I'd like to remind all listeners that certain information provided on this call internal company estimates unless otherwise specified this.
Cool also may contain forward looking statements. These statements are only predictions and may change as time passes statements on this call made as of today and the company undertakes no obligations to update any of the forward looking statements contained whether as a result of new information future events changes in expectations or otherwise investors all minded that these food.
Looking statements are subject to risks and uncertainties that may cause actual events or results to differ materially from those projected including as a result of the effects of general economic conditions. The effects of the COVID-19 crisis on global market and all the markets in which we operate including the risk of a continued disruption to our.
And our customers provide as business partners and contracts. This business as a result of the outbreak and affects the code in 19 pandemic.
Risks related to the concentration of a significant portion of the Capex expected business and sets and countries, particularly China from which comes like expects to generate a significant portion of its revenues for the foreseeable future, but also Taiwan and Korea, including the risks of deviations from our expectations regarding timing and size of orders from.
Customers in these countries.
Changing industry market trends reduced demand for services and products its army developments and new services and products and their adoption by the market increased competition in the industry and price reductions as well as due to other risks identified in the Companys filings with the FCC. Please note that the safe Harbor statements in today's press release also covers.
The contents of this conference call and.
In addition, during the school certain non-GAAP financial measures will be discussed these are used by management to make strategic decisions forecast future results and evaluate the Companys current performance management.
Management believes that the presentation of non-GAAP financial measures are useful to investors understanding and assessment of the companys ongoing corporations and prospects for the future a full reconciliation of non-GAAP to GAAP financial measures.
Included in todays earnings release, I would now like that to hand, the call over to Rafi Camteks CEO Rafi. Please go ahead.
Oh good morning, Thank you for joining our call today.
In the third quarter, we continued the momentum.
We've seen sales to our existing customers as well as to new customers.
Total sales in the third quarter were $40.1 million.
Close to 25% increase over Q3, thank you.
The record quarterly revenue.
Gross margin was 48.8%.
Operating margin.
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Marking continued improvement in <unk>.
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The older we never seem to get the sales pipeline indicates strong sales for cost for Q4 as well as the first half.
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In the fourth quarter, we specifically facing as a month.
Customer like.
Like more systems than we had planned.
So we are making considerable effort to meet customer requirements to ship on time.
We estimate since the fourth quarter to be between 42 million bottles and 44 portals.
Based upon order received in covering pipeline. The company believes that revenue in the first half of 2021 will be similar to the revenue level in the second.
2000.
Representing approximately 25% growth over the first half of 2000.
Despite the higher the month and ups certainty, we faced a few states require careful assessment and we must consider there might be fluctuation in revenue between quarters.
Distribution sales between the various territories is very similar to the second quarter about 90% in Asia, and 10% in Europe and the <unk>.
It should be noted that our NGL revenue include facilities.
With an European based companies.
Demanding applications and continue to lead the market.
As Bob packaging, Cmos human sense or an advanced devices.
We have also expanded our presence in front and mainly for muscle inspection applications.
Over the past few months we have.
Operate our company alongside <unk> 19.
Installation up before by local teams in each of our territories.
Well, especially feature is being developed for the customer.
Guidance for installation is provided remotely, but I wouldn't do you.
Quarter.
In Israel.
Most employees work for all companies facility was some work from home.
We take all necessary precautions to keep our heads.
I see and safe.
We continue to follow development in the global economy, and our customers situation.
Currently we do not see signs of weakness in demand.
The quarter.
Customers are continuing to order more systems and using our systems at the normal utilization rate. Moreover.
Packaging technologies, we increased the need for our systems and customers production line.
We continue to collaborate with the leading customers to develop metrology and inspection solutions for the next generation of its about that could you.
As always say in the past, we expect these applications to become a meaningful to our business.
We reiterate too.
Okay. That's all cooperation with the leading IC games, because that was the move from development stage two why volume production, we will be there ready to run production with our qualified systems.
