Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtek's Q1 2021 results webinar. My name is Kenny Green, and I'm part of the Investor Relations team at Camtek. All other than the presenters are currently muted. Following the formal presentation, I will provide some instructions for participating in the live Q and A session.
I would like to remind everyone that this conference call is being recorded and another recording will be available on Canex website from tomorrow. You should have all received by now the company's press release, and if not, you can review it on the company's website. With me today on the call, we have Mr. Rafi Ami, Camtek's CEO Mr. Moshe Eisenberg, Camtek's CFO I'm Mr.
Rami Langer, Camtek's COO. Lassie 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, Ravi Moshe and Rami will be available to take your questions. Before we begin, I would like to remind everyone that certain information provided upon this call are internal company estimates unless otherwise specified.
These statements are only predictions and may change as time passes. Statements from this call are made as of today, and the future events, changes in 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, except for the COVID-nineteen crisis on the global market and on the markets in which we operate, including a list of a continued disruption to our and our customers provided business partners and contractors business as a result of the outbreak and end of the pandemic, risks related to the concentration of a significant portion of Camtek's expected business in certain countries, particularly China, which we expect to generate significant portions of our revenue for the foreseeable future, but also time line in Korea, including the risks of deviations from expectations regarding timing, size of orders from customers in these countries, changing industry and market trends, reduced demand of services and products, the timing development of new services and products and their adoption by the market, increased competition in the industry price reduction and as well as due to risks and uncertainties identified in the company's filings with the SEC.
Please note the 2 part of the statement in today's press release also covers the contents of this conference call. Furthermore, during this call, certain non GAAP financial measures will be discussed. These are used by management to make strategic decisions, forecast future results and evaluate the company's future performance. We believe 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.
And with that, I'd now like to hand over the call to Rafi Amit, Camtek's CEO, Ravi, please go ahead.
Thanks, Timmy. Good morning, and thank you for joining our call today. High demand in our markets, excellent performance of our systems and the strong position that Camtek has gain in the market allow us to continue demonstrating record financial performance quarter after quarter. We ended the Q1 of 2021 with $57,400,000 revenue, 51% gross margin and 27% operating margin. The impressive profitability is a result of a rapid increase in sales and favorable product mix.
Before I review the Q1, I would like to give a brief overview of the market environment. We are experiencing demand from all territories and especially from Asia. We expect to continue showing an increase in sales in the next two quarters. Our revenue guidance for the 2nd quarter is $63,000,000 to $65,000,000 There are several market trends driving the demand for semiconductor components and for our systems, the demand for products such as laptop and tablet this has been stabilized before COVID-nineteen has increased due to working from home. Working from home has also led to heavy investment in data center, cloud and communications infrastructures.
The massive amount of data that is sent and stored in the cloud is driving demand for advanced memory, AI devices and high performance computing, 5 gs cellular communications has been adopted by the market earlier than expected, resulting in high demand for electronic components, 5 gs cellular phones contain more RF devices, cameras and advanced packaging compare with the previous generations, thus requiring more inspection and metrology of all components. The automotive industry is also undergoing major changes with the shifting to electric cars and advanced driver assistance systems technologies, resulting in demand for extensive electronic components. These components must meet 0 defect policy, requiring 100 percent inspection of all components in cars, we see adoption of high end advanced packaging in new devices as the industry is driving smaller geometric and using a Progenius integration to deliver products with higher performance and lower power consumption, we are major player in this space and we expect to expand our business as the industry is implementing new applications with I and advanced packaging. Regarding Q1 highlights, 88% of our sales came from Asia with China being the largest territory, 50% of our installed system are for advanced packaging applications, which is expected to continue growing in the coming quarters.
Other applications in which we pay a major rule our compound semi, MEMS, CIS, RF and macro defect inspection in the front end. During the quarter, we delivered multiple systems order to several Tier 1 customers as well as single system order to over 20 customers. We continue to execute well under the COVID-nineteen circumstances, most of our employees in Israel are vaccinated and return to work our office which will no doubt improve our overall efficiency. To summarize, high demands for semiconductor components have been leading to an increasing demand for inspection systems. Camtek can provide its customers with reliable, high performance systems tailored to their special requirements.
Camtek is strongly positioned in the market. And as the things stand today, we expect 2021 it will be an exceptional record year in sales, growth and profitability. I would like to hand over to Moshe for a more detailed financial discussion of the financial results. Moshe?
