Camtek Ltd. (NASDAQ:CAMT) Q2 2024 Earnings Call Transcript

Camtek Ltd. (NASDAQ:CAMT) Q2 2024 Earnings Call Transcript August 1, 2024

Camtek Ltd. beats earnings expectations. Reported EPS is $0.66, expectations were $0.64.

Operator: 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 question-and-answer session. I would like to remind everyone that this conference call is being recorded and the recordings will be available on Camtek’s website from tomorrow. You should have all by now received the company’s press release and if not, you can 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 begin 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 conference 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 that information or any of those 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 risk 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 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 reductions, as well as due to other risks identified in the company’s findings 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 a company’s ongoing core operations and prospects for the future. A full reconciliation of non-GAAP to GAAP financial measure – GAAP financial measures are included in today’s earnings release. And now I would like to hand the call over to Rafi Amit, Camtek’s CEO. Rafi, please go ahead.

Rafi Amit: Okay, thanks Kenny. Good morning or good afternoon everyone. Camtek ended this quarter with a record quarterly revenue of $102.6 million, representing 40% growth, compare with Q2 2023. The distribution of revenue in this quarter is over 50% of our sales were for high performance computing related products for the second quarter in a row. Approximately 15% for OSATs, mainly for Advanced Packaging, and the rest were split between silicon carbide, front-end CMOS Image Sensors and other applications. This trend of product mix resulted in increased profitability and I am very pleased with the improvement of achieving a gross margin of 51% and operating margin of about 30%. The demand in the HPC segment is reflected in the PR we issued a few days ago with an announcement about receiving multiple systems order of over $25 million from a global Tier 1 customer to inspect HBM wafers.

Q&A Session

I am happy to share with you that since we issue the PR, this customer added $6 million, bringing the entire order to over $31 million. The industry trends regarding high performance computing modules is also reflected in our view of our future revenue. Based on our current orders, flow, backlog and pipeline, our revenue guidance for the third quarter is $107 million to $110 million, representing in the midpoint about 35% growth year-over-year. We expect continued growth in the fourth quarter as well. The main growth driver in the semiconductor market is HPC modules for generative AI, for which we are a key equipment provider. Our revenues in this quarter have grown three times since Q2 2023. From order we have on hand our pipeline and from discussion with customers, we expect demand for our system for HPC related products to continue in the second half of 2024 and into 2025.

HPC modules include mainly chiplets, HBM and silicon substrates. The production technologies of HPC modules are developing rapidly, which require our continued development of advanced and cost effective solutions. For example, one of our new key challenges is measuring and inspecting wafers with an extremely high number of micron level interconnects at a very fine pitch. The industry is moving from a pitch of tenths of micron to a single-digit pitch. Moreover, customers use more inspection steps to maintain high yield and they are evaluating our systems in process steps. We have not participated in before. So we can see high potential for expanding our business with our current and new generation systems. Our new generation systems that we completed developing are equipped with state of the art sensor and optics to perform all types of inspection, 3D bumps measurement and metrology.

That we believe will address the current and the next-generation HPC related products at high volume manufacturing throughputs. We also expect OSATs to implement packaging capabilities for HPC. This trend will allow fabless and IDM companies to start producing HPC module that will be suitable for AI and additional applications. We expect that our strong position within the OSATs will benefit us with this industry shift as well. Clearly, a major growth in demand for capital semiconductor equipment is generated from the reality where countries with leading economics such as U.S., Japan, China and Europe consider advanced semiconductor components as strategic national assets. And therefore expand their design and production capabilities by establishing new manufacturing facility in their respective countries.

Concern regarding geopolitical changes only accelerate the decision of those countries to have local infrastructure for the manufacturing of semiconductor components. The strong order flow sum for delivery in 2025 and the high demand for HPC gives us a relatively clear long term vision, which allows us to organize our operation efficiently to meet the expected demand. To sum it up, the demand for HPC together with industry analyst forecast for a growing demand for end products such as mobile phone and PC and the establishment of new facilities in key countries make us believe that we will continue growing in 2025. And now Moshe will review the financial result. Moshe?