We believe that Neil inspection companies or not in the fall.
The development process of the next generation of advanced packaging will require considerable time to develop suitable solutions.
Our growth drivers.
No change.
The main drivers.
Our market of advanced packaging memory, Cmos image sensors, and RF devices for Fiveg.
Outflows.
Oh Gee is pushing the month for high end smartphones.
Compared to previous generations. These five chief wants to include more silicone more advanced packaging and larger number of RF devices each for.
As a result, we are experiencing demand for five chia related applications we.
We see adoption of new packaging technologies by our customers adoption of fuel technologies requires Ics.
Extensive use of inspection and metrology systems. In addition, we are expanding our available market by penetrating to new segments in the front end.
To summarize 2020.
To summarize I'm, sorry, 2020 is shaping up to be another record Q4 comp.
As for two twin Q1 <unk>.
A month from customers.
Market drivers the performance of our systems and increasing market presence.
Customer satisfaction.
Give us a tailwind towards 2021.
It is important to stress that we are still seeing COVID-19 pandemic effect, causing risks and uncertainties.
We examine the market demand and business situation of our customers on ongoing basis.
Before I get over to Moshe for more details on the financial results I would especially like to thank our employees for their dedicated work during this challenging time.
Our share.
Thank you all see my financial summary.
Provided results on an ongoing basis very cool.
Situation between to get results and non-GAAP results appear in the tables at the end of the press release issued earlier today.
You mentioned.
2020 revenues were a record $40.1 million.
An increase of 23% compared with between $32.5 million reported in the third quarter of 2098%.
<unk> increased versus the previous quarter.
Asia accounted for most of our revenues was 88% contribution revenues from Europe, and U.S. accounted for 12%.
Oh cool seats for the quarter was $19.5 million.
Gross margin for the quarter was 48.8% versus 47.1% in the third quarter of last year and 46.1% in the previous quarter.
This was in line with our expectations for a higher gross margin in the second half of this year.
Operating expenses in the quarter were $11.9 million.
This is compared with $10.1 million in.
The third quarter of last year, and two the $10.7 million.
<unk> in the previous quarter.
The increase.
Second quarter is mainly due to the increased sales and marketing expenses increased revenues and an increase in our R&D activities.
We expect additional increases in these expenses expense items in the fourth quarter.
To support the forecasted growth in business volume.
Are you in the coming quarters into development of capabilities for the next generation advanced packaging requirements.
Operating profit in the quarter was $7.6 million, an improvement of 19.6% versus the $6.4 million in previous quarter.
Operating margin was 19% compared to 17.2% in Q2, mainly as a result of the improved gross margin.
Net income for the third quarter of 2010 to 20 was $7.3 million or 18 cents per diluted share. This is compared to a net income of $5 million or 13 cents per share in the third quarter of last year and $6.3 million or 16 cents per diluted share.
In the second quarter of 2020.
Turning to some high level balance sheet and cash flow metrics, we generated $5 million in cash from operations in the quarter net cash and cash equivalents and short term deposits as of September 32010 to 20.
<unk> to $106 million compared with 105 million to $101.5 million at the end of June 2020.
With the current business momentum, we expect revenues of $42 million to $44 million in this quarter in the fourth quarter. This means we expect our annual revenues to exceed other than the $50 million.
2020.
And with that I'll see Rami and myself will be open to take your questions operator.
Thank you ladies and gentlemen at this time, we will begin the question and answer session. If you have a question. Please press star one if you wish to cancel your request. Please press star two if you're using speaker equipment candidly the handset before pressing the numbers your questions will be Paul in the order. They are received please.
Stand by while we poll for your questions.
The first question is from Craig Ellis from B. Riley SBR. Please go ahead.
Thanks for taking the question and good afternoon, and congratulations on the very strong quarter and guide team.
I wanted to just start off by following up on an announcement that company had recently on front end macro inspection I think that's been an area of recent strength can you just give us a little bit more color on what you're seeing there from a demand standpoint, and how that factors into that visibility, but you talked about for the first half of calendar 2000.
