Q2 2022 Camtek Ltd Earnings Call
These two segments accounted for 23.
Percent of our revenue.
See I guess was about 10% of our business.
This quarter, we see the same trend of threats threats for answering our position in the U S and Europe due to a major industry investments taking place there.
U S and Europe accounted for 21% of our sales versus 12% in Q2 of last year.
In these days of economic uncertainty.
Assume that our investors are interested in hearing what are we estimate for the coming quarters and how we view the semiconductor market.
We are experiencing a challenging period.
On one hand, there are concerns of a slowdown in the semiconductor industry.
And on the other hand, we see continued demand for our systems.
The macro economic environment is not positive inflation.
Inflation rising interest rate.
Prices sharp rising prices of basic products, all of which lead to a decline in GDP and may need to slow down in the semiconductor industry.
There are several reason for the ongoing demand for our systems.
The main driver of our market is the transition to more digital products.
That heavily use semiconductor devices, such as computing and data storage automotive in general and the transition to electric cars wireless communication.
Wanted to five G higher huge use of Internet and more I believe that there is a consensus among analysts that all the above will continue to grow.
The wafer manufacture today and in the coming years are much more complex.
Due to new technology is adopted by the industry.
Leading countries realizing that the semiconductor industry has become a strategic industry and are heavily investing in building new fabs.
And China, China's policy of replacing import of strategic.
And product and semiconductor devices for domestic production means it continues.
<unk> expansion of production capacity of the semiconductor industry not necessarily related to our global economic situations.
To summarize.
These two opposing forces make long term forecasting much more difficult than in the normal time.
Anyway at this stage, we do not identify as slowdown in the demand for our system.
The production utilization in the industry is high.
And.
Incoming order is also high and the backlog is healthy.
Moreover, we believe that the field of inspection and the segment in which we operate will be less affected in the event of slowdown.
Our systems are used by customers for inspection and metrology of 100% of pattern wafer.
Mortgage all material density increases the higher optical magnification needs to be used.
As a result, our customers order more systems.
During a downturn.
Whereby the number of wafer made decrees partnering density is taking quizzes and therefore, the demand for our system is likely to be less impacted.
Regarding our forecast for the second half.
With our strong backlog, we see continued growth into the second half of the year and our forecast for the third quarter revenue is expected to be between $81 million to $83 million.
Let me give you some color on what we see in the second half of this year.
The product is expected to be similar with advanced interconnect packaging, reaching more than 55% of our annual revenue.
The U S and Europe will continue to grow as a percentage of revenue.
At this point, we don't see any potential disruption to our supply chain.
If I have to say, we do not see any side.
Signs of declining demand for our systems. Moreover, we believe that our market will continue to grow in the long term, even though there may be a few bumps along the way.
However.
<unk> a possible slowdown in our industry, we are managing our headcount and balance sheet items, we are keeping a very watchful eye on overall expenses and the business situation of our customers.
We also believe that the market condition, especially in the capital market may generate M&A opportunities. We are actively looking for opportunities and ready to use our well capitalized balance sheet in order to execute M&A transaction.
This will enhance our long term growth potential.
That ends my summary, I would like to hand over to Moshe for a more detailed discussion of the financial results Moshe.
Thanks Marty.
My financial summary ahead I.
We will provide the results on a non-GAAP basis. The reconciliation between GAAP results and non-GAAP results appear in the tables at the end of the press release.
Should earlier today.
Second quarter revenues came at a record level of $79 6 million, an increase of 18% compared to the second quarter of 2021.
The geographic revenue split for the quarter was as follows Asia accounted for 79% and the rest of the work 91%.
Gross profit for the quarter was $40 5 million gross margin for the quarter was 59% versus 52, 1% in the second quarter of last year.
This is within the range of our gross margin.
Our models and as in previous quarters. The deviation has to do mainly with the product mix and does not represent a trend.
Operating expenses in the quarter were $16 $7 million.
Similar to the level in the second quarter of last year and lower than the $80 million reported in the previous quarter.
The decrease from the previous quarter is mostly due to sales mix.
Operating profit in the quarter, increasing to $23 8 million tools.
