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spk08: 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.
spk06: 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.
spk05: 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.
spk08: Thank you, Moshe. At this time, we will begin the question and answer session. If you have a question, please raise your hand via the Zoom platform. I will introduce you and ask you to unmute, after which you may ask your question. As we have a lot of people on the call, we will take a few moments to poll for your questions. Our first question will be from Craig Ellis from B Riley. Craig, you may go ahead.
spk01: Yeah, thanks for taking the question and team. Congratulations on a very strong result and a strong outlook. I just wanted to start with a clarification on the strength in revenues in the second quarter and in the guidance versus my model, at least 2Q is about three and a half million better than the guide about $5 million better. Can you just talk, Moshe or Rami, about where you might have seen strength that is above expectations from three months ago across the business, whether it's in CIS or advanced packaging or other areas?
spk06: Hi, Craig. I think it's both. You can see there was a very strong quarter for the CMOS image sensor. 18% of the revenues came from it. It was higher than we expected, as we discussed in the previous quarter. No doubt on the advanced packaging, there is a lot of activities and there is a group strength in the short term and strength looking forward in the use of heterogeneous integration and fan out of both. It's a very high increase. We're getting a lot of repeat orders and also new customers. So overall, there is, I would say, yes, a little bit more revenues than we expected. And definitely the outlook is very positive.
spk01: That's really helpful, Rami. And as a follow-up question, I wanted to tack to something that's a little bit longer term. I think in the press release and in the comments, the company commented on visibility into early 2022, which is unusual for this time of year. I was hoping that you could frame up what you're seeing as you interact with your various customers and as you look out to 2022 on trends that are at play, either with things that we've just talked about, like image sensors or potentially high bandwidth memory, front end macro inspection, and then advanced packaging as we move to much more of that with high performance compute. How did the revenue dynamics change? frame up with their gifts and takes as you look to calendar 2022? Not asking for guidance, but just your sense of the market next year.
spk06: No, no. I think at this stage, what we can see is people are positive and starting to ask for slots in early next year. I think I mentioned specifically on the D1, we have been asked, we have a solid forecast for sales for the D1 market, which shows some of the strength of the market. I think when we look forward, there is nothing very specific that comes out. I think it comes across from our applications, CMOS image sensors. It's obviously the advanced packaging. And in the advanced packaging, the memories. And we see also strength in other areas as the compound semi, power devices, RF. No doubt the industry is moving in a very positive momentum. People are very anxious to see deliveries. They want to see their machines already in their facilities. And then as a result, people are starting to talk about slots for early next year. So the overall picture is definitely very, very positive.
spk01: That's encouraging and thank you. I'll shift the next question before getting back in the queue over to Moshe. Moshe, real nice job on the margins in the business. But the question is, one of the things we've seen, not just in semiconductors and capital equipment, but more broadly in technology, is that there are supply chain costs that in many cases are impacting margins. It doesn't appear that that was the case in the second quarter or in the color that we're getting on margins for the third quarter for Camtech. But can you just clarify, you know, were there any supply chain issues that would have impacted shipments or your ability to deliver? And is there any gross margin impact related to those issues in the quarter or the upcoming?
spk05: Yeah, so no doubt that there is some pressure from the supply chain across the board. We see a shortage. We see price pressures. And with such a huge growth year over year, this comes into play in the last few months. So far, we've managed to walk around it. There are some price increases, but not significant that impact our margins. We've managed to also walk through the shipping expenses and they are now in a reasonable levels. So overall, we do see some pressure and some supply chain issues, but not to the extent that they have huge impact on the margin itself.
spk01: That's helpful. Thanks, team, and congratulations again.
spk08: Thank you, Craig. Our next question will be from Charles Shi of Needham. Charles, you may go ahead with your question.
spk07: Thank you for taking my question. Congrats on the nice results. I think the first question I want to ask It's around your advanced packaging side of the business. Obviously, 2021 has been very, very strong. And I understand there are things you consider as secular. For example, I do remember you've said your tools can inspect from a few million to possibly a couple of tens of million bumps per wafer. But that requirement is really coming up and you've been asked to inspect about 500 million bombs per wafer at about the same time, or maybe a similar throughput. So how do we think about That secular trend in terms of complexity, but we also face another thing that may be a little bit more transitory here because 2019 2020 there may be a little bit under investment by the industry and 21 that was a little bit of catch up demand. How should we think about how the secular versus transitory demand are playing out in 22? How does that shaping up from your vantage point about the advanced packaging business of yours?