Moshe Eisenberg: Thanks, Rafi. In my financial summary ahead, I will provide the results on a non-GAAP basis. The reconciliation between GAAP results and the non-GAAP results appears in the table at the end of the press release issued earlier today. Revenue for the first quarter came in at a record $102.6 million, an increase of 39% compared with the second quarter of 2023, an increase of 6% from the first quarter of 2024. The geographic revenue split for the quarter was as follows. Asia, 92%. U.S. and Europe accounted for 8%. The higher the normal contribution from Asia relates mainly to the big demand for HBM, which is currently manufactured in Korea and Taiwan. Gross profit for the quarter was $52.4 million. The gross margin for the quarter improved to 51%, up from 50.6% in the first quarter of 2024 and 48% in the second quarter of last year.

This is mainly due to a more favorable product mix in the quarter and our ongoing efforts to improve the cost structure of our products. We anticipate that gross margin will remain at a similar level in the coming quarters. Operating expenses in the quarter were $21.6 million, compared to $17.1 million in the second quarter of last year and $20.1 million in the previous quarter. The increase is mostly due to planned expansion to support growth of operations. Operating profit in the quarter was $30.8 million, compared to $18.3 million reported in the second quarter of last year and $29 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 30% compared to 24.8% and 29.9%, respectively.

Financial income for the quarter was $5 million, slightly lower than the $5.8 million reported in the second quarter of last year and $5.6 million in the previous quarter. The decrease is mostly due to the lower cash balance following the $60 million dividend paid in April, slightly offset by the cash generated throughout the quarter. Net income for the second quarter of 2024 was $32.6 million, or $0.66 per diluted share. This is compared to a net income of $21.9 million, or $0.45 per share, in the second quarter of last year. Total diluted number of shares as of the end of the second 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 June 30, 2024 was $454 million.

This compared with $466 million at the end of the first quarter. We generated $49 million in cash from operations in the quarter on the back of increased revenue and a very strong collection. Inventory level increased by $7 million to $109 million. The increase over the previous quarter is to support the anticipated sales growth in the coming quarters. Despite the increase in revenue, account receivables decreased from $86 million to $68.2 million in the quarter, as a result of strong collection in the quarter. Our days sales outstanding improved significantly from 81 days to 61 days. Finally, we expect revenue of between $107 million to $110 million in the third quarter with continued sequential growth in Q4. And with that, Rafi, Ramy and I will be open to take your questions.

A – Kenny Green: Thank you, Moshe. [Operator Instructions] Our first question will be from Charles Shi of Needham. Charles, please go ahead.

Charles Shi: Hi, good afternoon. The first question I want to ask, what’s the thought? What’s the current estimate from management on the overall contribution of HPC module for the full year?

Rafi Amit: Charles, I think as we discussed in previous meetings, we expect the overall contribution from HPC or both HBM and chiplets modules to account to anywhere between 50% to 60% for the entire year.

Charles Shi: Okay. So let’s say relative to like 90 days ago, is the percentage moving up? Or you think it’s still in a similar ballpark?

Rafi Amit: I think it’s in a similar ballpark.

Charles Shi: Okay. Thank you. Maybe the second question, do you see the HBM versus chiplet, the mix going into second half? Any changes to that? Because you did disclose for Q1, roughly, HBM versus chiplet is a 2:1 ratio, but you didn’t provide a number for Q2. If you can provide that number, that would be great. But more importantly, what would be the ratio of the second half?

Rafi Amit: So the ratios will change, will vary from one quarter to the other. In general, I think it will be more accurate to talk about the entire number, which will be anywhere between 50% to 60%. But overall, both markets are pretty stable.

Charles Shi: Thank you. Maybe one other question for Moshe on gross margin. Definitely gross margin has been improving every quarter. Well, actually, since I would say first quarter, 2023. What’s the expectation for the next two quarters? 51% in June, which is great. But do you see sequential improvement from here for next two quarters?

Moshe Eisenberg: Indeed, gross margin has improved in the last several quarters. This was a result of an ongoing efforts to improve the cost structure and obviously the product mix. We think that anywhere between 50% to 51.5% is a good range. You know, it’s really depending on a product mix from quarter-to-quarter. So I don’t want to commit now for the next couple of quarters, but this will be within this range that I’ve mentioned.

Charles Shi: All right. Thank you.