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 we are in the table at the end of the press release issued earlier today. 1st quarter revenue CEMU hit a record $57,400,000 an increase of 90% compared with the Q3 of 2020 an 18% compared with the previous quarter. Assuming the mid range of our Q2 guidance, we expect the revenue in the first half of twenty twenty one to be 80% higher than the same period last year.
Gross profit for the quarter was $29,100,000 The gross margin for the quarter was 50.7% versus 45.2% in the Q1 of last year and 48.2% past quarter. The improvement in the gross margin was due to the significant growth in revenues as well as more profitable products and sales mix this quarter. Operating expenses in the quarter were $13,500,000 This is compared with $10,000,000 in the first quarter of last year, it was $13,200,000 reflected in the previous quarter. The decrease from the previous quarter is mostly due to a more favorable sales channel mix. Operating profit in the quarter was 16.6 compared to the DKK3.7 million reported in the Q1 of last year, operating margin was 27.2% compared to 12.2% in the Q1 of last year an 18.9% last quarter.
Directed growth to revenue, while we are still in the process of adjusting our infrastructure to support this increased business volume contributed to the high operating margin. Yes, I expect that our operating profitability will be ahead of our model. Net
income for the
Q1 of 2021 was $14,600,000 or 0.33 dollars per diluted share. This is compared to a net income of as of the end of Q1 was 44,500,000. Turning to some high level balance sheet and seasonal metrics. Inventory level went up by €5,000,000 to support the continued growth expected in the coming quarter. Accounts receivables went up by $13,500,000 due to the increased sales and timing of production.
We generated $2,700,000 in cash on operations in the quarter. This quarter's cash flow we're affected by the above mentioned working capital requirements. Net cash and cash equivalents and short term deposits as of March 31, 2021 were €169,900,000 and together with the €10,000,000 that we have a long term deposit, the total cash and deposit amounted to €180,000,000
this compared with $177,800,000
at the end of 2018. With the current business momentum, we expect revenues of $63,000,000 to $65,000,000 in the second quarter. And with that, Rafi, Ravi and myself will be open to take your questions. Kenny?
Thank you, Moshe. At this time, we will begin the question and answer session. If you have a question, please raise your hand by the Zoom platform. I'll introduce you after telling you after which you may ask a question. If you are dialed in and we open your line, you'll have to introduce yourself.
And I will give a few moments to poll since we have a lot of people on the line. Our first question will be from Craig Ellis of B. Riley. Craig, please unmute yourself. Go ahead.
Yes.
Thanks for taking the question and congratulations on the very strong first quarter results and second quarter outlook team. I'll start with a clarification just on 2 income statement items. Moshe, for operating expense, you talked about expanding to support growth in the business. How quickly can operating expense dollars expand? And then secondly related to the income statement, very nice gross margin improvement.
And with the increase in the second quarter, should we expect the volume part of gross margin drivers to mean that gross margin could even expand further in 2Q?
Okay. Thank you, Greg. I'll start with the second question, with respect to the gross margin. Overall, indeed, the specific volume contributed to the improved gross margin and also the product mix was very favorable we believe that the company can operate within this margin bridge in the next quarter or so. We are talking between 50% to 52% gross margin in the coming back to our operating expenses, obviously, with the increased volume, we will increase operating expenses is supported.
The main item that will be increased is R and D, obviously, as well as sales and marketing, which has direct relationship to the business volume and sales whether we are working direct or indirect with a major impact on the operating expenses. So it will go up, but not statistically in the coming quarters. So such that we expect operating profitability will net to remain high this year.
Makes sense. And then the first real question is for Rafi. Rafi, I think I heard in your prepared remarks an expectation for the 3rd quarter's revenues to increase sequentially. So the question is really 2 fold. 1, given that the trailing 5 quarter average actual revenue gains have been around $6,000,000 or $7,000,000 Is that a reasonable expectation for the Q3?
And where do you have comparatively For high bandwidth memory. Thank you.
Now I can tell you, in general, as we said, we can See continue growing in the 2nd quarter and also in the 3rd quarter. I believe we can see a few you know each quarter gross rate. Regarding the type of applications, as we said before, in general, the advanced packaging is the major one. But all of them, we as we mentioned before, we can see compound semi, similar treatment sensor, RF, MEMS, all of them continue about in the Same level.
That's helpful. And then finally for me, the company has a very substantial cash balance of $180,000,000 including $10,000,000 of securities. So the question is, how are you thinking about Redeploying that to create value, I know in a COVID world, it's hard to get out and do the things that are needed that are often precedent actions to M and A, can you just express how you're looking at activating that cash for creating further value for shareholders?
