Camtek Ltd. (NASDAQ:CAMT) Q1 2024 Earnings Call Transcript

Camtek Ltd. (NASDAQ:CAMT) Q1 2024 Earnings Call Transcript May 9, 2024

Camtek Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Kenny Green: Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtek’s Results Zoom Webinar. My name is Kenny Green, and I’m part of the Investor Relations team at Camtek. All participants other than the presenters are currently muted. Following the formal presentation, I’ll provide some instructions for participating in the live question-and-answer session. I would like to remind everyone that this conference call is being recorded, and the recording will be available on Camtek’s website from tomorrow. You should have all by now received a press release, if not, please view it on the company’s website. With me on the call today, we have Mr. Rafi Amit, Camtek’s CEO; Mr. Moshe Eisenberg, Camtek’s CFO; and Mr. Ramy Langer, Camtek’s COO.

Rafi will open by providing an overview of Camtek’s results and discuss recent market trends. Moshe will then summarize the financial results of the quarter. Following that, Rafi, Moshe, and Ramy will be available to answer your questions. Before we begin, I’d like to remind everyone that certain information provided on this call are internal company estimates, unless otherwise specified. This call may also contain forward-looking information. 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 results, changes, expectations, or otherwise.

Investors are reminded that these forward-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. Risks related to the concentration of significant portion of Camtek’s expected business in certain countries, particularly China, from which Camtek 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 and market trends, reduced demand for services and products, the timely development of new services and products and their adoption by the market, increased competition in the industry and price and price reductions, as well as due to other risks identified in the company’s filings with the SEC.

Please note that the safe harbor statements in today’s release also covers 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, forecast future results, and evaluate the company’s future performance. Management believes that the presentation of non-GAAP financial measures are useful to investors 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 are included in today’s earnings release. And now I’d like to hand the call over to Rafi, Camtek’s CEO. Rafi, please go ahead.

Rafi Amit: Okay. Thanks, Kenny. Good morning or good afternoon, everyone. Camtek ended Q1 2024 with a record quarterly revenue of $97 million, exceeding the guidance of $93 million to $95 million provided last quarter. It is interesting to look at the distribution of sales this quarter. 80% of our revenue came from Advanced Interconnect Packaging applications, which are divided to 40% from HBM segment, 20% from chiplets and 20% from other advanced packaging applications. The remaining 20% are divided between compound semiconductor for power devices, CIS and Process Control applications. The gross margin came high in this quarter at 50.6%. This achievement resulted mainly from the high percentage of systems sold to the Advanced Packaging Interconnect segment.

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Q&A Session

The operating margin also show an improvement to about 30%. Based on our current order flow, backlog and pipeline, we expect the high demand for HBM and chiplets to continue into the next quarters. This is reflected in our revenue guidance for the second quarter, which is about $100 million to $102 million. Today, I would like to focus on the high demand for AI-related products. Rather than quoting from articles and industry surveys, I would like to share with you the information we have gathered from our current business regarding the effect of AI on our markets. AI technology and especially generative AI requires extremely powerful computing capability, and it is based on HPC architecture, of which the 2 main components are HBM and chiplets.

Since Camtek is their leading provider for inspection and metrology of HBM and since we are present at all Tier 1 customer in large number of inspection and metrology steps, the rate of requirement of incoming orders from HBM manufacturers is an important indication of the expected growth rate of HBM and HPC. The sharp increase in demand for HBM can be understood when comparing the revenue from our tools for HBM inspection and metrology in the first quarter of 2024 to historical rates. Until the first quarter of last year, HBM accounted for a single-digit percentage of our revenue. Starting from the second half of last year, we experienced significant growth in HBM sales, and they accounted for approximately 20%. This quarter, the revenue for HBM applications was 40% of our total revenue, and we expect this level to continue in Q2 as well.

We believe that this is a very strong indicator to the extent of production capacity built by the industry for this component, which are essential for high performance computing. As we mentioned in our last call, the Q4, the consensus among the analysts is that HBM and chiplet will continue growing in the coming years at an annual rate of 20% to 30%. And therefore, we believe that this segment will continue to be a significant part of our sales in the coming years. The advantage of being a major player in Tier 1 HBM and chiplets manufacturers is that we are constantly challenged by the most advanced technological requirements, enhancing our capabilities and knowledge in inspection and metrology. We have developed new solutions to meet our Tier 1 customers’ roadmap.