Kenny Green: Thanks, Charles. Our next question is going to be from Brian Chin of Stifel. Brian, please go ahead.

Brian Chin: Hi there. Good afternoon. Thanks for taking a few questions. Maybe just a question on sort of your other more traditional and legacy businesses and like wafer level packaging, specialty, et cetera. The implication this year is that 50%-ish of your revenue is maybe even down this year, year-on-year. Are you starting to see improvement, even sequentially on some of that revenue or kind of building some visibility towards growth in that business? Any kind of color you can provide would be helpful.

Rafi Amit: So Brian, we spoke about it and I can say that definitely we see improvement on our other businesses. Even this quarter in a sense is already, I think there is some improvement. And as you can see, our overall, what we saw for advanced packaging, it’s close to 70% compared to 80% it was last quarter. In this quarter, we’re starting to see some pickup on the OSAT business. Definitely, we’re getting good indication about some business from the CMOS Image Sensors. And overall I think next year we will see an improvement what we are reading, what we understand from customers that what we call our traditional businesses will definitely be better than this year.

Brian Chin: Okay. That’s helpful. And back to the sort like the AI packaging inspection and metrology business for you. Other companies, not necessarily even competitors of yours who break out some of their customers or their business that they’re seeing. They’ve seen even this earnings season maybe, a lot of that business being dominated by a large Korean customer and then even seeing a bit of a period of digestion as that customer kind of takes a breather from buying and they’ve seen sort of maybe a pause in the business. Are you – in terms of your business, are you seeing more diversification across maybe the main HBM players? There’s a few people on the chiplet side. Are you seeing those kinds of trends or is it kind of more diversified in terms of your business?

Ramy Langer: So first of all, we – there was a discussion and we heard some comments about the pause or digestions. We did not see it. And this is really more related to the relevant customers on the HPC segment. The steps that you are doing, it’s a little bit more complex. But at least from the business that we are doing with all the players on the HPC market, we do not see a pause. The business is stable. And I think as Rafi said in his remarks, in the prepared remarks, we definitely see this business continuing into 2025. So from that point of view, we do not see it.

Brian Chin: Okay. And maybe just one last thing. When you have the press release to talk about the 25 million of HBM orders for second half this year into next year. When that customer comes back and adds another 6 million on top of that, is that their misjudgment of the type of coverage that they need relative to maybe the challenges that they have in their business, or is there some other circumstance behind that?

Moshe Eisenberg: So first of all, I’m not aware for the real reason, but these customers are big customers and it’s not going to be. They continue to buy machines and they will continue to buy machines. In this instance, there was some adjustments to the number as they felt that they wanted a few more machines. And I think what you are seeing, and I think the sense is that our customers are predicting that this business is going to grow and they are ready to invest because they are very confident about their future business in the foreseeable future.

Brian Chin: Great. Thank you.

Kenny Green: Thanks, Brian. Our next question is going to be from Craig Ellis from B. Riley. As a reminder, if you would like to ask a question, please raise your hand the platform. And Craig, you may go ahead and ask.

Craig Ellis: Yes, thanks for taking the question. I wanted to start off just by asking a follow-up to Rafi given comments regarding expectations for OSATs to add HPC and chiplet related capacity to be a bigger part of the supply chain there. The question is this, Rafi, where are we now in OSATs actually building out the degree of capacity that they’ll need? And how do you expect that to play out for Camtek, both in the second half of this year and in 2025 for your business?

Ramy Langer: Rafi, you want to answer? You want me to take this answer? I think…

Kenny Green: Rafi, you’re on mute.

Rafi Amit: I’m sorry. I’m sorry. Yes, I’m sorry. I was in mute.

Ramy Langer: I was afraid I left you speechless there, Rafi.

Rafi Amit: Look, as we said, our visibility usually is in general it’s about two quarters ahead and over that we can read analyst forecast and discussion with customers. They prepare their budget for next year in the coming few months. So based on all the information, as Ramy mentioned, as I mentioned, we definitely can see that the HPC business continue growing. We mentioned, I think few quarters that the analysts talk about over 20% growth in some product, even over 30% growth year-over-year. And I must tell you that what we see today, this is the growth rate that we can see from our customer from discussion, but we don’t see any change right now. Now, and even the customer that just Ramy mentioned, he didn’t say this is for 2025, this is just what he need today. And he definitely predict to place more order in the next few months. So we are very optimistic in that type of product and we are organized for delivery it.

