Camtek Ltd.

We will start in another minute. Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtech's results Zoom webinar. My name is Kenny Green and I'm part of the investor relations team at Camtech. All participants other than the presenters are currently muted. Following the formal presentation, I'll 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 Camtech's website from tomorrow. You should have all received by now the company's presentation. If not, please view it on the company's website. With me today on the call, we have Mr. Rafi Amit, Camtex CEO, Mr. Moshe Eisenberg, Camtex CFO, and Mr. Rami Langa, Camtex COO. Rami will open by providing an overview of Camtex results and discuss recent market trends. Moshe will then summarize the financial results of the quarter. Following that, Rafi, Moshe and Rami will be available to take your questions. Before we begin, I'd like to remind everyone that certain forward-looking information provided in this call are internal company estimates unless other was specified. 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 obligations to update any of the forward-looking statements contained, whether as a result of new information, future events, changes in expectations or otherwise. Investors are reminded that actual events or results may differ materially from those projected, including as a result of the effects of general economic conditions, the effects of the COVID-19 pandemic on global markets and on the markets in which we operate, including the risk of continued disruption to our and our customers, providers, business partners, contractors' business, the risk related to concentration of a significant portion of Camtech's expected business in certain countries, particularly China, from which we expect to generate a significant portion of our revenues for the coming few quarters. as well as 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 our products, the timely development of our new products and their adoption by the market, increased competition in the industry, price reductions, as well as due to other risks identified in the company's filings with the US SEC. Please note that the safe harvest statement in today's press release also covers the contents of this conference call. In addition, during the call, certain non-GAAP financial measures will be discussed. These are used by management to make strategic decision, forecast future results, and evaluate the company's current performance. Management believes that the presentation of non-GAAP financial measures are useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future. For reconciliation of non-GAAP to GAAP financial measures are included in today's earnings press release. I would now like to hand the call over to Rami, Camtex COO. Rami, please go ahead.

Thank you, Kenny. Good morning and thank you for joining our call today. We are enjoying a continuing growing demand for our systems, which has allowed us to demonstrate record financial performance quarter after quarter. We ended the second quarter of 2021 with $67.5 million in revenues, over 52% gross margin, and with 27% operating margin. The strong profitability is a result of a rapid increase in sales and favorable product mix. Before I review the second quarter, I would like to give a brief overview of the market environment. We're experiencing demand from all territories and especially from Asia. We expect to show continuous increase in sales in the next two quarters and we see positive signs for Q1 of 2022. based on forecasts from all segments and specifically the DRAM. Our revenue guidance for the third quarter is 69 to $71 million. The reasons for the increasing demand of semiconductors, as we mentioned in previous scores, are fueled by the transition to 5G mobile phones and the increased demand in data centers. The 5G-based phones include new packaging technologies such as system in package, advanced CMOS image sensors, advanced packaging, RF and power device modules. In addition, we see the automotive industry undergoing a major change with electrification, connectivity and autonomous driving. We expect Comtech to continue benefit from all these trends in the next few years. Our success is a result of secular trends that we have been discussing in the past, which have come to fruition, and we are enjoying them now. Mainly, the transition to advanced packaging with heterogeneous integration and fan-out growing at a very fast pace, requiring extensive inspection and metrology, as well as the increased demand for seamless image sensors. China is becoming a major territory in the packaging segment. Three out of the top 10 OSATs are Chinese. Most of the other foreign OSAT have large facilities in China and we see new Chinese OSATs entering the market. Contech has been active in China for many years and is well positioned in the semiconductors market. Our global market position coupled with our technology leadership enable us to leverage on the opportunities in the chinese market in addition penetrate new segments such as the front end we accept we expect over 80 percent growth year over year for the first nine months of 2021 we believe that we will outperform the strong industry growth due to our focus on the fastest growing segments, technology leadership, our ability to respond quickly to customers' demand, excellent local support, and our strong position in Asia. I would like to highlight a few points about Q2. 88 of our sales came from Asia, with China being the largest territory. About 60% of the systems are for advanced packaging application, including fan-out and heterogeneous integration, which are expected to continue growing in the coming quarters. CMOS image sensors is also a solid segment for ComTech, and 18% of our revenues were sold to this segment. We have a healthy backlog for the second half of the year. We are in the process of expanding our production capacity to address our long-term growth strategy. We're adding clean room space for integration and testing of our systems. In addition, we are increasing our inventory levels and headcount to support the increased demand. To summarize, high demands for semiconductor components have been leading to an increasing demand for inspection and metrology systems. ComTech is providing its customer with reliable, high-performance systems tailored to their special requirements. ComTech is strongly positioned in the market, and as things stand today, we expect 2021 to 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.

Thank you, Rami. 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 tables at the end of the press release issued earlier today. Second quarter revenues came at a record level of $67.5 million, an increase of 82% compared with the second quarter of 2020 and 18% compared with the previous quarter. The geographic revenue split for the quarter was as follows. Asia was 88% of the quarter with the rest of the world, 12%. Gross profit for the quarter was $35.2 million. The gross margin for the quarter was 52.1% versus 46.1% in the second quarter of last year and 50.7% in the previous quarter. The improvement in the gross margin was due to significant growth in revenues as well as more profitable product and sales mix this quarter. Operating expenses in the quarter were $16.7 million. This is compared with $10.7 million in the second quarter of last year and to the $13.5 million reported in the previous quarter. The increase from the previous quarter is mostly due to increased volume and sales channel mix. Operating profit in the quarter was $18.5 million, compared to $6.4 million reported in the second quarter of last year, and $15.6 million in the previous quarter. Operating margin was 27.4% compared to 17.2% and 27.2% in the previous quarter. The high operating profit is a result of the high gross margin together with the rapid growth in revenues while we are still in the process of adjusting our expense structure to support the increased volume. We expect same level of operating margin in the next couple of quarters. Net income for the second quarter of 2021 was 17.1 million dollars or 38 cents per diluted share. This is compared to a net income of $6.3 million or 16 cents per share in the second quarter of last year. Total diluted number of shares at the end of the second quarter was 44.8 million. Turning to some high-level balance sheet and cash flow metrics, inventory level was $59 million and it went up by $10 million over the quarter. This is to support the current demand for our products and to ensure the availability of key components. Account receivables went up by $5.8 million due to the increased sales offset by improved collection in the quarter. We generated $19.9 million in cash from operations in the quarter. Net cash and cash equivalents and short-term deposits as of June 30, 2021, were $189.3 million. And together with the $10 million cash that we have in long-term deposits, the total cash amount is $200 million for the quarter. This compared with $180 million at the end of the first quarter. With the current business momentum, we expect revenues of 69 to $71 million in the third quarter. And with that, Rafi, Rami, and myself will be open to take your questions.