I use the term solution because it is a combination of new platform, new and advanced optical assemblies, special feature and AI-based algorithms. To sum it up, the field of AI changing the industry and Camtek is well positioned to benefit from these trends, which will give us more confidence in our ability to continue growing beyond 2024 and reach our next goal of annual sales of more than $500 million. And now Moshe will review the financial results. Moshe?

Moshe Eisenberg: Thanks, Rafi. In my financial summary ahead, I will provide the results on a non-GAAP basis. The reconciliation between the GAAP results and the non-GAAP results appears in the table at the end of the press release issued earlier today. The purchase accounting treatment from the FRT transaction is also included in our non-GAAP reconciliation. In addition, please note that the FRT results are included only starting from November 1, 2023. Going now to the revenues. First quarter revenues came in at a record $97 million, an increase of 34% compared with the first quarter of 2023 and an increase of 9% from the fourth quarter of 2023. The geographic revenue split for the quarter was as follows: Asia, 86%; China was a relatively lower part of the mix, because a good portion of our revenue this quarter came from HBM and chiplets; U.S. and Europe together are 14%.

Gross profit for the quarter was 49.1% — $49.1 million. The gross margin for the quarter was 50.6%, up from 47.3% in Q1 of last year and 49.2% last quarter. The improvement is a result of a more favorable product mix as well as the initiatives we implemented to improve the cost structure over the last few quarters. We anticipate to maintain these levels in the coming quarters. Operating expenses in the quarter were $20.1 million, compared to $16.9 million in the first quarter of last year and $18.2 million in the previous quarter. The increase is mostly due to a planned expansion to support the continued growth. Operating profit in the quarter was $29 million compared to the $17.4 million reported in the first quarter of last year, and $25.5 million in the previous quarter.

The increase is mostly due to the increase in the revenue and the improvement in the gross profit. Operating margin was 29.9% compared to 24% and 28.7%, respectively, Financial income for the quarter was $5.6 million at a similar level to the previous quarter and higher than the $5.1 million reported last year. The increase from last year was due to higher interest rate on cash — on our cash balance. Net income for the first quarter of 2024 was $31.3 million or $0.64 per diluted share. This is compared to a net income of $20.4 million or $0.42 per share in the first quarter of last year. Total diluted number of shares as of the end of the first quarter was 49.3 million. Turning to some high level balance sheet and cash flow metrics. Cash and cash equivalents, including short and long-term deposits and marketable securities, as of March 31, 2024, were $467 million.

This compared with $449 million at the end of the fourth quarter. We generated $20 million in cash from operations in the quarter on the back of increased revenue and good collection. I noted during April, the company paid $60 million as a dividend to the shareholders. The inventory level increased by approximately $7 million to $102.1 million. The increase over the previous quarter is to support the anticipated sales growth in the coming quarters. Accounts receivable decreased to $86.4 million in the quarter, despite the increase in revenue, primarily as a result of a strong collection in the quarter. Our days sales outstanding decreased to 81 days, down from 90 days. Guidance. As Rafi said before, we expect revenue of between $100 million to $102 million in the second quarter with continued sequential growth throughout 2024.

And with that, Rafi, Ramy and I will be open to take your questions. Kenny?

A – Kenny Green: Thank you, Moshe. At this time, we will start the question-and-answer session. [Operator Instructions] Our first question will be from Charles Shi of Needham. Charles, you may go ahead.

Charles Shi: Good afternoon and thanks for taking my question. So Q1, HBM plus chiplet, 60% of the total revenue. That’s a very impressive number. But I’m trying to recall that you guys were expecting these two applications to account for like a 30%-plus for the full year. Is that — should we expect a higher number for the full year now? Or well, it’s kind of like a moving target because it depends on our total revenue. But I want to get some sense, is Q1 in terms of HBM plus chiplet as a percentage, is it at the high point of the year? Or do you expect maybe Q1, Q2 maintain at this level, maybe Q3, Q4, maybe a slow down, I mean come down as a percentage a little bit? Thanks.

Rafi Amit: Ramy, you want to answer to that?

