Camtek Ltd. (NASDAQ:CAMT) Q3 2022 Earnings Call Transcript

Camtek Ltd. (NASDAQ:CAMT) Q3 2022 Earnings Call Transcript November 17, 2022

Camtek Ltd. beats earnings expectations. Reported EPS is $0.48, expectations were $0.47.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Camtek’s Third Quarter 2022 Results Conference Call. All participants are present in listen-only mode. As a reminder, this conference is being recorded. You should’ve all received by now the company’s press release. If you have not received it, please contact Camtek’s Investor Relations team at EK Global Investor Relations at 1-212-378-8040 or view it in the news section of the company’s website at www.camtek.com. I’ll now like to hand over the call to Mr. Ehud Helft of EK Global Investor Relations. Mr. Helft, would you like to begin, please?

Ehud Helft: Yes. Thank you, Operator. I would like to welcome all of you to Camtek’s third quarter 2022 results conference call. Let me remind you everyone that this conference call is being recorded, and the recording will be available on Camtek’s website within a few hours of the call. With me today on the call, 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 take your questions. Before we begin, I would 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 statements and I’ll refer you to our Safe Harbor statement that you can view it in press release. Furthermore, during this call, certain non-GAAP financial measures will be discussed. These are used by management to make strategic decisions, forecast future results and evaluate the company’s current performance. We believe that the presentation of non-GAAP financial measures is 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 is included in today’s earnings release. And now I’d like to hand over the call to Rafi Amit, Camtek’s CEO. Rafi, go ahead please.

Rafi Amit: Thanks, Edward. Good morning or good afternoon everyone. Camtek ended another quarter of continued revenue growth. Third quarter revenues were a record of $82 million, a 16% increase year-over-year. Gross margin came in at 49% and operating margin at 28.3%. Close to 60% of our revenues came from Advanced Interconnect Packaging applications. Heterogeneous Integration and HBM account for over 30% of this segment. We continue to expand our customer base. We sold system to 42 new customers in the first nine months of this year. Specifically, we are cementing our position in the front-end and compound semi segments. These two segments accounted for approximately a quarter of our revenues. As widely reported, consumer demand for PC and mobiles is down.

As a result the contribution of CMOS Image Sensors related system to this year’s revenue will be slightly below 10%. This quarter, we continued to strengthen our position in the U.S. and Europe due to major industry investment made there. U.S. and Europe accounted for 27% of our sales versus 21% last quarter and 12% in Q3 of last year. Q4 revenues are expected to be similar to those of Q3 translating into record annual revenue of around $320 million for 2022. The company diversified exposure to multiple customer’s secular trends and territories contributed to our success. Last month, the U.S. Commerce Department announced new regulations restricting the sales and support of semiconductor equipment for advanced nodes in China in both Memory and logic.

Our customers in China are mainly assets in the Advanced Packaging segment all manufacturers of trading edge silicon wafer. We continue to evaluate the impact of such restrictions on Camtek, but based on our initial assessment, we believe that the direct revenue impact will be marginal, if any. The global economy is projected to decline in 2023, and expected to affect both wafer fab equipment in general and even more so in the Memory segment. 2023 is expected to be a challenging year for the industry with customers being more cautious. We believe that although Camtek’s business model is not immune, it is however more resilient. I will point few presents. One, we support a technology change in the industry of transition to Advanced Packaging and Heterogeneous Integration.

60% of our business is related to these segments. This strength is expected to continue

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Ehud Helft: Rafi, we can’t hear you.

Rafi Amit: Operator, can you hear?

Q&A Session

Operator: Mr. Ramy Langer would you like to continue please.

Ramy Langer: Thank you. And I apologize we have a technical issue and I will continue on Rafi’s behalf. And I will pick up where he start. And as we said, we believe that Camtek’s business model is not immune. It is however more resilient and let me give you the reasons for it. First, is we support a technology changing the industry of transition to Advanced Packaging and Heterogeneous Integration. 60% of our business is related to these segments. This trend is expected to continue in the next two years. Furthermore, the sales to the Memory segment are limited to DRAM only, which historically accounted for less than 5% of our total business. This segment, we mainly support the transition of the high bandwidths Memory, which is growing based on orders we have on hand and in the pipeline we expect increased sales in this space next year.

Also, the increasing complexity of wafers being manufactured today means that manufacturers require ever more advanced inspection systems in their facilities. We believe that the field of inspection and the segments in which we operate will be less affected in the event of a slowdown. Moreover, Camtek has a wide and diversified customer base. This quarter alone, we sold systems to more than 40 different customers and added eight new customers. Altogether, we have over 250 active customers. Despite the positive factors that I’ve outlined, we are progressing cautiously into the New Year. We’re carefully monitoring our balance sheet items such as inventory levels and account receivable as well as our headcount. However, we continue to invest in R&D and plan to introduce new products and capabilities next year, securing our long-term growth path.

I would like to conclude by stating that semiconductor is a strategic industry and all leading countries are heavily invested in it. We expect that in 2023 the semiconductor industry will likely decline. Camtek is also not immune, but we believe our leading position, wide customer base and longer term strategic relationship with customers will enable our business to be more resilient than the overall semiconductor industry. I would like to hand over to Moshe for a more detailed discussion of the financial results. Moshe?

Moshe Eisenberg: Thank you, Ramy. 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 tables at the end of the press release issued earlier today. Third quarter revenues came at the record $82 million an increase of 16% compared with the third quarter of 2021. The geographic revenue split for the quarter was as follows; Asia accounted for 73%; in U.S. and Europe for 27%. Gross profit for the quarter was $40.2 million. The gross margin for the quarter was 49% versus 50.9% in the third quarter of last year. Indeed, it is below the typical range of our gross margin model and this quarter it was mainly driven by a less favorable product mix resulting from a few large orders and it does not represent a meaningful trend.

We expect some improvement in our gross margin in the fourth quarter. Operating expenses in the quarter were $17 million, an increase of $2.7 million compared to the third quarter of last year and $300,000 compared to the previous quarter. The increase from last year is mostly due to the increase in R&D expenses and sales related activities to support increased revenue. Operating profit in the quarter was $23.2 million compared to the $21.7 million reported in the third quarter of last year, and $23.2 million in the previous quarter. Operating margin was $28 million in the previous quarter. Operating margin was 28.3% compared to 30.6% last year and 29.9% in the previous quarter. Net income for the third quarter of 2022 was $23.3 million or $0.48 per diluted share.