Camtek (CAMT) Q1 2022 Earnings Call Transcript

Camtek (CAMT 1.05%)
Q1 2022 Earnings Call
May 12, 2022, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

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 present -- presenters are currently muted.

Following the formal presentation, I will provide some instructions for participating in the live Q&A session. I would like to remind everyone that this conference call is being recorded, and the recording will be available on Camtek's website. You should have all 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; 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 Rami will be able to take your questions.

Before we begin, I would like to remind everyone that certain information provided on this call our internal company estimates unless otherwise specified. I would now like to turn the call over to Rafi. Rafi, please go ahead.

Rafi Amit -- Chief Executive Officer

OK. Good morning or good afternoon for everyone. As we announced a few weeks ago, we started 2022 with strong backlog and with an impressive flow of orders. We continue with this momentum and 2022 looks like another year of growth.

Revenue in Q1 was over $77 million, this represents a growth of 35% over the first quarter last year. The gross margin was 52% on the high-end of our model, and the operating margin of 28.8% is in line with our mid-term target financial model. Furthermore, despite the ongoing negative global geopolitical environment, the company is received order of more than $150 million since the beginning of the year. The orders were received from a broad range of customers and will be [Inaudible] for various applications such as advanced interconnect packaging, including DRAM, component semi, front-end and CIS.

This strengthen our expectation for another record year with year-over-year revenue growth of mid to high teens. The side effect of the COVID-19 continue to interrupt our business at delivery times for material in parts are still on. Prices of component and parts are more expensive. Border of some country in Asia still practically closed.

And our field engineers cannot visit customers as often as they used to do in the past or travel for advanced training in Israel. In China, the situation is more complicated. Most of the semiconductor industry in China is in the Shanghai area. Thus, it look down in Shanghai affect the whole industry.

[Inaudible] are operating, but they do so at lower capacity than usual. All in all, the entire semiconductor manufacturing chain is disrupted due to the lock down in Shanghai, including ports and airports in this area. The good news is the flow of incoming orders from China and from the rest of the world. We continue to receive order at a very impressive rate to some extent, even exceeding our expectations.

We are taking into consideration that there might be delays in installing machines at certain Chinese sites, but there will be catch up. The semiconductor market forecast remained positive, according to several sources. Our backlog is high and when taking into account our pipeline, we are in a better position than at the same time in 2021. Based on our current estimates.

Our guidance for Q2 is for continued growth in revenue to between $77 million to -- $80 million. The highlight of Q1 advance interconnect packaging continued to be our largest segment with a heterogeneous integration becoming a significant portion. We continue to expand our market share and sold 10 machines to new customers. Specifically, we are cementing our position in the front-end and compound semi-segment, and shipping machines to existing and new customers.

We shipped several systems to new CIS customers in one order for our filter from one of the largest air filters manufacturers in the world. We shoot several system for [Inaudible] applications and we predict additional system in the second quarter and second half of the year. We completed the development of new important modules and feature that will open additional segments for us. This quarter, the U.S.

and Europe accounted for 21% of our sales versus 18% in the last quarter, and 12% in Q1 of last year. These trends highlight the strengthening of our position in the U.S. and Europe as a result of the major industry investment taking place there. That's end of my summary, I would like to hand over to Moshe for more detailed discussion of the financial results.

Moshe?

Moshe Eisenberg -- Chief Financial Officer

Thank you, 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 appear in the tables. At the end of the press release issued earlier today.

First quarter revenues came at the record $77.2 million, an increase of 35% compared with the first quarter of 2021 in 4% compared with the previous quarter. Revenue was mainly driven by advanced packaging, which accounted for about 50% of sales and approximately a 20% contribution of compound semi. The geographic revenue split for the quarter was as follows: Asia 79%; In U.S. and Europe together 21%.

Gross profit for the quarter was $40.2 million. As we mentioned on our last call, gross margin for the first quarter was relatively high, with 52% versus 50.7% in the first quarter of last year, and 50.9% last quarter. The higher gross margin was due to a more favorable product mix sold during this quarter. Operating expenses in the quarter were $18 million.

This is compared with $13.5 million in the first quarter of last year, and to the $16.8 million reported in the previous quarter. The increase from the previous quarter is mostly due to increasing R&D and sales related activity. Operating profit in the quarter was $22.2 million, or 28.8% margin compared to the $15.6 million, or 27.2% reported in the first quarter of last year. Net income for the first quarter of 2022 was $21 million, or $0.44 per diluted share.