Ramy Langer: Let me add, Craig, you spoke OSATs.

Craig Ellis: Yes, thank you.

Ramy Langer: So definitely we know today more than we knew a few weeks ago. Definitely some of this capacity of what is called the [indiscernible] like capacity is starting to move to OSATs. And we are getting some discussions from OSATs that are talking to us about business in 2025. This one, it will happen. And it’s in the process. It will come in 2025. And obviously the OSAT is an area that we are very strong. So we believe that this is a positive move from our point of view.

Craig Ellis: Okay. So it sounds like, Ramy, if I’m hearing you and Rafi correctly, that the engagement with the broader ecosystem as well as with OSATs is in the realm of what we would call discussions for the pipeline. And the pipeline is starting to look good. And as the calendar clicks forward, we would expect that to convert into firm orders, as we’ve seen in the last month of July, where you had 45 million and now one upside by 6 million. Is that right?

Ramy Langer: In general, you’re right. I don’t want to get into numbers, but definitely our pipeline looks good, and this will start to convert into [indiscernible].

Craig Ellis: That’s helpful. And then the second question is for Moshe. So, Moshe, I think we’ve heard Rafi identified that business activity overall is lending the kind of visibility that results in more efficient operations. And I would expect that to be a tailwind for gross margin. But I know the company’s also been working hard on things like input costs and other manufacturing optimizations. As we look at the business now and as we look at the improvement in gross margin over the last year, how much of that is just volume versus some of the company controllables? And as we look ahead, what are the levers to drive gross margin incrementally higher from where we are today? Thank you.

Moshe Eisenberg: So really, on the gross margin level, volume has certain contribution, but not as much as on the operating level, since most of the expenses are direct expenses. Absolutely, the fact that we can organize ourselves ahead of time is a big contribution to the overall efficiency. How much is that exactly translates into improvement in gross margin? It’s a little bit early to say, but it should help smooth out the operation with hiring people with processes. But again, it’s a bit early to say how much of that will contribute to the gross margin.

Craig Ellis: Okay, got it. Thanks, team. Appreciate the help.

Rafi Amit: Thank you.

Kenny Green: Thanks. As a reminder, if you have a question, please raise your hand on the platform. Our next question is going to be from Vivek Arya from BofA. Vivek, please go ahead.

Unidentified Analyst: Hi, this is Michael Moni [ph] on from Vivek Arya. Thank you for allowing us to ask a few questions. So I think a couple of your HBM customers have provided very strong guidance for volume and sales into 2025, and so does your confidence in hitting that eventual 500 million sales target increase. In other words, do you feel more confidence that you’d be able to hit it maybe earlier than expected, given the increased intensity of orders. And in addition, how much of attaining that target is contingent on a recovery in your more traditional business? Thank you.

Rafi Amit: Let Ramy – maybe let me, I will start and you can complete it. Okay. I would say, the gross rate depend on two major issue. Number one is the market. And some customer maybe have great demand, but they don’t have enough facility. It takes time to build facilities. So even if they want, they cannot build everything they want. So it’s not everything depends on us. We can provide system, but sometimes the facility is not ready for installation and running production. So there are too many elements that affect the overall requirement. So from our side, we feel very comfortable with our ability to build machine, to deliver machine, and to keep our competitiveness because customers ask for more feature, for more special requirement and we feel very comfortable, definitely after we complete a lot of R&D effort to meet the future demand.

So everything depend on us. We believe we did everything to maintain our market and potential growth. Now we have to go to the market. We have to be sure that customer having enough capacity and their infrastructure, they can expand it and have enough room to put the production line and to meet the market demand. So the market demand is there. We are ready. The next question is if all our direct customer can do it, can really make their facility ready for the demands.

Unidentified Analyst: Understood. Thank you. And maybe one on your next, your upcoming platform. So nice to hear this additional color on this next generation system. Do you have any updates on when we’d expect this to be released on market? Is this more geared towards hybrid bonding as an application? And what kind of uplift from ASP do you expect?

Rafi Amit: Ramy, do you want to give some information?

