Camtek Ltd. (NASDAQ:CAMT) Q1 2023 Earnings Call Transcript May 10, 2023
Camtek Ltd. beats earnings expectations. Reported EPS is $0.42, expectations were $0.41.
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. [Operator Instructions]. 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 the company’s press release. If not, please view it on the company’s website. With me today on the call, we have Mr. Rafi Amit, Camtek’s CEO; and 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 trends, and 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. 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 events, changes and 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 a 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 from [indiscernible] customers in these countries, changing industry and market trends, reduced demand for services and products, time when a development of 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 company’s filings with the SEC.
Please note that the safe harbor statements and today’s press 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 current 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 press release. And now I’d like to hand the call over to Rafi, Camtek’s CEO. Rafi, please go ahead.
Rafi Amit: Thanks Kenny. Good morning or good afternoon, everyone. Camtek closed the first quarter with revenue of $72.5 million. The gross margin came in at 47.3%, affected mainly by product mix and cost increase of some of the components. Operating margin was 24%. Over 60% of our revenue came from advanced interconnect packaging applications. Front-end and compound semi segment accounted for about 20% of our revenue. In the first quarter, we shipped multiple system orders to 6 Tier 1 customers in the field of advanced packaging and heterogeneous integration. These orders accounted for over 40% of the quarterly revenue. Regarding the DRAM field, customers in the HBM segment account for over 10% of our revenue. If our revenue in Q1, which represents a significant increase over Q1 last year.
Photo by Austin Distel on Unsplash
We see expansion of our DRAM business in spite of the decline in the memory market. In the front-end segment, we delivered a system with a new other module for the first time. These systems were installed at 2 customers. This module will expand our inspection capability in the front-end segment and we anticipate potential for growth at this customer and other in the coming quarters. We installed 2 Golden Eagle systems for pattern inspection at a new customer site for fan-out application. We plan to ship additional systems to this customer in Q2 and Q3. During the first quarter, we received an order for 9 systems from a Tier 1 customer for advanced packaging to be delivered in the second and third quarters of this year. Regarding the second quarter, we estimate the sales to be similar to Q1 ’23, which represents a decline of 9% year-over-year.
As we have stated in our previous call, we continue to believe that our leading position in specific segments, broad and diversified customer base and long-term strategic relationships with customers will enable us to outperform the industry. Regarding the second half of ’23. Based on our discussions with customers, there is a potential for a moderate improvement in the business situation of our customers. At this stage, and considering the lead times which are becoming shorter, it is hard to foresee when this potential translate into orders. At times like this, when the world is experiencing an economic slowdown, we conduct our business with utmost care. We are monitoring our expenses carefully and adjusting them to the current situation rather than to the long-term forecast.
The field in which we cannot afford to reduce expenses is R&D because our customers continue to develop a new technology such as hybrid bonding and erogenous integration. They set a very aggressive road map with a very tough schedule, thus committing us to offer solutions on time. At the same time, we are aware of the fact that transition from slowdown to growth is swift in our segment. That is why we need to maintain a sufficient inventory that will allow us to meet the requirement for quick delivery of systems. Looking at the investment and increasing capacity in the R&D road map that our major customers are making in relevant segments we are optimistic about growth potential. The release of new products later this year will expand our portfolio, allowing us to penetrate new applications.
In addition, we continue our efforts in the M&A we will further increase our total available market. And now Moshe will review the financial results. Moshe?
Moshe Eisenberg: Thank you, 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 appear in the table at the end of the press release issued earlier today. First quarter revenue came at $72.5 million, a decrease of 6% compared with the first quarter of 2022. The geographic revenue split for the quarter was as follows: Asia was 90% and U.S.A. and Europe accounted for 10%. We expect to return to the 80-20 mix for the year as a whole. Gross profit for the quarter was $34.3 million. The gross margin for the quarter was 47.3% versus 52% in the first quarter of last year and 49% last quarter. This decline is a result of the sales mix as well as continued inflationary pressures on raw materials and labor, which we cannot fully pass on to customers.
As we mentioned last time, we have initiated a process focused on improving the gross margin through engineering and design changes, which in some cases, require customer qualifications as well as supply chain initiatives. We expect gradual improvement in the gross margin from the current level. But I note that it will take time until we see the full benefit of this step. Operating expenses in the quarter were $16.2 million. This is compared with $18 million in the first quarter of last year and to the $17.4 million reported in the previous quarter. The current strength of the U.S. dollar versus the Israeli shekel is beneficial to our current operating expenses level. Operating profit in the quarter was $17.4 million compared to $22.2 million in the first quarter of last year and $22.8 million reported in the previous quarter.
Operating margin was 24% compared to 28.8% last year and 27.8% in the previous quarter. The decline is due to the decrease in business volume and gross profit. Financial income for the quarter was $5.1 million compared with $3.8 million in Q4 and only $400,000 last year. The majority of the increase relates to the significantly higher interest rates on our deposits on an increased cash balance. Net income for the first quarter of 2023 was $20.4 million or $0.42 per diluted share. This is compared to a net income of $21 million or $0.44 per share in the first quarter of last year. Total diluted number of shares as of the end of Q1 was $48.4 million. Turning to some high-level balance sheet and cash flow metrics. Starting from cash. Total cash, including cash, cash equivalents, short and long-term deposits as of March 31, 2023, was $493 million.
During the first quarter, we had a positive cash flow, and we generated $17.1 million in cash from operations. Accounts receivables decreased from $81 million at the end of last quarter to $66 million, primarily due to a strong collection within the quarter. Days outstanding for Q1 were 84 days, down from 90 days last quarter. Inventory level was at similar level as of last quarter. In terms of guidance, in Q2, we expect revenue at a similar level as achieved in Q1. And with that, Rafi, Ramy and myself will be open to take your questions. Kenny?
A – Kenny Green: Thank you, Moshe. [Operator Instructions]. Our first question will be from Brian Chin of Stifel.
Rafi Amit: Okay. I would like to thank you all for your continued interest in our business. I want to especially thank the employees and my management team for their tremendous performance. To our investor, I thank you for your long-term support. I look forward to talking with you again next quarter. Thank you, and goodbye.
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