This is compared to a net income of $14.6 million, or $0.33 per share in the first quarter of last year. Total diluted number of shares as of the end of Q1 was $48.1 million. Turning to some balance sheet -- to some high level balance sheets and cash flow metrics. Inventory went up by $5 million from the end of December 2021.

This is to support the current demand for our products and to ensure the availability of key components. The complicated geopolitical situation and the COVID-19 implications create supply chain challenges. We are increasing the inventory levels to improve the flexibility in our sales channel in order to overcome these challenges. We used $0.4 million of -- in cash from operation in the quarter due to timing of collection, which relates to the Chinese New Year.

Also, increasing inventory levels and the tax payment, including for the settlement we have discussed last quarter. Total cash and cash equivalents and deposits as of March 31, 2022 is $428.3 million. Similar to the level we have reported at the end of 2021. As Rafi stated before, the business looked healthy.

We received approximately $150 million of orders since the beginning of the year. And we feel -- we feel good about meeting our plan for 2022 of mid to high teens growth year-over-year. We expect revenues of between $77 million to $80 million in the second quarter. And with that, Rafi, Ramy and myself will be open to take your questions, Kenny?

Kenny Green

OK. Thank you, Moshe. If you have a question, please raise your hand on the platform and we will take all of your questions now. So our first question is going to be from Brian Chin of Stifel.

Brian, your line is open. You may go ahead and ask.

Brian Chin -- Stifel Financial Corp. -- Analyst

Hi, there. Can you hear me, OK?

Kenny Green

Yeah.

Brian Chin -- Stifel Financial Corp. -- Analyst

Great. Thanks so much for the call and good results. With a couple -- of questions. Maybe to start with, based on your disclosures, it looks like bookings this quarter in 2Q is tracking maybe around $40 million ish, kind of similar to, I think to last quarter, and so -- if trying to extrapolate this out, do you expect a similar book-to-bill well above one this quarter? And maybe more importantly, given the rising cost environment, should we expect the profitability on these systems and backlog to be similar? Or maybe lower relative to your typical gross margin level?

Rafi Amit -- Chief Executive Officer

With respect to the book-to-bill, obviously the first booking until today higher than the revenue. So our book-to-bill is greater than one. But I'm not sure that this implies that our revenue is in line with the bookings that we had until today. So basically, we don't expect -- we expect some decline or some stabilization in booking in the coming quarters that will meet our annual revenue of mid to high teen growth.

With respect to the profitability, we expect pretty much the same level of profitability in terms of gross margin in the coming quarters. So we don't expect any major impact of the cost to the profitability.

Brian Chin -- Stifel Financial Corp. -- Analyst

OK. Got it. That's impressive. And maybe just calibrating growth for the year.

Again, you're talking about mid to upper teens overall revenue growth. To what degree does this account, this range account for the risk of further disruption to your customers manufacturing or even your own supply chain? And also that's part A and part B would be, if you look at that growth rate for the overall business, how would you expect advanced packaging front-end and specialty maybe to track relative to that overall growth?

Ramy Langer -- Chief Operating Officer

So Brian, this is Ramy. Let's me answer, let me start with the supply chain. Definitely there are disruptions, but I think we have been able to learn how to manage and work in this environment. And Moshe mentioned that we increased our inventories in order to be sure that we have enough inventory, even if we get a slightly different mix of orders.

So from that point of view, we feel comfortable that we will be able to supply all the requirements from the marketplace. So, so this is from the supply. From the advanced packaging point of view, so definitely we are running today and when we see the booking, and when we see the mix of the product, we're about 50% of our business continues to be in the advanced packaging. It is healthy.

And we mentioned that we got the orders for the [Inaudible]. What specifically the application is the high [Inaudible]. This definitely is an important segment. It supports the high performance computing segment.

So it is in line with the area of growth that we see in the industry. So from that point of view, we're definitely in -- and we feel very comfortable with the current forecast and the influx of the orders and the customers response. Now, compound semi is definitely strong. And I think we just saw in the previous -- we were about 19% of our revenues, which is the areas that we are strong, continue to be healthy.

And so, from that point of view, we feel very comfortable.

Brian Chin -- Stifel Financial Corp. -- Analyst

Thanks for that color. Appreciate it.