spk06: Thank you. Let's talk about the secular. I think you mentioned the number of bumps. So today I would say that the typical wafer would have about 10 to 20 million bumps per wafer. We are getting wafers today from 60 to 100 million bumps. And obviously down the road, there's going to be a lot more bumps per wafer. So this is something that the industry is going to go through because of the requirements for power consumption, for bandwidth, for all kinds of things that are required as the components go and progress. So this is a trend. This is a secular trend. This is an enabling technology to move ahead in the roadmap of all the major players. So that's something that is going to happen and to continue. And it relates to primarily heterogeneous integration. You talk about FENAU and all the other segments are going to grow. So maybe there is a catch up this year and there'll be less catch up next year. But when I look two, three, five years ago, no doubt that this trend is going to continue. And I think as the leader in this segment, definitely we are going to enjoy it in the longer term, in the shorter term and in the longer term.
spk07: Thank you. So thank you for the nice color. I wanna... over to the other segment of yours, CMOS image sensor. I heard you, you did say the other segment, DRAM, you see some pickup in early 2022. And how about the CMOS image sensor, which has been a very, very important sector and a segment that kind of serves as one that dampens the decline in bat ears from other segments. So the thing I want to ask is one trend we're really seeing in CMOS immune sensor is the IDMs, appears to be outsourcing more to foundries, especially to foundries in Taiwan. We've heard Samsung may be outsourcing more to UMC. We also heard TSMC may be setting up a FAB in Japan, which could take some of the outsourcing orders from Sony. I wonder whether you view that kind of outsourcing trend from the CMOS image sensor IDMs to foundries being net positive, net negative, or neutral to your business? And the second part of this question is really, It has been strong this year and especially this quarter, but on a round-the-clock basis, CMOS image sensor seems to be lower this year than 2020. Are you seeing any signs so far that things could turn more positive next year? Thank you.
spk06: So I'll start with the first question. I think the trend to outsource by some of the players to go to foundries, I think it's a neutral event from our point of view. I don't think it will affect drastically our business. We are going to enjoy this business anyway, wherever it goes. Now to your second question. I think we said in previous calls that we expect that the business this year will be double digits. We thought it will not be as high to the extent that we enjoyed from percentage point of view as last year. We thought it will be lower in percentage, but still significant. will be double digits. We're still forecasted in the same way. I think the second quarter was extremely strong. The next quarters may be a little bit lower, the numbers, but all in all, we are seeing and talking to our customers. We continue to see in the next few quarters, healthy growth and expenditure in this area. So no doubt, the CMOS image sensors, we expect it to continue to be a significant part of our business.
spk08: Thank you so much. Thank you, Charles. Our next question is going to be from Thomas O'Malley from Barclays. Tom, please go ahead.
spk03: Hey, guys. Can you hear me all right? Yes, we hear you well. Great, great. Thanks for taking my questions and congrats on the next results. My first one's really for Moshe. When you look at this past quarter, you're already operating above your long-term model. The gross margins are great and the fall through is really great as well. You mentioned in your prepared remarks that you're adjusting expenses to kind of match the run rate of your business. Can you talk about, one, the timing of those rolling on expenses into the back half of this year? What should we see in terms of those additional investments and the timing around that? And then, two, if you're able to operate at these better gross margins, could you kind of update us on what a new or what an updated model may look like given the success that you're having in some of the end markets you are?
spk05: Hi, Tom. So first of all, I'll touch upon the gross margin question. We operate at this revenue level between 50% to 52%. Depends on revenue mix, depends on profitability of the deal mix. And I don't expect to deviate much from that perspective, even with the supply chain pressure or with other issues around it. So I believe that between 50% and 52% is the right margin for us to operate at this level. With respect to operating expenses, we are in a process of adding headcount across the board, mainly in R&D functions, as well as in production and customer support. That's the main areas that we are hiring for. and that these people are needed to support the growth. We are talking about the process that will take, I would say, three quarters, Q3, Q4, and Q1. And throughout this time, we will adjust the headcount level. And at the same time, we are adding some other operating expenses to support the growth. All in all, I think that what we are going to see in the next three quarters is relatively higher operating margin than our target model. So the current level of 27% will stay with us in the next three quarters. And then based on our ability to adjust the expense level, I think we will be anywhere between 25% and 27%. So that's kind of how I see the long-term or the mid-term in terms of operating profitability.
spk03: Great. That's helpful. My follow up was really about the visibility into the beginning of 22. You mentioned some activity with DRAM customers. You also mentioned the prepared remarks about some new OSAC customers in China. Can you talk about the mix of business into next year that you're seeing? Where are you feeling the most comfortable? I know you mentioned DRAM a bit earlier, but particularly in China, what's the cadence of new customers that are coming online? And are they representing a large part of what your forecast is looking like into next year?