Compared to $18 $5 million reported in the second quarter of last year.
Operating margin was 29, 9% compared to 27, 4%.
Net income for the second quarter of 2022 was $22 $2 million or 46 cents per diluted share.
This is compared to a net income of $17 1 million or <unk> 38 cents per share in the second quarter of last year.
Total diluted number of shares as of the end of Q2 was $48 1 million.
Turning to some high level balance sheet, and cash flow metrics kitchen tissue equivalents, including short and long term deposits.
As of June 32022 were $438 million.
This compared with $428 3 million.
End of the first quarter.
We generated $13 million in cash from operations in the quarter.
Inventory level went up by $5 $9 million over the quarter. This is the result of a strategic decision to support the current demand for our products and to ensure against potential availability issues in key components.
Account receivables were around the same level as in the previous quarter and represent approximately 80 days.
And what we said before we expect revenue of $81 million to $83 million in the third quarter.
And lastly, Rami and myself will be open to take your questions. Thank you Marsha at this time, we will begin the question and answer session. If you have a question. Please raise your hands on the zoom platform.
I wanted to issue and ask you Tom you afterwards, you will be able to ask your question.
As we do have a lot of people on the call I will take a few moments now to poll for your questions.
Okay.
Our first question will be from Charles <unk> of Needham Charles Please go ahead.
Hi.
Thank you for taking my question just wanted to make sure I can't hear me Okay. Yes.
Yes, we can.
Thank you.
<unk>.
Rafi Rami Moshe maybe on that first question.
Really going back to 2022 growth by certain geography.
It looks like U S and Europe .
It seems to be contributing good amount of the incremental growth. This year. However, I want to ask you about China.
From other companies, we follow Theyre seeing Nathan to point to some sort of weakness.
China spending, especially in the packaging space.
Understand you have unique growth drivers like complexity growth strategic investments.
But I wanted to ask you compared to last year are you seeing or some sort of slowdown in China.
And going into 'twenty three.
There were a slowdown in 'twenty two.
Do you see it's more like.
Going.
There are some stronger growth next year platform, what do you think or could that deteriorated into 'twenty and great. Thank you.
Rami do you want to comment on that please.
Comments. Thank you.
Charts nodes.
We do not see any weakness in China.
Compared to last year.
And we see investments on around.
Very much like we are talking about discrete over 50% of our business goes to advanced packaging and the investments in China in <unk>.
Looking forward, Steve as we said, we do not see any weakness moving forward and specifically in China. It seems as each of the investments are ongoing.
Utilization at least what we can see through our equipment is high.
We do not see any change moving forward.
Got it got it thank you.
I mean, maybe just a quick follow up to that.
I understand that you buy.
Bye bye youre not seeing weakness in property mean absolute dollar base is probably still very strong I think in terms of growth rate of your business in China is there any deceleration or acceleration this year and next year Whats your view there in terms of the growth rate.
Well, it's hard for me at this stage to talk about.
Growth rates.
It's too early in the game, what I can tell you from what I see on the backlog.
Pipeline looking into the first and second quarter, we seeded the investment.
And fourth and even looking what I see and start to get from early next year, we definitely see.
<unk> investments across the board.
The different application, so we definitely do not see any slowdown.
Got it.
My second question.
It's around memory that seems to be another weakness leaseback something quite identify volume only look at the headlines.
I understand property earlier this year.
You have a good amount of orders that shipment into DRAM application.
Understand that historically this this is a kind of a slightly lumpier side of your business.
What do you see for that part of your business I know, it's probably not as big a contributor as of today.
Do you see slightly down trend going from here maybe into next year.
Do you think the rest of the business to offset any of the weakness coming from memory. Thank you.
So if I look at the gross drive, but the main growth driver for our business in the DRAM space. Each primarily the HBM that is ramping and the high performance computing segment is very healthy I think the server market is going to show the bone growth of 17% this year.
And Thats exactly the area, where these HBM components are going into so from that point of view. This is a growth area index link needs to continue into next year.
Just to give you a feel on the number it's about 5% of our revenues. This year. So it's not a huge number but it is nothing negligible number and definitely that's an area.