Ramy Langer: Yeah. Yeah. So — hi Charles. So definitely, yes, the numbers came higher than we expected when we were thinking about it and talking about it a couple of quarters ago. But definitely, the numbers are higher. And we assume and we said that the number is going for this year to be around 50%. It’s definitely going to be higher than we expected previously. And…

Charles Shi: Got it. So may I ask in the HBM and the Chiplet the revenue you guys are receiving so far? Is there any China contribution yet?

Ramy Langer: No. When you are talking here, this is not related to China, as Moshe, alluded in his prepared notes, it’s definitely the five big players we discussed, the main producers.

Charles Shi: Got it. Then the other question, you guys, I think this is the first a little bit of the longer-term guidance you provided 2025 revenue surpassing that $500 million milestone. I believe your current capacity — the max potential of your capacity is about at that level. So I wonder, do you think — what’s your thought on capacity expansion? Maybe you’re going to do some of that expansion this year, but I want to get some thoughts on how you think about the supply side of the equation. Thank you.

Ramy Langer: So — Hey Charles, so let me first of all correct you, when we spoke about $500 million, we are talking beyond — this is in the foreseeable future. This is the next target. This is not related for 2025. We are not in a position to say today what will be the revenues of the entire year 2024 and definitely not 2025. So this is regarding the $500 million, it will — they are not very clear. Regarding the capacity, and I think we mentioned it in previous calls, in the last expansion that we have made, we have today the ability to manufacture here in this facility over $500 million. So from the capacity, from our ability to meet the requirements, including the sub-suppliers in the supplier chain, we are ready to reach those numbers. But when we will reach them, that’s a different discussion, that we cannot discuss today.

Charles Shi: Yeah. That’s fair. Basically, it means that you won’t be supply constrained before your demand reaches that level. So maybe a last question, I think this is probably a good number that you guys disclosed that the Chiplet modules is 20% of the total revenue. When do you compare with the last year, is there any — also a meaningful up-tick on the Chiplet revenue as well? Because you did put a lot of emphasis on the HBM side, but really want to have a better understanding about Chiplet. And are you supplying to one or two customers already on the Chiplet side?

Ramy Langer: No, so definitely, there is a significant increase on the Chiplet side as well. And we are supplying to the two major players here. So from that point of view, we are covering the entire market. And definitely, there is an increase. The numbers were significantly lower when you go a year ago.

Charles Shi: Thanks so much.

Kenny Green: Thanks Charles. Our next question will be from Brian Chin of Stifel. Brian, you may go ahead and ask.

Brian Chin: Hi, there. Can you hear me, okay?

Kenny Green: Yeah. We can.

Brian Chin: Great. Good afternoon. Thanks for letting us ask a few questions. I guess, firstly, do you believe that an increasing portion of your shipments this year will be for 12-Hi HBM die stacking. And does your revenue opportunity increase in a linear fashion, when you move from 8-Hi or the industry moves from 8-Hi to 12-Hi HBM stacks?

Ramy Langer: So in general, Brian, it should mean an increase. But then on the other side, it’s going to be the ratio of HBMs per Chiplet. So going to a stack of 12 they would put less HBMs around the Chiplets. So I’m not sure what eventually the total numbers of DRAMs that will be scanned. So when you need to look at our business, we scan wafers. So we don’t scan it in the sense of a one die after the other. So we hear the question will be the number of DRAMs that are going to be used for the HBMs and this is going to really dictate what is going to be the growth factor from our point of view.

Brian Chin: Got it. Okay.

Ramy Langer: Is that okay? You understood the point, Brian.

Brian Chin: Yes, yes. I think I did. That’s helpful. And from a lead time perspective, how are you managing — I know, you have the ability, the shell footprint to be able to hit the eventual $500 million interim revenue target. But in terms of the fast progression of this ramp, how are you managing from a lead time perspective? And are you at this stage basically booking into 4Q?

Ramy Langer: So first of all, let’s talk about the lead times. So from the lead times, I think our customers have given us enough lead time in order to run. And today, I would say we — the lead time is three to six months. So from that point of view, we have enough time to ramp the business and get the inventory influence to be able to meet the demand.

Rafi Amit: Additional remark for the lead time. Usually, this — what we call high performance computing, HBM and chiplet is done by the biggest player in the industry, and they are well organized, and they can place order for, let’s say, even a year ahead. When we talk of other segment, usually, like OSAT or other, their lead time is much shorter in general. So it’s depending on the mix product and then we can see also the related to the lead time as well.