One.
Rami do you want to.
I will take the question as well.
Well I think we've said it a number of times, we are getting to more segments on the front end and definitely this is far too.
Of the forecast that we are seeing into the fourth quarter and the first quarter of next year.
And we're getting traction from a quite a few customers and do something to do since becoming a segment that is meaningful to the cost to the company.
That's helpful. Rami can you just help us understand where you are now relative to what you think a longer term opportunity is in front end macro inspection. So if we were to look out to say a calendar 23.
Where are we and wait.
Wait 2020, early 2021 relative to that longer term market penetration potential.
Well I.
I think we're still in the first.
We are in the number of customers in different areas of the front end as we said, it's the back end of the line but.
Definitely we are good we're gaining more and more traction.
Customers get to C O or machines, they like Keith do you want to do more.
Other companies he robust it's the market presents it's the it's the overall you know mark at market.
Can you can keep liabilities that were gaining I'll go into more and more customers. So definitely we are in the first stage I definitely believe that DC is going to become a very meaningful part of our business. As we proceed older coal into China. So if youre talking 23, each we'd be definitely significant.
Probably more than it is currently today.
That's helpful. And then the next question I'll go back to a property Ropey clearly it seems that as you exit calendar 20, and looking at 21, they're strengthen the business across front end macro inspection advanced packaging.
Image sensor.
I might assume high bandwidth memory comes back but.
Can you help us understand as you look at the business, which of those areas have the potential to be the most significant growth drivers for the company next year.
I would say in general.
Sri come please.
I think taking the.
The major market share is Korea, Taiwan and China.
If you look at the overall investment income for the Capex in these three storey tall as you can see that they pick most of these oh.
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So naturally we are doing.
I love the money.
In the semiconductor or.
We will enjoy.
Sure.
And and in those areas, which you expect that the growth then in your key areas advanced packaging panel processing and image sensor to be fairly equal next year or do you have visibility on whether one would be materially greater than the other at this point.
It's not so easy to predict but the.
I will tell you what we can and we can see and understand these advantages.
At this time.
Could you technology can bring in many many aspect off low power, where all the better see not many things and push the IDN, mainly the idea to move towards this type of solutions.
The quality of tolerance, we can see that beginning all of.
Crop up high volume ramp up I would say from the beginning of the year over the next year.
So it is not something in the long term this is going to be icing.
In the in the meantime, as well.
Rafi, let me elaborate a little bit more.
If you look at the opportunity live and no doubt that defense. Thank you Jean Yves see major opportunity.
And from the goal you go into a few different markets that it serves.
Even with the Hollywood the memory is very significant so definitely a we seem to do advanced packaging is the largest opportunity Zane will become the Cmos image sensors that he's going to see significant.
And then our wrist devices intended to real to the <unk>, which includes different thing.
So.
I hope to do you see a little color is a good seemed in direct proportion to you are you on your question.
That does I appreciate that then.
I don't want to ignore optimize shape. So I'll ask two questions two please.
First on gross margin very strong performance in the quarter.
From 48.8% more shape what are some of the puts and takes as we think about either mix or any of the cobot related issues that the company might be navigating as we look out over the next two to three quarters for gross margin.
Hi, Craig.
No I think it's <unk>, it's mainly has to do with the.
Improved mix.
Mix.
Also the business volume helps with fixed expenses level.
But it definitely relates to the to the deal mix and we are basically big.
On track to where they do business model.
Should be.
The first half was a little bit unusually low.
No COVID-19 major impact on our results this quarter.
There are some puts you know begins and we see no. We obviously we saved.
Look this money own traversing but on the same time.
But really didn't use much of diversification because you know basically this was a local down here so.
Our vacation.
<unk> expenses went up so I think overall did the COVID-19 impact Steve.
Pretty insignificant this quarter.
And what I mean.
Hi.
I would like to.