Rafi Amit -- Chief Executive Officer

OK. Thank you, Brian. Our next question is going to be from Thomas O'Malley from Barclays. Thomas, your line is open.

Thomas O'Malley -- Barclays -- Analyst

Hey, guys. Thanks for taking my question. Just the first one on gross margins. Obviously, in the supply environment, it seems like you guys are doing a good job of, one, keeping inventory, and two, being able to at least pass on some of these costs.

Can you talk about any actions you might have taken with customers? Are you raising prices at all to keep these gross margins where they are? And then, you made a comment just on the first question there that margins should stay at this level. Do you mean at the like 52% level? Or do you mean within the range that you previously guided, which is 50.5% to 51.5%? Thank you.

Moshe Eisenberg -- Chief Financial Officer

Hi, Tom. So, first of all, I think it's a good question about gross margin. I wanted to correct myself when I said, we will maintain gross margin. I meant, we will maintain the current range of 50.5% to 52%.

It depends on product mix. We feel more comfortable anywhere between this range. So -- and specifically, for the next couple of quarters, I would say, gross margin will vary between 51% to 52%. -- That just to correct my previous statement.

With respect to actions that we are taking, we are definitely looking for more suppliers. To make sure that we are not going to be dependent on one supplier, we are building a higher inventory levels, and we're buying more inventory parts, and we are getting some discounts on parts. We --

Ramy Langer -- Chief Operating Officer

Let me add a couple of things. I think, Tom, what we were able to do is to find some sources in certain areas that actually reduced our costs. And in specific areas of the machine bill of material, we were able to bring in a significant cost that somewhat offset the rest of the, obviously, there is an increase in the prices of the material we buy, but during these changes we were able to offset some of it. So all in all, there is an increase in the bill of material, but it is comparatively small.

On the supply -- on the demand area, we are able to maintain a high ASP, and we are in certain areas able to increase the prices. But overall, we are maintaining a healthy level -- of prices to our customers. So from that point of view, we are confident that we will be able to maintain the current level of [Inaudible]

Thomas O'Malley -- Barclays -- Analyst

OK. Helpful. The follow up is just proforming some of the disclosures you gave. The last couple of quarters, you gave advanced packaging compounds, semi front-end and then others.

And then this this quarter, you gave CIS separately. Is the right way to think about it? I would assume you need to break out others into both front-end and other? So is there correct way to think about it? Advanced packaging, 48% compounds, compound semi 19%, front-end around 13%, and then other, which is CIS, around 10%? I know you mentioned front-end was a little lower, but I just want to proforma the disclosure there from the prior quarter. Thank you.

Rafi Amit -- Chief Executive Officer

I think in general, the numbers you mentioned are correct. I don't have in front of me the exact number on the front end. As I said, it was a little lower than usual. But we do expect it to rise, to the -- more or less the same levels that we experienced last year.

So from that point of view, we don't see any weakness in this market segment. But your numbers are more or less accurate.

Thomas O'Malley -- Barclays -- Analyst

OK. And then, just let me sneak one more in here. You guys have talked about for the entire year, just being under $70 million or so in terms of capex. If you look, and you signaled pretty clearly at the end of last year that you need to invest more in the business, just given the higher revenue that you guys are now seeing, are you updating what you think you're going to need to spend this year? Should that opex move a little bit above that $70 million range? And by how much? Thank you.

Rafi Amit -- Chief Executive Officer

No, Tom, the current level of opex, which close to $70 million for the year are stayed the same. We're not changing anything and we feel comfortable that this will be able to support the current level of business.

Thomas O'Malley -- Barclays -- Analyst

Thanks. Nice results, guys.

Kenny Green

Thanks, Tom. Our next question is going to be from Charles Shi of Needham. Charles, you may go ahead and ask questions. Charles, you're on mute.

Charles Shi -- Needham and Company -- Analyst

Hello? Can you hear me?

Rafi Amit -- Chief Executive Officer

Yes, we can hear you, Charles.

Charles Shi -- Needham and Company -- Analyst

Hello?

Rafi Amit -- Chief Executive Officer

Yes, you can. We can hear you, Charles.

Charles Shi -- Needham and Company -- Analyst

Yeah, sorry. I may have a little bit of technical difficulty. So maybe my first question. I really want to go back to the question around China lockdown.