Ramy Langer: Let me start. So first of all, I think that at this stage it’s too early to provide more information. It’s definitely we will provide, I would say we will start to provide more information to the public in the next few months. It’s not something that will take tomorrow and we’re not at this stage really ready to say more information. What I can say definitely that there will be an ASP improvement on these new products.

Rafi Amit: Now, as we said, for example, just to be clear about it, that we could see some of them. For example, as I mentioned in my script, that customer move from about, let’s say, 100 million bumps per wafer to 500 million bumps per wafer. It’s a lot. It’s totally five times more. And we have to – we need to develop solution now. It’s not enough to inspect it in the fine pitch. Also, customer look on the efficiency on the economic. You want to be sure that it can meet its cost. So altogether is a lot of parameter that allow customer to maintain its cost structure and to make – to get a good result. So some of that is still in the beginning. Not all of them are already in high volume. This is – they finish the R&D. They start moving from R&D to production and we will see it. I believe in the next year we can see more and more very tough, I would say the application moving to high volume.

Unidentified Analyst: Thank you very much.

Kenny Green: Thanks a lot. Our next question will be from Vedvati Shrotre from Evercore. Vedvati, please go ahead.

Vedvati Shrotre: Hi, thanks for taking my question. So the first one I wanted to understand was the remaining pieces of your business. You talked about strength in the traditional markets like the compound semi CIS front end. Could you give us a sense of how the revenue split out between the three and the specific area where you’re seeing more strength versus 90 days ago?

Rafi Amit: So I think in general we’re seeing improvements, I would say mainly in the front end and the compound semi. Definitely these, we see some improvements as we speak. On the CMOS image sensors, we’re getting indications for improvement. I would say, late this year, beginning of next year. And the overall business of what we call the non-HPC business, definitely the OSAT business is already stronger this quarter than it was in previous one. And we’re expecting these businesses to start to grow in the coming quarters. So definitely that’s a very important part of the business. And I’m confident at this stage now, from the numbers that I’m seeing that we will continue to see these improvements in the next few quarters.

Vedvati Shrotre: And would you provide a split of how the revenue split between the three? Is that something you can provide?

Rafi Amit: I can say that what I can tell you that this quarter, for example, the compound in the front, they’re, well, about 15%. It’s a little lower. I mean, I would have expected in a better quarter to be closer to 20%, maybe even higher. The CMOS Image Sensor is really very low at this stage. It’s ones and twos. Definitely this is something that should be in the range of about 5% when we take about the overall business. So these are the numbers and we’ll see. I think they will improve as we move along.

Vedvati Shrotre: Thank you. That’s very helpful. And then the next question I had was on your next generation systems that you talked about, is this, I understand that this is to address applications like the number of bumps increasing, but are you also kind of penetrating into the inspection steps. And another question I had here was how does the qualification process work? Like you have the products kind of shipping in, I think a little bit into your customers. But how much time does it take to really qualify this into the fab lines?

Rafi Amit: So that’s a good question Vedvati. Yes. So first of all, we’ve already started with the process of qualification, as we said in our prepared remarks. And this differs, I mean in a lot of our customers that know us and look at the qualification and the, I would say, testing that we have done here at Camtek and would accept it as part of the evaluation process. They might ask us to run some wafers and we would do it for them and they would buy the equipment. And other customers, it would take very few months of running the machines, but overall it depends on the application. But in a lot of the cases, the, I would say that the evaluation, it’s maximum in weeks or very few months to cases they will accept our equipment based on the results and the testing that we’ve done internally.

Vedvati Shrotre: Got it. And is this addressing the newer generations? Are they addressing more inspection step now versus your Eagle platform? What would you say is the biggest differentiator?

Rafi Amit: So first of all, a lot of it is inspection. But a lot of our business today is inspection. Even when we talk about Advanced Packaging, HBM, the chiplets, a lot of this is doing also inspection stages. This is metrology and inspection. I would say in general our inspection business is much larger than our metrology business. And I think one of the advantages that we bring on our machine that it would do metrology and inspection. No doubt our inspection today is state of the art. We expect to continue and increase. This is a large market, there is a lot of market share that we can run after and we definitely expect that with the newer machines we’ll increase our market share in the inspection even further.