Okay. Look, we invest a lot of efforts of searching for available companies for M and A.
I would say that
assuming we eventually we find a good company, hopefully, we can visit, we can make due diligence, and we can come to decision. This is something that is unclear At this point, it's depending where. Some territory you can fly, you can visit. Some of them you cannot do it. So we don't know yet.
We have few potential companies that we consider. And definitely, this is one of Our strategy to do it, and we invest a lot of efforts. But it's too early to say something. I would say when we find a company, when we start the process, we will share it with
the public.
That's helpful. Thanks, team. Very back in the queue.
Thank you. Thank you, Craig. Okay. Our next question will be from Charles Hsieh of Needham. Charles, your
line is open. Go ahead. Thanks for taking my questions. Can you hear me?
Yes, we can.
Great. Thanks. So I want to ask a slightly longer term question, A little bit looking beyond 2021 into 2022. First, let me start with your memory business. 1 of your largest memory customer, Athenex, yesterday announced that they are pulling in 2022 CapEx into Q1 as the decision was kind of made near the end of last month.
And I know you're expecting your memory revenue, which has been quite muted since last year, with a pickup as early as the end of this year or 2022, do you see any of the pull ins, I mean, maybe not specifically from this customer, but the overall DRAM or memory in general into the second half this year. Rami,
would you like to answer, please?
Yes, I would answer. Look, Charles, in general, we see a lot of activity in this space. And we're working very closely with our customers. I expect that there will be business. I still believe that will only happen starting early next year.
So there will be I believe, of course, we will be able to accommodate it. So but I'm not surely we will see it in the second half. I believe it will be and it will be very late this year, early next year.
Okay. Thanks, Rami. So it looks like there's at least for now, there's no change in front of the public for your memory side of the business. I wonder Great, great. Thanks.
So maybe let me move on to the other major segment, multi segment for you guys are C Mark and dispenser. Rafael did say, you expect the revenue will maintain at about the same level throughout this year, very steady, stable and continued strength. I wonder whether you're seeing any signal for 2022, whether the investment level for CMHC in terms of income up cycle again next year. I think one thing, we did hear one of the largest CIS customers, Sony last night that did just update on their long term mid to long term CapEx and I think they are raising their CapEx up by 25% for the next 3 years relative to the previous 3 year period, I wonder is it the right expectation for us to see your CIS revenue to go back to the 2020 level or close to that level next
first of all, this year level is not low. We will see about 10% of our revenues and significantly decrease compared to last year. So 10% of the business this year will go to seamless image sensors. And it's very hard to say at this stage what could be we see the increase or what is the magnitude of the increase. In general, we're speaking with several customers.
They are all talking about adding capacity for the foreseeable future, meaning late this year, beginning of next year. So I do expect that 'twenty two it will be a positive year for the Sirius image sensors. Whether it will reach last year, it's hard to say, but definitely, it will be a positive year for this segment.
All right. Maybe my last question, we know we're talking about potential upside for memory, potential upside for CMOS in the center. On the advanced packaging side of your business, definitely this year is very, very strong. And I think some of the Sir, I mean, more from pessimistic people would think maybe your business on that side of advanced packaging could be kicking. Obviously, you have a very well diversified business.
You have posted 7 consecutive year growth because of your diversify the exposure to different end markets, however, specifically on advanced packaging, I wonder what your early view about 2022 is like at this point of time. Well,
if we talk from what we talk with our customers in what we look at understanding the trends, definitely, we believe that the advanced packaging will continue to grow In the foreseeable future, meaning in the next few years. Now one of the major additions is the Fresenius integration And which is primarily today for high performance computing, and definitely, this is a trend. Rafi mentioned it in the script. And so we believe that this market continues to grow. There are a lot of new devices that are adopting advanced packaging for all the good reasons.
So if today, most of the business is paying in our greater level chips in packaging can hang out. And I would say that Progyny's integration is something in the range of about 10% of the business, this last 10% will definitely continue to grow and become far more significant in the next few years. So if we look from the market point of view, we understand the trends and where our customers are going. Definitely the advanced packaging will continue to be a major portion of our business as we continue to grow.
Thank you. Thanks. Congrats on the financial results. I'll go back to the queue. Thanks.
Thank you. Thank you, Charles. Thanks. Our next question will be from Ghass Rishard of Northland. You make it all head on now.
Yes, I do have my media self, Gus.