The you know.
Maybe a little bit because they will have to understand that.
Mix mix.
Mix product.
When we talk about mix product and what really would not affect the price.
I would say, though.
Talk about Sweazy.
No matter has two different application so two different sense often put into this this is why.
The tissue.
Second is the defect size if customers looking for very very small defects.
And he must use the very high modifications.
Overall machine the curious to see if the performance is strong.
Correct.
In this case the amount of late.
Hi.
Sub solution.
Just a few not everyone can make all these together I mean do.
Detect a small effect with very high volume was minimum price all these together so.
Medical issue that really affect the pace.
Okay, and what we call later on as that mix growth.
That's very helpful color I appreciate that and then lastly before.
Before I hop back in the queue. My shape, you mentioned, a couple of things that would impact operating expense in the fourth quarter expense.
Expenses related to new product development et cetera, how do we think about picture directory of Opex beyond the calendar fourth quarter and into the first half of next year.
I think we will see some increase in operating expense leverage.
Due to the Cintas I've mentioned before in the fourth quarter and probably also in the beginning of the year.
I'm not sure how this will play out in the second half of a 2021, some items will probably go down.
After we finished a certain developments and projects.
And investment in certain.
Sales and marketing activities. So I think that you know we will see some.
Increase.
In the fourth quarter and probably in the first quarter as well.
That's helpful. Tim. Thank you. Thank you.
The next question is from Quinn Bolton of Needham and company. Please.
Please go ahead.
Hey, guys, let me Echo my congratulations as well.
First question on the macro inspection business.
I believe that business is probably running today in the high single digit percentage of revenue.
Do you think you can get to 10% or more of revenue in calendar 21, given some of the traction you've seen and then you mentioned out in calendar 2003 would be a significantly larger percentage of the business do you think it could get to something in the range of maybe 15% to 20% of sales out in that timeframe and then I've got a couple of follow ups.
Absolutely so the the answer here is yours.
We definitely need lots of opportunities the business is on track its growing we are getting into new customers into existing customers. So definitely the numbers. The ballpark is in the right way.
Fantastic and then following up.
Obviously advanced packaging, you've highlighted for several quarters as one of your biggest opportunities I think last quarter and again on this.
Paul you mentioned, increasing traction with certain.
I'm just wondering when do you think that business really starts to ramp for you is that included in the better.
Better pipeline for the fourth quarter in the first half of 21.
Definitely we are we're seeing already this business is starting to happen.
We expect to start to we're really in the fourth quarter and definitely be more significant next year.
Okay, Great and then lastly for Moshe.
You had given us.
Order go sort of your outlook for improving gross margins in the second half of the year supported by the mix of business in the pipeline wondering if you might provide sort of your thoughts on gross margin.
The first half of 21 since it sounds like you've got a pipeline that gives you pretty good visibility in the first half can it stay in the current range of sort of 48% to 49% do you see it trending higher or lower than that level any any commentary would be helpful. Thank you.
Right So pike.
Hi, Queen we we believed it.
Second half of <unk>.
2020 will be a big to like 48% to 50% gross margin level Q.
Q3 is already within the range and we believe that Q4, we'd be FIMI low.
We think that you know we have all the reasons.
Two believed Q the first half actually have plenty to anyone will be also within this range of 48 to 50.
Great. Thank you very much thank you.
The next question is from Shahar Cohen of more investment House. Please go ahead.
Hi, guys. Thank you and congrats for a great results.
Two two question one small question.
Although big semi.
The Companys mentioned their ability to remote support and put that on the surface you someday our ability to use a all through remote support declines to what extent do you believe the call we'd eliminates or hinder your ability to support the clarity as to what extent do you just kind of soon and then the second one is mode.
Well I'll just part of the question.
I guess you couldn't they got Gordon just on one I guess, you're mostly in the C. O W. S domain to what extent do you believe you can they Moline D. W. W. Older Steel W advanced packaging area.
Hi, Chuck.