I believe we will continue to grow moving into 'twenty three.
Thank you.
Might be the last question on ASP.
In Australia.
And space.
Obviously, you started from relatively low base.
Few years ago, and they have been growing at least in line with your very strong pipeline growth.
What's the outlook there do you see any addition of incremental opportunities there for you to gain more share seeing a brown has space or can you update patients away more slots. Thank you. That's my last question. Okay. So so definitely the firms and this is one of the areas that we see potential growth moving to mix.
And I think I wouldnt cut.
Company together with the compound semiconductors.
No.
This area I think first of all we are gaining some share.
I think the other area that we are seeing incremental business is through a number of new applications. We are targeting to take more and more new steps that we've not taken we've not been used our equipment was not used for in previous years. So definitely that's an area that we'll continue to grow loans and they expect.
These to become more significant in forthcoming years.
Thank you that's all for me.
Thank you.
Okay. Thank you.
Our next our next question now will be Tom O'malley from Barclays.
You May go ahead enough.
Good morning, guys. Thanks for taking my question I just wanted to look into the June quarter from a segment perspective, a little more closely.
You gave a pie chart at the beginning of your presentation that showed compound semi in front end combined could you breakout for us what the percentage of revenue was for both of those I think last quarter. You said compound semi was 19% in front end was like 23% or at least you've got a bucket of this other can you just break out what the exposure was between compound semi front.
Ed.
And then Cmos image.
This quarter please.
So.
I would say first of all.
This will vary from from.
Quarter to quarter.
But the overall I think the the number for this do to get there is about 25% it would be about half and half and it depends it depends per quarter and product mix with customers. This quarter, specifically the compound was a little higher than the front end portion.
And definitely moving forward this is more or less the portion of the entire business with ICD business movies.
Helpful. Thank you and then you guys talk about an environment in which youre not seeing a demand profile change you talked about potentially some lumpiness, but really youre just not seeing any kind of change from customers. At this point could you just talk about what you guys do in terms of conversations with your customers to kind of keep a check.
On both their demand profile and also just to make sure.
They are weakening.
Just just any kind of conversations or how are you guys checking with those customers. So you would see weakness coming potentially.
No.
In general what we do we have a bi weekly every two weeks, we have discretion with most of the main customers checking understanding understanding on the applications and the issues, they're seeing talking on the forecast we take the entire E.
<unk> from our customers and receipts.
We say our sales team and look forward and see exactly what is the forecast with the seats next a huge and we try to look full quarters. The hand of course, the good visibility is two quarters beyond that it's more from discussion and decision so at least from all the.
Accumulated discussions that we've had over the last few months and the latest was.
Estimates, we definitely as Rafi said in the opening statement do not see any weakness at this stage.
Thank you guys.
Thank you Toms.
Our next question will be from Craig Ellis of B Riley crank you May go ahead.
<unk>.
Yes, thanks for taking the question and congratulations on the performance team I wanted to start out just by following up on some of the prepared remarks that commented on the healthy backlog is it possible that you can quantify.
Where backlog is and and as you look at the.
The mix of backlog give us some further color on what you specifically see four orders that would relate to 2023 delivery in and if you can provide.
Provide any color on that that would be helpful as well.
What I can tell you on the color of the backlog and of course I want to be very careful here.
So let's talk about first of all the third into fourth quarter, where the visibility as much fun.
So I think that if I look at the entire business no doubt the advanced packaging portion is very strong and will be very strong throughout this year.
And we will probably reach very close to 60% of our business will be in the events and could you no doubt. This segment is very strong not just in a specific area, but across the board.
Aim the compound and front end business continues to be healthy and will be in the range of about 25% very similar to what we've seen this quarter the.
The Cmos image sensors will be a little weaker this year I expect it will be just a little bit less than 10%, which is all of the revenues from this segment.
That small unless the kind of from geography point of view I think we said it in the opening statement definitely we see the U S and Europe getting stronger.
91% it will be even a little bit higher moving forward definitely this is good news for us from diversification point of view once pick point that we mentioned it is also can share some color on the on the business.