There we go. Can you hear me?
Yes, I can. Yes. So, I just want to
cut your business a little bit differently and just about applications in terms of 2 d, three d In other applications that are driving your inspection tools, if you give us a little color around that and sort of where you're winning when you think about it in that dimension?
Rami, please.
I'm trying to think where we are willing to turn an asset. But let's say broadly, if you think about 3 d and 2 d. So on the there is on the advanced packaging, I would say 50% is what we call 3 d Organistology, Portion and 2 d is the other 50% of the business. This is definitely a business that is we started today only, I would say, 2 or 3 years ago. So that's definitely an area that we are starting to dominate in the last few years.
So I would say this is on the Advanced Packaging, these two businesses will continue to grow. Now if we look at the other businesses, So if you take, for example, 5 gs. So 5 gs is driving very strongly our sales in instrument sensors and it's driving the overall demand in the semiconductor that we see. If you look at the auto loading business, this is coming. We see there the compound spending and the power applications, we see a driver in strong drive there.
And again, the overall 2G business is growing, and we are very well entrenched, I would say to consider major providers of this segment. If we continue and move along if you look at the cloud, definitely there is the memory business, high performance computing with the heterogeneous integration it will take a big share. Again, there we are very well positioned. And if we talk about the, I would say, the overall business like laptop tablets, all of the above and the overall selling consumption It affects us very positively. We see the demands coming from the OSATs and the IDNs that we are serving.
And again, here, we see the high performance competing, especially for the high end portion like the gaming application. So there, we gained twice on the memory and also on the heterogeneous integration. So overall, when we look in all of the above, did I answer you yes?
That's very helpful. And let
me try to cut it yet another way. Semi conductor unit growth is roughly 15% this year is kind of what people are saying. You're growing 80% in the first half, clearly outperformance relative to unit growth. When you think about the applications you address and the growth of those applications versus and new applications versus market share gains, can you attribute your outperformance on a relative basis to those two metrics? Again, market share gains and outperformance of the applications you addressed.
So first of all, I understand the question. It's very hard to give you a very quick answer. But definitely we are gaining market share. And I think in the areas that we are strong in the advanced packaging, definitely we are gaining market share. And I know there are specific customers that switched from the competition to us.
So that's definitely to give you a measure how many percent of the growth it is, it is very hard to say. I think it's very difficult to say significantly. I think where we are growing the business and taking market share is the overall inspection business, since we didn't participate in the past. We talked about the compounds in the tower area we never participated here. If we talk about the plant base, this is roughly, I would say, 10% of our business.
Definitely, it's a new business and we are growing, definitely taking market share. I think we took some market share in the image sensors last year. I'm expecting this to attribute to some of the growth that we'll see this so it's definitely a mix between these two areas, but it's very hard for me to tell you that 40% will come from there, 40% will come from others. And also when we end up the year and we will see where the growth is coming from. I think there is one more aspect that we need to keep in mind.
A lot of the applications that we are talking require 100% inspection. So the growth of the inspection and the metrology is much higher than the growth of the business all the actual numbers that we see, the 20% that you see in the company, I think roughly related to it a number of times during the this discussion, and I think this really plays very well to the actual segment that we are serving. If you take, for example, heterogeneous integration, this kind of process requires, because it's a new process, because it is very complex, it requires a lot of inspection in metrology steps, which play very much in our play into our group. So I think it is all complex, but I hope I was able to put enough color into your question.
I would like to add one more comment about this. Because when you think about 15% growth in the semiconductor, I assume you talk about, let's say, number of wafer of equivalent to 12 inches wafers. But Actually, we inspect the not the amount of wafer, but sometimes we inspect the complexity of the wafers. Assuming that we can see a trend moving from wire bonding to wafer level package, it's totally different in wire bonding. Maybe nobody make an inspection or make simply.
When you move to wafer level package, you do 100% inspection. So technology change definitely changed the demand for inspection machines. You have to consider it. The same is the DRAM as the when we talk about DRAM, again, moving from wire bonding to 3DIC. All this shifting changed the demand For equipment, special equipment.
The 15% was referring to unit growth, just to be clear. But thank you. That all was very helpful.
Thank you, Doug. We'll now move over to Patrick Ho of people, Patrick, your line is open. Go ahead.
Thank you very much and congrats on a nice quarter. I'm not surprised to see the inventory levels increase given the strong demand environment. But maybe Moshe, if you can give a little color whether you're building any inventory given some of the supply chain shortages that are in the ecosystem overall. Is the inventory build just specifically on the near term demand? Or are you trying to build a little bit of buffer to ensure
that the momentum that you've built over
the last few quarters can continue.
