Camtek Ltd. (NASDAQ:CAMT) Q4 2023 Earnings Call Transcript

Camtek Ltd. (NASDAQ:CAMT) Q4 2023 Earnings Call Transcript February 20, 2024

Camtek Ltd. beats earnings expectations. Reported EPS is $0.57, expectations were $0.52. 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 presenters are currently muted. Following the formal presentation, I will provide some information and 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 the 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 that forward-looking information, or 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 results or events 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 to win in 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 filings with the SEC.

Please note 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 cooperation and prospects for the future. A full reconciliation of non-GAAP to GAAP financial measures are included in today’s earnings release. I’d now 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 2023 with record fourth quarter of $89 million in revenue at the upper end of our guidance, bringing our full year revenue to $315 million. Sales in 2023 predictably started modestly after a record year in sales in 2022, yet due to increase the amount of HPC-related product in the second half of the year, we experienced a significant increase in orders and sales, so that Q4 came in 20% higher than the first quarter of 2023. The gross margin in the quarter came in at 49.2% which is a continued improvement over previous quarters, as we had indicated earlier this year. The operating margin also showed an improvement to 29.2%. 65% of our revenue from product came from advanced interconnect packaging applications with a substantial portion coming from HBM and Chiplet modules.

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Q&A Session

The remaining 35% is divided between compound semiconductors for power devices, CIS and process control applications. This achievement was primarily due to our strong position in Tier 1 customers who manufacture HBM and Chiplet devices for AI applications. We expect this demand to continue into 2024 and beyond as it has been reflected in our current order flow backlog and pipeline. We expect 2024 to be a record year even before taking into account the contribution of sales from FRT. Our revenue guidance for the first quarter is $93 million to $95 million, which represent around 30% growth over Q1 last year. Now, I would like to give an overview of the business environment. As we have mentioned, our main growth engine are the HBM and Chiplet modules.

These two products are the current stones of HPC, and there is a consensus among analysts that they will continue growing in the coming years as an annual rate of 20% to 30%. Camtek is a strong player in this segment. We are present at all Tier 1 customers in a large number of inspection and metrology steps. The HBM and Chiplet integration require high yield and nongood dyes to ramp to high-volume production. This requirement drives the inspection and the metrology needs. In addition to that, these customers invest a lot of R&D resources to add more feature and capability to increase the performance of the HPC, and we are being frequently asked by our customers to provide new inspection and metrology solutions. As an example, at one of our major customers, we have developed tens of new inspection and metrology steps over the last year.

We have recently announced receiving significant orders for HPC-related applications for delivery mainly in the first half of 2024. We are now getting initial indications that an additional substantial amount of orders are also expected in the second half. We also continue to receive orders from customers who do not belong to the HPC field. A great number of our OSAT customers continue to increase their production capacity. China is still an important market for us, but the high demand for HPC will change the distributions of our sales between the different territories. I estimate that the share of our business coming from Korea, Taiwan and U.S.A. will increase in the coming years. Regarding FRT, the official closing was at the end of October 2023.

We are very pleased with this acquisition. We are confident that FRT will meet our expectation regarding sales and profit for 2024. We are in the process of post-merger integration, which we expect to be completed later this year. FRT is well established in certain metrology applications for HPC and power devices based on silicon carbide, and we are preparing FRT to meet the increasing demand for these markets. We believe FRT has the potential to grow rapidly in the coming years. Regarding our assessment for 2024. In our last meeting, you heard us estimate that 2024 will be a record year in sales. Today, we are halfway through the first quarter, and based on our backlog and orders in pipeline, we feel even stronger that 2024 will indeed be a record year.

However, it is too early to give accurate prediction about the expected growth in 2024. 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. The FRT transaction in purchase accounting treatment are included for the first time in our non-GAAP reconciliations. Revenue for the fourth quarter came in at a record $88.7 million, an increase of 8% compared with the fourth quarter of 2022, an increase of 10% from the third quarter of 2023. The geographic revenue split for the quarter was as follows: Asia was 82% of our revenues, with U.S. and Europe the remaining 18%. Gross profit for the quarter was $43.7 million, the gross margin for the quarter was 49.2%, a slight improvement from the third quarter of 2023.

This gradual improvement is a result of the efforts we have made throughout the year and we anticipate this trend to continue in the coming quarters. Operating expenses in the quarter were $18.2 million compared with $17.4 million in the fourth quarter of last year and $17.2 million in the previous quarter. I note that this quarter, we included for the first time the two months of FRT related expenses, which explains the increase from the previous quarter. Operating profit in the quarter was $25.5 million compared to the $22.8 million reported in the fourth quarter of last year and $22.2 million in the third quarter. The increase is mostly due to the increase in the revenue and the improvement in the gross profit. Operating margin was 28.7% compared to 27.8% and 27.6%, respectively.

Financial income for the quarter was $5.7 million, at a similar level to the previous quarter and higher than the $3.8 million reported last year. The increase from last year relates to significantly higher interest rates on our cash balance. Net income for the fourth quarter of 2023 was $28.2 million or $0.57 per diluted share this is compared to a net income of $24 million or $0.50 per share in the fourth quarter of last year. Total diluted number of shares as of the end of Q4 was $49.1 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 December 31, 2023, were $448.6 million. This compared with $517.1 million at the end of the third quarter.