spk06: I think when we talk about the applications, it's not just in China. I think it's similar in most of the territories. 60% is advanced packaging. In advanced packaging today, it's a technology that is used more and more for high-end applications, and we see it everywhere in all the geographies. And this definitely is strong and going to stay strong. When we talk about DRAM, it's again, it's as part of the advanced packaging. I would say it's a specific application for advanced packaging. And then are all the rest of the application. If it's front-end, it's an area that we are gaining momentum on. And it's power devices, compound semi, of course, CMOS image sensors that we discussed. So basically, we don't see a major change in the application mix. I think they're going to stay around the numbers that we mentioned.
spk03: Great. Congrats on the nice results, guys.
spk08: Thank you. Thank you, Tom. As a reminder, if you have a question, please raise your hand on the platform. We will give a few moments for people to raise their hands. Our next question will be a follow up from Craig Ellis from B Reilly. Craig, please go ahead.
spk01: Thank you for taking the follow up question. Just a very strong performance on numerous facets of the business, including converting strong operating performance into cash and with the cash investments balance up to $200 million. It's a good opportunity just to check in and see what the company is seeing on the on the potential acquisition front. I know that's part of the strategy. I know that the COVID restrictions make it hard to do some of the front end execution that go along with that. But can you give us an update on how you're thinking about M&A and this environment team? Thank you.
spk05: Yeah, Greg. Yeah, indeed. We are very focused on the M&A front. We said that this is our number one priority for cash use. we and actually the team that is involved in this process is rafi rami and myself so we are really investing a lot of efforts and time on that i think we are making progress you know we we have a list of targets and we are very active um nothing that you know will be immediate but uh we hope that uh we will have something to to report uh at some point we we are working hard on that and There are opportunities, and hopefully something will come out of this process.
spk01: Moshe, I don't know if it's possible, but can you elaborate a little bit on areas of technology interest, geographic interest, or maybe customer acquisition interest that might be at play as you and Rafi and Rami work through different options and think about how you use M&A to position Camtech for another leg of growth?
spk04: The way how we select the potential companies is first of all based on, let's say, first priority to find a company that we can see a good synergy between us. That's number one priority. Other priority, of course, it's always to be in the same market that we are active in. And we try to select a profitable company. We don't want to look on startup. And even if we find some potential company, the fact that we cannot travel We cannot visit, we cannot, you know, accelerate this process. This is definitely, it is an obstacle and it's not so easy for us to manage it only by remote control. So definitely this type of M&A right now in this time is, you know, going slower than we expected. But definitely we try to find good companies with potential that could be match company very well.
spk01: Indeed. Zoom works great for an earnings call. Maybe not as great for the early part of an M&A engagement. Rafi, thanks so much for that caller. Thanks, team.
spk08: Thank you. Thanks, Craig. Our next question will be from Patrick Ho from Stiefel. Patrick, please go ahead.
spk02: Thank you very much and congrats on the nice quarter. Maybe a question for Moshe first in terms of the supply chain. You addressed it in your prepared remarks and some questions, but I was just wondering from an inventory building perspective, do you believe that 3Q is probably the peak in terms of trying to get additional parts to buffer yourself or is this something that could also carry into Q4 as well?
spk05: We are in a process of building up inventory further to support the growth. And we are taking a commitment also for 2022 now, given the strength and the improved visibility into the beginning of 2022. So no, it's not the peak. We continue to build up inventory as we continue to increase revenue levels. Yeah.
spk02: Great. That's helpful. And maybe just as a bigger picture question on the technology front, you know, you mentioned heterogeneous integration several times on the call, and that's obviously a key growth market in the advanced packaging segment. I guess, the types of devices that you're seeing the greatest interest. One of them is high-performance computing. But what other areas or what other type of devices are you seeing the interest, especially on the heterogeneous integration front?
spk06: I think it's primarily today high-performance computing. This is, I would say, the main application.
spk02: Great. Thank you very much.
spk06: You're welcome. Thank you.
spk08: Thank you, Patrick. Thank you, Patrick. and that uh concludes the question and answer session uh before i hand over back to rafi i'd like to uh remind everyone that in the coming hours we will upload the recording of this call to the investor relations section of camtex website I want to thank everybody for joining this call. And again, we'd appreciate any feedback you have with regards to this new format. And with that, I'd like to hand back to Rami for the concluding statement.
spk06: I would like to thank you all for your continued interest in our business. Again, I would like to thank all of our employees and the management team for the tremendous performance and we look forward to continuing it. To our investors, thank you. long term for support. I look forward to talking with you again next quarter. Thank you and goodbye.
spk08: That ends the conference call. You may go ahead and disconnect. Thank you very much.
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