We're seeing new customers in the first half of this year, we had over 10 customers, which is relatively high.
It's also a very good sign of more new people still investing in equipment to opening new places. So that's definitely a good sign.
Okay.
No.
Greg anything else.
Yes that was good color.
To follow up on the comment you made on Cmos image sensors. So the business is still active this year, but not.
Strong from a mix standpoint, great stamp point is 2021 could you just kind of 2023.
Your expectation.
That makes sense.
Demand in kind of shape.
And what does that mean for potential mix.
Yes.
So first of all in the backlog.
Some of the of the major player our planning to invest and we are talking with people also about.
Investments, even in 2000 and.
So definitely we will see investments industry most image sensor.
I don't think there will be.
<unk> be above the 10% of the average 10% I think that will stay in range.
10% around 10% I don't expect anything beyond that now taken taking account that.
The smartphone is.
Relatively weak so these affect this segment.
But even though we are still seeing a significant business.
Got it and then Moshe I don't want to ignore you on that comp.
I wanted to follow up on <unk>.
Gross margin and Opex as it relates to the third quarter. So the.
The items that you identified that caused some movement for both those line items makes total sense I get the mix.
Gross margin dynamics in the channel mix Opex related dynamics. The question is for the third quarter.
Given that we would expect to see fairly similar.
Okay.
Demand.
<unk> relative to <unk> should we expect flattish trends there are there any one off items that would move either gross margin or opex materially north or south.
Thank you for not ignoring me Craig I appreciate it.
<unk>.
I think from a mix perspective, we are going to see pretty much the same mix in the second half of the year as well so from a gross margin perspective, I expect pretty much.
At the same level the same margin profile.
Operating expense expenses are expected to go up a little bit slightly.
It's mainly has to do with R&D investments and some with sales channel mix.
Not something dramatically so basically expect.
Healthy.
Great.
Profitability next quarter as well.
That's great and then I'll conclude with a more strategic question for Rafi Rafi.
One of the things that was mentioned as the potential for M&A and clearly the company has an exceptionally robust cash balance the question is.
Is this as you look at potential areas of.
Strategic interest whether it's <unk>.
<unk> technology or customer geographic et cetera can you just give us some color on things that might be interesting complement to the Chem Tech business as we think about where M&A can create value for the business and for shareholders. Thank you.
Of course, if we're talking about.
Having more value, so where to look for a company.
Is it good.
Synergy to come.
Okay.
In term of technology in terms of expanding our markets et cetera.
So this is our first priority is to look for a company that.
We can expand our portfolio.
But we still have some similarity in technologies. So we can enjoy each other or sharing technology and it's helped to both sides.
Another issue is also co.
Company, let's say meet.
More to mid sized.
Most of them cannot.
I would say the sales the sales channel and muscle developed has come to date in the last 10.
10 years.
So definitely we can accelerate revenue for a company with the potential.
The good technology, a good product.
Missing.
Good set of channels significantly we can promote the product.
Much quicker.
So this roughly.
Portfolio that we're looking for.
This is our first priority, but but some time.
We can we get information on both the corporate and optics Canadian meeting this profile, but still refining other advantages so definitely we can consider.
Yes that makes sense. Thanks, Ravi thanks team.
Thank you.
Thank you our next.
Question is from Dennis <unk> from Stifel.
Dennis you May go ahead.
Mute yourself.
Hi can you hear me, yes, hi, Dennis we can hear you.
Wonderful. Thank you for taking my question. This is Dennis on for Brian Chin.
A question related to weakness in smartphone sell through and production do you get the sense. There was any digestion of recent wafer level packaging capacity.
Spansion occurring on the back half of the year like not necessarily your machines, but also other process equipment and why do you believe your inspection systems may be less affected.
Okay, roughly I want to thank you Tony.
You can pick it up.
So let.
Let me start first of all with the digestion of the continent. So first of all you know we are more exposed to auto machine. So it's very hard for me to sort to speak about other recruitment, but specifically, we still do not see a.
Digestion in fact, the equipment that we have been truly been selling is highly utilized by our customers. This is something that we are checking that continuously and machines are.