I think some of the questions were asked around the supply chain side of it. I think you mentioned something around delivery because a good amount of your customers are in the Shanghai region. They may be subject to some of the impact due to the lockdowns. So my question is for your Q2 guidance, have you risk adjusted to some of the delivery issues, potential delivery disruption of your tools into that particular area? Or maybe overall China, can you quantify that for us? Thank you.

Rafi Amit -- Chief Executive Officer

So thank you for the question, Charles. So, first of all, based on our current estimates and we went in very details when we made these estimates. And we've done a few things from delivery to really give a priority to the areas across the world globally that -- we have good access and we ensure that we can meet the deliveries, and this also includes really giving priority to customers that are not in the in the areas of lockdown. So, yes, we understand the issue.

We sized it, we looked at it, and we are comfortable that to our current guidance takes into consideration, the current issues we are seeing in the [Audio gap]

Charles Shi -- Needham and Company -- Analyst

Got it. So maybe I want to ask a little bit more on the ordering front. I know this is not typically how you segment, your end market. Any thought -- puts and takes the order intake between the subcontractors and IDMs because I understand you [Inaudible] segment of the end customers.

Rafi Amit -- Chief Executive Officer

So, Charles, it's hard for me to just supply, I don't have the number just read the in front of me. But definitely, there is a significant number that goes to [Inaudible] that's number one. In general, I have --- I will not say the names but definitely significant portion goes to IDMs. And -- but when you look at the influx of the orders, it matches.

And when I look forward, I take all the orders that we got. They are very evenly spread along the different applications that we have. And I think, what we are seeing here there number of things. First of all, there is a technological shift the DC order takes.

For example, the DRAM, the [Inaudible], the DRAM may not be very strong. It's a little bit weaker. However, there is a trickle of technological change moving to HBMs. Definitely, we see it in the orders.

We see it in the in the shipments this quarter. We see it in the orders that we focused for the for the second quarter, and for the second half, for the third, and for the rest of the year. So that's one topic. The second thing I see, we are seeing that most of our customers are talking about long-term plans to increase the capacity.

So we see in both ways. So the overall demand, people making the strategic plans, we see it in the orders. Now, there might be some some small changes in it as we move along, but the overall business, as we see, is very healthy. Did I answer you question, Charles?

Charles Shi -- Needham and Company -- Analyst

Yes. Thank you very much for the great color. So maybe my last one. I think -- your annual guidance implies second half being black or maybe slightly up relative to the first half.

Any thoughts -- for the second half to be a lot higher than what you are currently guiding, what has to happen. I know this is a probably a very tough question, but I want to really understand what can be the upside from what you are guiding and or what you think? This is a pretty kind of the outlook guidance here. Thank you.

Rafi Amit -- Chief Executive Officer

I'll tell you what's the good side, Charles, of what we are seeing. And I think if we, in our previous discussions, we were very hesitant from backlog and pipeline, looking at the second half. So, the good news that the backlog and the pipeline for the second half of the year is filling up, and overall, it looks good. What will be the extent of the business today? It's a little hard to talk about Q3 and Q4.

What will be the actual numbers? I can tell you, that we're starting also to get orders for Q1 of '23. So, there is -- you can see a lot of confidence from our customers about the forecast. I think, at this stage, with all the volatility in the market, it's very hard to really say more, than we expect this year to be a growth year in the mid to high teens. I think, this is as much as we can say at this stage, but definitely, we're encouraged by the level of the backlog in the pipeline for the second half in the first quarter of '23.

Kenny Green

Charles, does that answer your question? OK. Thank you for that. Next question will be from Jamie Zakalik of Bank of America. Jamie, you may go ahead and ask.

Jamie Zakalik -- Bank of America Merrill Lynch -- Analyst

Great. Can you all hear me, OK?

Kenny Green

We can.

Jamie Zakalik -- Bank of America Merrill Lynch -- Analyst

Great. Thanks. And apologies if you guys maybe discussed this. I've been hoving back and forths between a few calls, but at a higher level, were there any puts and takes in the quarter in terms of end-market demand? I think there's some concern about weaker conditions and maybe smart phones or PCs for semis, overall.

And did you see any markets that maybe were weaker than expected? And I know there is that were stronger than expected. Basically, what were the different puts and takes on the demand side?

Ramy Langer -- Chief Operating Officer

So Jamie, this is Ramy. So, first of all, let's say the general statement that, yes, we hear about the weakness, where we are aware of the weakness in the second in the cellphone market, in the PC market, even the automotive market is below its usual number. So definitely we hear it and we understand it. We have not seen any change in the behavior or in the forecast of our customers that would indicate any issues related to that.