So, hi, Patrick. Yes, we obviously most of the inventory is for immediate use in the next couple of quarters. But given the shortage in order to be well prepared for the growth beyond that, we are also building inventory of certain inventory pieces that we think that might be in shortage. So there are some elements in the inventory which relates to the shortage.
Great. That's helpful. And maybe as a follow-up question for Ronny. You gave a lot of good color in terms of the heterogeneous integration, Some of the applications there that are driving demand as we look into next year. Can you talk about qualitatively the development work you're doing with a lot of potential customers because they're not only just for heterogeneous integration, but a lot of new processes, a lot of new stacking techniques are emerging.
And how long does it take in these type of development works to turn it from the engineering side over to high volume guide for the customer.
Well, from the customer's point of view, I think you know that this kind of technology has been developed for quite a few years. The concepts have been on the development I think today we are in the stage where these technologies are ramping to production and believe that we've been 2 to 3 years. They will be very common in the industry. And as you as we talked about Hi, performance, Klavithi. We'll be based on heterogeneous integration.
Today, you already see graphics cards in certain vendors, we're already using these technologies. The high bandwidth memory is definitely a portion So that I think this is something that is already happening and it's starting to move along. And on our view, definitely, there is a lot of difficulties. What we have been doing is A lot of partners is just working with our customers and our few customers, working with them on the application, and this is something that is ongoing as part of our business. And so this is I would say one question.
And alongside, we have a road map understanding exactly what our customers need I would say 2 to 3 years, and we are developing products and technologies that complete their requirements. So I believe that we are well positioned to respond to the market needs in to specific applications that we are a major player.
Great. Thank you.
Thank you, Patrick. Just as a reminder to everyone, if you have a question, please raise your hand on the platform. Also, if you have a We have a follow on question from Charles Shi of Needham. Charles, your line is open.
Thanks for taking additional question from me. Just want to go back to some of the comments. So you said the 55% of the systems installed are based on advanced packaging applications. I assume because of a slightly higher 3 d, some methodology in the mix or advanced packaging conditions, revenue conditions probably slightly higher than that, I wonder for the full year given that type of revenue is probably a little bit above your original expectation, whether advanced packaging contribution this year is above 50% number is Sort of indicated about 3 months ago or is it more approaching 70%
for
this year? And another one, maybe I'll just ask it together. Any update on your macro front end inspection side of the business, is it still expecting to grow in line with the corporate growth this year? Or do you expect a slightly outperformance given the Goldman, Stephen Maciejgan. Goldman, you are waiting.
So I think if you look at Charles, I'll start with the advanced packaging. So we started and we said we were about 50% this year. I think this portion will probably grow a little as we move along in the year. I think it will strengthen we have the potential this year to reach even close to 60%. This segment is very, very strong this year.
So I think we will be anywhere between the 55% to 60% this year, definitely a little bit above our expectation. And no doubt, with the heterogeneous integration and all the pay now and pay in the activity is definitely there is a lot of growth in this part of the industry. Regarding the front end of the what we call the macro inspection portion. At one point, we're out of home. This year, definitely, we are continuing to grow this business, we are talking to new customers.
We are broadening our presence. I'm not sure at this stage if we are going to outperform what we have done in previous year. It will be definitely be in the double digit
we now have a question on Raymond Runge of Shaker Investments. Raymond, your line is open.
Thank you very much. I was wondering if you could just give us the quarter's breakdown in revenue by application, if you gave that earlier. I'm
We don't provide specific details of the variable of the applications, but as we've mentioned before, on a very high level, we said that we are around 55% in the sales packaging and you said around 10% of the team is in the sales force and the rest is all other applications that we support.
Thank you. That satisfies the need.
Thank you.
Thank you, Raymond. I believe that ends our Q and A session. Before I hand over back to Rafi for his closing statement, I want to let you all know that in the coming hours, we will upload a recording of this conference call to the Investor Relations section of Camtek's website at www.camtek.com. I would also like to thank Rafi Moshe and Rami for hosting this call with investors. I also want to thank all of you for joining this call, and we would appreciate feedback you have with regards to our new format.
And with that, Rafi, I would like to hand over to you for your closing statement. Please go ahead.
Okay. 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. To our investors, I thank your long term support. I look forward to talking with you again next quarter.
Thank you and goodbye.