All of the time, they are immediately storms and us and going into production.
From that point of view I still see steel we are experiencing the demand for equipment from our customers now why we are less sensitive.
A few reasons for that.
The industry that we are serving the wafers, becoming more and more complex in terms of resides.
<unk> are used more heavily used in more states and a lot of the times Theyre also require higher magnifications, which means that from number of machines that are used for those steps is higher.
So I would say this is just very briefly one of the main reasons why our machines are needed all the time and are used more and more.
And compared to other recruitment.
It answers your question.
I want to add one more comment on that.
We are protecting puts the duration that they are today, new packaging technology into the market.
And.
And then we find ourselves doing more steps.
Compared with what we used to doing the past.
So any new technology adopted by customers. It takes some time until the yield is high and everything is okay. So by the time they need a lot of inspection not randomly they do I would say almost 100% inspection in Detroit to make it in many steps to help them.
To stabilize the process and getting a nice so all this together.
Give us some I would say benefit.
This picture company.
Great. Thank you and then.
My next question is how long do you think it is before heterogeneous integration becomes something like 15% to 20% of revenue do you see reaching that level over the next several years.
Okay.
First of all.
The opening statement.
We said that 20% of the 50% of advanced packaging today's it produce integration reaches roughly 10% of our revenues.
For the quarter, but definitely at Virginia to integration is something that will continue to grow and I expect it to be in the foreseeable future and taking these kinds of numbers of our revenue that's no doubt.
High performance computing is the I would say the main drivers to gainful heterogeneous.
<unk>.
As I mentioned before.
Server market is growing at 17% this year and these are the range of growth that is expected in the foreseeable future definitely this segment is going to be very healthy.
Okay.
And my final question Im sorry.
A recent shift in your geographic mix with the EU and U S growing as a part of that can you speak to kind of which end markets within those geographies are driving this shift.
Well, let's.
<unk>.
We wanted to be very careful because we are very sensitive about customers' needs.
<unk>.
I think that <unk> will be try to be very broad I think it is very clear first of all in Europe , it's very automotive related.
There is highly affected from this industry.
I would say in the UAS business is more diversified.
And it would be from leading edge technologies through our ranks somewhat lumpy I think all across the board we see customers that are using for these applications on shoes.
Great.
For me. Thank you very much. Thank you thanks Dennis.
Our next question is from Roman <unk> of <unk>.
Sarah.
Marathons romantic you May go ahead and ask your questions.
Remind you that.
Yes.
Okay.
<unk>.
Okay, well Paul again for questions. If anybody has a question. Please raise your hand.
<unk>.
We will move to the final.
My name is now mostly from one another.
Pneumonia on mute. So you May you may ask your question.
Our next question is from Alon lost along please go ahead and ask your question.
Neil.
And on EMEA on mute yourself.
Yes, we can hear you yes.
Thank you for taking my question two questions Phase one you spoke about the strategic decision to increase inventory with just speak about the levels that we see going forward.
And second you spoke about new customers any original and.
By us for those are new customers.
Okay.
Start with the inventory.
And then with Hanmi will address the other parts of your question.
With respect to inventory, we have raised inventory in the last few quarters in order to make sure that we have enough inventory for us.
To address the demands.
I think what we are going to see some stability stabilization in the next few quarters.
So we don't intend to continue to increase the inventory levels, but it could vary.
$5 million plus minus.
Next couple of quarters.
Alan I missed your question on the new customers and that's where do we were not clear. So what did you want to understand about the new customers.
And we can't which regions or the economy.
They come from all around the geography is not necessarily one country.
They come from Asia Europe .
And I don't recall, if we had any in the U S. But definitely it's not just related to one of them.
Thank you very much.
Thank you.
Okay, we'll try again Rahman Romano ratio from Sara Your line is open.
Okay. Thank rahman on available. So I think we'll ends our Q&A session Rhatany do you have any closing remarks.
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.
Sure.
Ventas performance and we look forward to continuing to.
To all investors I think Q4 long term support I look forward to talking with you again next quarter. Thank you and goodbye.
Thank you that ends our conference call you may all disconnect.