I think there are two reasons for it. On one side, you see, and I think I mentioned it, maybe you missed it, there is a technological shift. Good reason is what is happening in the DRAM area. There's a significant portion in the advanced packaging area that the market is moving to the use of HBM supporting the high-performance computing.

This is definitely an area that we dominate, and we're enjoying now. Although, the entire of the [Inaudible] market, maybe not increasing at this stage, but the technical -- technology change is bringing us business on one side. On the other side, the long-term plans of our customers, not just in China, across the world, the long-term are to invest. And we're shipping machines to customers that are making long-term investments in building capacity.

And definitely the area of the DRAMs packaging is very strong, and this is not specifically-it's across the all the regions. It's not just specific to one area, definitely not only in China. So, the heterogeneous integration as Rafi mentioned in discreet is taking, and this is again, high-performance computing, that's definitely becoming a very significant part of advanced packaging. So, these areas are growing.

We expect them to continue to grow. So, from that respect, we do not a feel at this stage, the weakness the people are talking about, the end markets. We are aware of them. We don't feel them at this stage.

Rafi Amit -- Chief Executive Officer

And I would like also to add the situation in China. Because China, the strategy of the government is to be more independent, so let's depends on import component to China and expand their capacity and their ability to produce things in China. Right now, the amount of import is huge. I think is more than 80% percent are -- all the components are imported to China.

And if they really want to produce more made in China, they need to continue building more capacity in other area. So, I think this is also very important element. It doesn't relate to the end market. This is the mental strategy of China.

Jamie Zakalik -- Bank of America Merrill Lynch -- Analyst

Got it. That's very helpful. And I actually had a follow-up on the China thing. Did you guys quantify your specific exposure to just the China region? And how much, or if any of your tools are manufactured in the U.S.

and shipped to China?

Ramy Langer -- Chief Operating Officer

No. We don't manufacture in the U.S. We manufacturer all the equipment here in Israel. We're using two very large subcontractors' electronics and to build to support us.

And so, from that point of view, I think we feel very comfortable from the supply chain, the availability of parts that we will be able to ship all the machines that are forecasted.

Jamie Zakalik -- Bank of America Merrill Lynch -- Analyst

Got it. That's very helpful. And then my last question is, is there any risks that customers are hauling in tools or ordering more tools and they really need for in-demand just because of uncertainty about supply and about restrictions maybe another regions that don't affect you guys and maybe affect other suppliers? What are you guys doing to ensure that orders are really tied to true on demand?

Ramy Langer -- Chief Operating Officer

So, we've been monitoring this. And I can tell you that the customers that are ordering the machine, in most cases, are actually very excited if we are delayed. We are [Inaudible] at least to the best of our knowledge with all of those issues are going into production. We're getting a lot of requests to support questions.

The machines are going into production. To tell you what the actual utilization is, obviously, no one gives you these numbers. But we are very confident that those machines are not going just to fill a room in certain area of the world, they're going for reproduction, and people are using them. And -- no, it's for real.

Jamie Zakalik -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you, guys.

Kenny Green

Thank you. Jamie. If there are any additional questions, please raise your hand on the platform. We will give a moment to see if there are any additional questions.

It looks like there are no additional questions. So, before I hand over to Rafi, I want to point out that in the coming hours, we will upload recording of this call to the Camtek's investor relations website. Beyond that, the link for the live call will also automatically turn to recording in the coming hour. So, I would like to thank everybody for joining this call and I like to hand back to Rafi for your closing statements.

Rafi, please go ahead.

Rafi Amit -- Chief Executive Officer

I would like to thank you all for your continued interest in our business. Again, I would like to thank all our employees and my management team for their tremendous performance. And we look forward to continuing it. To our investor, I thank you for long-term support.

I look forward to talking with you again next quarter. Thank you and goodbye.

Duration: 35 minutes

Call participants:

Kenny Green

Rafi Amit -- Chief Executive Officer

Moshe Eisenberg -- Chief Financial Officer

Brian Chin -- Stifel Financial Corp. -- Analyst

Ramy Langer -- Chief Operating Officer

Thomas O'Malley -- Barclays -- Analyst

Charles Shi -- Needham and Company -- Analyst

Jamie Zakalik -- Bank of America Merrill Lynch -- Analyst

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