Vedvati Shrotre: Got it. That’s helpful. And I’ll just squeeze in one last one. So can you talk about, how – what you’re seeing in the China markets and how that has done in the first half of 2024? I know you don’t break it out on a quarterly basis, but any color there would be helpful given the trade concerns that have been coming on.

Rafi Amit: So, I would say that things have not really drastically changed with China. The government there is backing this industry. This is a strategic move for China and we definitely see more and more investments there all around in the trailing-edge fabs. And this is where we are playing in the front-end and we’re seeing a lot of also business expansion, including Advanced Packaging. So we do not see a weakness in China. We see stability and continued of investment and we expect to see this business continuing to grow.

Vedvati Shrotre: I see. Could you give a sense of how that China splits out Advanced Packaging versus trailing-edge fabs, if you could provide any color, is one bigger than the other? That would be helpful.

Rafi Amit: I think for us in general, we’ve been in our business primarily has been in the trailing-edge. And it’s mixed signal, automotive applications and this has been our main market, our target market. In general, we’ve not been running after, I would say the, leading-edge nodes in China and this has not been our target market.

Vedvati Shrotre: All right, thank you very much.

Operator: Thanks, Vedvati. Our next question is from Tom O’Malley of Barclays. Tom, please go ahead.

Will Levy: Hi all, this is Will Levy on for Tom O’Malley. Thank you so much for taking my question. Just had a question on the FRT acquisition. How is it trending since you acquired it? And are the upsides you guys are seeing in Advanced Packaging? Any of this attributed to FRT at all?

Moshe Eisenberg: All in all, I can say, and Rafi, I will start and maybe you can.

Rafi Amit: Okay, fine.

Moshe Eisenberg: So all in all, we are very happy with the acquisition and obviously there is an effort to integrate FRT into Camtek and this is underway. From the business side, we’re definitely seeing opportunities. The upside is not coming from FRT. FRT is still, as we said, it’s a relatively small business this year, we said we gave a target of roughly $30 million. We will meet this target. So definitely it’s not yet in the big numbers. We see opportunities. We are talking with customers. I think that in general, customers are very excited about the fact that we acquired FRT. They are very happy. I believe that we will get a significant numbers, a significant business as we move forward and continue to integrate FRT. We’ll get a lot of opportunities there.

Opportunities that will enlarge the FRT business and also create new opportunities for us. So to summarize, definitely we are on track with the FRT acquisition and in the, our thought process that it will complement our business and we will be able to sell these products through our sales force are indeed correct.

Will Levy: Got it. Thank you.

Operator: Thanks. Our next question is from Gus Richard from Northland. Gus, you may go ahead and ask a question. Gus, you’re still on mute.

Gus Richard: Apologies. Thanks for letting me ask a few questions. In terms of HBM going from HBM 3 to HBM 4, does your inspection intensity increase and do you have a sense of by how much?

Rafi Amit: Gus, I think it’s a little bit too early at this stage to really pinpoint the steps that we will do on the HBM 4. It’s also based on the final, I would say, configuration or the technologies and processes that our customers will use. But definitely a lot of our business in general in HBM are coming from inspection. And yes, that’s an area that will probably intensify as these technologies move to hybrid bonding.

Gus Richard: Got it. And then in terms of hybrid bonding, just clearly your intensity goes up both for chiplets and CPU’s and SRAM.

Rafi Amit: Definitely.

Gus Richard: Got it. And then of your Advanced Packaging, how much these days is fan-out?

Rafi Amit: Well, it’s hard. In general, if we talked about close to 70%, about 20% is 15% to 20% is our traditional, what we call OSAT is about 15%. And the rest of other customers doing what we call wafer level packaging. Fan-out is a big number out of it. So, I don’t have the number exactly in front of me, but definitely fan-out is a market that is growing. There are many opportunities there and we have developed some new steps to address some of the challenges there. And it’s going to be a number that, in the range of 10% plus and in how far a business.

Gus Richard: Got it. And this is a difficult question. Having forbid [ph] things tensions escalate in the Middle East. But I’m just wondering how you guys are thinking about contingency plans. Is it impacting your business? And if it does get significantly worse, how do you manage through it?