This is roughly in.
So from the remote.
To support this is something that we've been doing for use using these technology. The only difference today, we just can send people so customers understand indeed in the food all different visions point of view from cyber security. So we can do we do.
And the difference the main difference here is that instead of having a person on site at the customer a person here just the mix of the machine and has the ability to do all what he needs to do as eastern side. That's the main difference, but it's a big difference and only.
Known we are providing even faster support to our customers. So thats I would say the difference regarding your second question I Didnt follow exactly the same if you can repeat it to which part exact you'll see it's been speaking you are referring to.
Lot of the one of the largest clients also one of the largest.
Foundry in the World and you know they are you know they claimed to open to advanced packaging clubs next year.
And I think Bill mentioned in one of the blogs that why couldn't you could they focus on the.
It costs cheap one wafer on substrates.
They are moving more to a 2.0. They also can use multiple wafer to wafer methodology. So my question is where do you.
To what extent do play coffee and coupon restaurant substrates and to what extent.
Should we expect you to play molding the cheap on Windset in waste on wafer technology.
So no one interesting so first of all what you are talking about the current technologies. We are one of the major supplier to these areas specifically to the metrology and also to the inspection and we play a major role and we will continue to play a major role in the future we owned.
The new techniques and technologies and I think Rusty mentioned in Twoq in specifics, but we are working with.
Many of the major ideas and companies and organizations that are involved in developing new technologies for the advanced packaging. So definitely we will provide answers or solutions to the areas that you have just mentioned.
Sure.
Thanks.
Alright. The next question is from Gus Richard of Northland Securities. Please go ahead.
Yes, thanks for taking the questions.
Real quick on the front.
Front end macro opportunity can you give a little color.
As to where you're seeing the demand geographically memory versus foundry process node whatever color you can give on on sort of the customer concentration and where the interest lies.
I would like you know I'm very hesitant to talk about geographies and customers. Because this is very confidential in customers our customers don't like us to talk will mention do mean in public so what I can say that first of all we.
C D I'd EMS in foundry, so we see.
[music].
Of course, it's junk just specific to you know just foundries or ideas, we see it in several areas, which we are getting this business. It's not the only in one geography and its not only in one specific application. So really this is a variety of applications.
From customers.
Absolutely different geographies.
Gross different end market and this is why I believe it has we said he mentioned before we are in the high one digit number from a revenue split into few we're very optimistic that we are.
Going to grow this business significantly over the next few years did I answer you gave us.
Yes, just.
Maybe I'll just try one more time.
Yes is it too.
28 nanometer and above or are you getting into the more advanced nodes.
And mostly at this stage, it's the 20 and above but definitely it's certain customers. We will go also into lower rate geometries.
Got it that's helpful and then.
On the advanced packaging.
Can you do you have a sense of what your total available market is for advanced packaging at this point.
As you know.
250.
I you know.
Im a little hesitant to throw in the number its a.
And we can definitely can follow up with you on the number it's something that we can come up fairly quickly.
Okay.
That'd be very helpful and then.
We will follow up with that.
Yes. Thank you.
That's it for me.
All right. Thank you.
Thank you.
There are any additional questions. Please press star one if you wish to cancel your request. Please press star two please stand by while we poll 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 Camteks website, Www Dot Camtek dotcom, beginning tomorrow Miss.
Mr., Amit would you like to make your concluding statement.
Okay. Thanks.
I would like to thank you all for your continued interest in our business.
[noise] I would like to thank all of our employees.
He is and my management team for their solid performance so far in 2020.
And we look forward to continuing.
Two of our Investor I think your long term support.
I'll be presenting at a number of critical core friends in the coming weeks.
And we hope to speak with many of you as these events.
The rest of you.
I look forward to talking with you again.
In three months time.
For our full year 2020.
Thank you and goodbye.
Thank you.
This concludes the Camtek third quarter 2020 results conference call. Thank you for your participation you May go ahead and disconnect.
[noise].