The decrease is due to the $100 million cash for the acquisition of FRT. We generated $34.2 million in cash from operations in the quarter on the back of an increased revenue and good collection. Inventory level increased to $94.9 million. The increase over the previous quarter is in part to support the anticipated sales growth in the coming quarters as well as the addition of at inventory. Accounts receivable decreased to $87.3 million in the quarter despite the increase in revenue and the addition of FRT. This was done primarily as a result of strong collection in the quarter. Our Day Sales Outstanding — DSO decreased to 90 days. As Rafi said before, we expect revenue of between $93 million and $95 million in the first quarter and that we look forward to a year of growth in 2024.

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

Kenny Green: Thank you, Moshe. We’ll now start the question-and-answer session. If you have a question, you can raise your hands using the Zoom platform. And we will hold for questions.

Operator:

A – Kenny Green: Our first question will be from Charles Shi of Needham. Charles, you can go ahead and talk.

Charles Shi: Thanks, Kenny. I have a three-part question. Orders — the order flow. So I think last time when you report earnings that was in mid-November, you talked about starting from the third quarter 2023, you got probably 240 systems in your order. Now, you said the entire second half 2023 order number is close to 300 systems. So, the first part of this question, right? Can you give a little bit more color on what’s the incremental 60%? Where are they from? And what kind of applications? The second part of this multipart question really is, what’s the general trend of the order intake in January and February? I understand there’s a Lunar New Year in between, but any color will be great. But the third thing, I think you said on the — in the prepared remarks, you talked about initial indications of new orders in second half 2024.

I want to ask you to clarify, do you mean taking in new or you expect to taking new orders in second half 2024? Or do you expect that to take those orders in coming months, but then you deliver in second half 2024? Thank you.

Ramy Langer: So, hi Charles, this is Ramy. So, first of all, yes, the older flow continues linearly. There’s nothing outstanding on the flow itself. But I think most of the orders that came lately, the addition came more from the offset world. So, it was less from the HBM. Regarding the beginning of the year, so definitely, we’re starting to see orders, new — Chinese New Year definitely, now it’s two weeks where Asia is more or less closed. But the discussions, the pipeline is coming up, and we don’t see any change in the activities. I think we had long discussions about the second half. And I think was — the question was specifically about the HBM. So, yes, we discussed, and I think Rafi mentioned it in the prepared notes, we are seeing orders and we are talking, let’s say, we’re expecting orders in the coming weeks, all deliveries already in the second half of this year.

So, definitely, we see a very positive trend. The backlog is building up for the second half and we are in discussions with customers, including HBM customers for shipments of machines in the second half of the year. Q – Thanks Ramy. That’s great color. Glad to see you are expecting more orders to come over the — from HBM customers maybe for delivery in the second half. Maybe I want to ask Moshe a question. Some of the new items in your non-GAAP reconciliation looks like you wrote off some of the FRT inventory after the close last year. So, can you provide some more details why you’re — you chose to write off some of the inventory now because I would guess it’s less likely you actually seeing some inventory you’re not going to sell, but what’s the rationale behind the write-off?

Maybe a related question. Any update on the FRT outlook for this year because at the time of the — close of the acquisition, you talked about maybe $30 million-ish revenue you expect from FRT in 2024. Is that number maintained — remains the same? Any upside from that number? Thanks.

Moshe Eisenberg: Okay. ‘ll address both questions. And I Ramy and Rafi will add if they want. So regarding FRT, we said it is also in the press release. We are very pleased with the acquisition. No change in terms of our expectation from FRT as it relates to 2024 revenue and profitability. We are in the midst of post-merger integration efforts, trying to put together the business already — the some of it is already done and some is in process. We plan by the end of the day to have FRT to be an integral part of Camtek, such that we are not going to report separately the FRT results. Some of the products will also become part of our product offering, so this will have a positive impact also on our revenue as well as on their revenue.

So that’s FRT. And specifically, what you see in a write-off is a small amount of inventory that we find that we could walk out together between us and FRT to put together a new product offering in some part of this. The end result of the product resulted in some inventory write-off. It’s a small amount of $900,000. So — but we are not shutting off any FRT related product lines.

Charles Shi: Thank you

Kenny Green: Thanks, Charles. Next question is going to be from Brian Chin of Stifel. Brian, you may go ahead and ask.

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

Kenny Green: Yes.

Rafi Amit: Yes, we hear you very well.

Brian Chin: Great. Thanks for letting us ask a few questions. I think previously, Rafi, you had noted that HBM and Heterogenous Integration could comprise 30% or maybe 30% plus of revenue in 2024? And maybe that would also account for a predominant amount of the growth incrementally year-to-year. Do you still see those to be sort of the right expectations for this year? Or do you see now with expectations for improved order fill for second half? Could those percentages be higher this year?

Rafi Amit: I think in general, I believe that since we have a very strong position in our customers and assuming our customer meets the expectation of the analysts, regarding the growth rate and the demand, probably we will — our growth will be very similar to these demands in terms of the Heterogenous Integration, HBM, Chiplet field. But we still have OSAT and other type of products that are not expected to grow in this level of 20% to 30%. So, it’s going to be eventually an aggregate of this, and not — in this point we cannot be very accurate with the number. So this is why, I believe that we have to wait few more months to be sure or to be more accurate about the growth rate.