Rafi Amit: So, first of all, the team here in Israel is prepared for several scenarios and we expect to be able to meet our commitments. And this means including deliveries, customer support and development. I think we went through it and this is the situation. And obviously, longer term, we are also thinking about production out of Israel. We are planning to add manufacturing capacity in Europe at our new FRT facility in Cologne, Germany. So we have a plan in the short term to overcome anything that may happen in the short term. Longer term, we also have a plan.

Ramy Langer: And obviously we can’t really be prepared to all possible scenarios, but we definitely made some efforts to be prepared to whatever we could prepare.

Gus Richard: Got it. I apologize for having to ask that question. And then in terms of your planning for capacity for next year and the year out, how close are you getting to be filled out? Is the expansion in Germany part of the ability to deliver more product? And is there a significant investment required?

Rafi Amit: So no. So from the overall investment. First of all, our manufacturing, the basic manufacturing is done by two very big subcontractors, which are international companies, Jabil and Flex. So from that point of view, we have enough capacity. Here in the facility in Israel, we have enough capacity for over $600 million of manufacturing. And as I said, we will add additional capacity in Europe. So I think from the overall capacity for any scenarios of upside, we have enough capacity. And this includes also from material point of view, that we can ramp up a clean room space, people. So I think we’re very well covered from this point of view.

Gus Richard: Thank you. Thank you for allowing me to ask some questions.

Rafi Amit: Thank you, Gus.

Operator: Thanks, Gus. Our next question is from Ezra Weener of Jefferies. Ezra, please go ahead.

Ezra Weener: Hi. Thanks for taking my question. I guess two here. The first is just in terms of new orders, obviously talked about second half and into next year. Can you give a little more detail on the split? And I guess relative to your plan, if any of that was incremental, then the second would be you’ve talked about your long term model and gross margins getting to about 52% at $500 million. Looks like you’re getting pretty close to passing that next year. Can you just talk about what leverage would look like from there?

Ramy Langer: Yes. So with respect to your first question, what portion of this additional business is above our previous expectations? Well, when we prepare our expectation, we take into account our current backlog on hand, plus some potential upside from business that we are going after. So I think we are very close to what we have expected. Originally, hard to say what part of it is an upside, but we are going to end the year very nicely with a nice Q3 and plus additional, continued growth coming into the fourth quarter as well. Your other question relates to the gross margin. So I think we said in the next few quarters, we will operate at the level of 50.5%, 50% to 51.5%. We definitely have plans to reach 52% with the contribution of our new products that we are going to launch in the coming weeks or coming months, they will definitely have positive contribution to the gross margin.

So overall, we are not going to change our expectation that when we reach the $500 plus million revenue level, we should be able to operate on a higher gross margin, close to the or around the 52% that we’ve mentioned.

Ezra Weener: Got it. Then one quick follow up. You discussed Advanced Packaging at 70%. Just want to clarify that 70s, not 70%. Just trying to put all the pieces together. And at 70%, you would be down quarter-over-quarter there. If it is 70%, not 70s. Can you kind of give a little bit more detail on why that is?

Rafi Amit: It’s around 77.0% [ph]. And the overall, yes, indeed, it’s a little bit lower. And this is the result of the other businesses that are growing. And we were, as we said, the HPC was over 50%. Definitely these numbers also vary from quarter-to-quarter. It’s related to shipments and when customers are planning their clean room. So I wouldn’t pay too much attention here to the changes between quarter-to-quarter. I think the business in general, as we said, the HPC is indeed stable and we expect to finish the year anywhere between 50% to 60%. The other businesses, the wafer-level packaging, the front end compound, CMOS Image Sensors, MEMs and a lot of other applications that we’re doing will continue to grow in the third and fourth quarter and definitely in 2025. So this mix is something changes, but the big numbers will not change.

Ezra Weener: Got it. Thank you very much.

Operator: Thanks, Ezra. So that will ends our question-and-answer session. Before I hand back over to Rafi, I would like to let everyone know that in the coming hours we will upload the recording of the conference call, the investor relations section of Camtek’s website at camtek.com. I would like to thank all of you for joining this call. And Rafi, please make your closing statement.

Rafi Amit: I would like to thank you all for your continued interest in our business. I want to specially thanks 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 looking with you again next quarter. Thank you and goodbye.