Camtek Ltd.

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. I'm part of the investor relations team at Camtech. All participants other than the presenters are currently muted. Following the formal presentation, I will provide some information and instructions for participating in the live question and answer session. I would like to remind everyone that this conference call is being recorded and the recording will be available on Camtech's website from tomorrow. You should have all by now received the press release. If not, please view it on the company's website. With me on the call today, we have Mr. Rafi Amit, Camtex CEO, Mr. Moshe Eisenberg, Camtex CFO, and Mr. Rami Langa, Camtex COO. Rafi 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 answer your questions. Before we begin, I'd like to remind everyone that certain information provided on this call are internal company estimates unless otherwise specified. This call may also contain forward-looking information. These statements are only predictions and may change as time passes. Statements on this call are made as of today, and the company undertakes no obligation to update any of that forward-looking information or statements contained, whether as a result of new information, future results, changes, expectations, or otherwise. Investors are reminded that these forward-looking statements are subject to risks and uncertainties that may cause actual results or events to differ materially from those projected, including as a result of the effects of general economic conditions. Risk related to the concentration of a significant portion of Camtech's expected business in certain countries, particularly China, from which Camtech expects to generate a significant portion of its revenues for the foreseeable future, but also 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 services and products, the timely development of new services and products and their adoption by the market, increased competition in the industry and price reductions, as well as due to other risks identified in the company's filings with the SEC. Please note that the safe harbor statements in today's release also covers the contents of this conference book. In addition, during this call, certain non-GAAP financial measures will be discussed. These are used by management to make strategic decisions, forecast future results, and evaluate the company's future performance. Management believes that the presentation of non-GAAP financial measures are useful to investors' understanding and assessment of the company's ongoing corporations and prospects for the future. A full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings release. I'd now like to hand the call over to Rafi Amit, Camtech CEO. Rafi, please go ahead.

Okay. Thanks, Kenny. Good morning or good afternoon, everyone. ComTech ended 2023 with record fourth quarter of $89 million in revenue at the upper end of our guidance, bringing our full year revenue to $315 million. Sales in 2023 predictably started modesty after a record year in sales in 2022. Yet, due to increased demand of HPC-related products in the second half of the year, we experienced a significant increase in orders and sales, so that Q4 came in 20% higher than the first quarter of 2023. The gross margin in the quarter came in at 49.2%, which is a continued improvement over previous quarters as we had indicated earlier this year. The operating margin also showed an improvement to 29.2%. 65% of our revenue from product came from advanced interconnect packaging applications with a substantial portion coming from HBM and chiplet modules. The remaining 35% is divided between compound semiconductors for power devices, CIS and process control applications. This achievement was primarily due to our strong position in tier one customers who manufacture HBM and chiplet devices for AI applications. We expect this demand to continue into 2024 and beyond as it has been reflected in our current orders flow, backlog and pipeline. We expect 2024 to be a record year even before taking into account the contribution of sales from FRT. Our revenue guidance for the first quarter is $93 to $95 million, which represents around 30% growth over Q1 last year. Now, I would like to give an overview of the business environment. As we have mentioned, our main growth engine are the HBM and chiplets modules. These two products are the corn stones of HPC, and there is a contention among analysts that they will continue growing in the coming years as an annual rate of 20 to 30%. Camtech is a strong player in this segment. We are present at all tier one customers in a large number of inspection and metrology steps. The HPM and chiplet integration require high yield and non-good dies to ramp to high volume production. This requirement drives the inspection and the metrology needs. In addition to that, these customer invest a lot of R&D resources to add more feature and capability to increase the performance of the HPC, and we are being frequently asked by our customers to provide new inspection and metrology solutions. As an example, at one of our major customers, we have developed tens of new inspection and metrology steps over the last year. We have recently announced receiving significant orders for HPC-related applications for delivery mainly in the first half of 2024. we are now getting initial indications that an additional substantial amount of orders are also expected in the second half. We also continue to receive orders from customers who do not belong to the HPC field. A great number of our OSAT customers continue to increase their production capacity. China is still an important market for us, but the high demand for HPC will change the distributions of our sales between the different territories. I estimate that the share of our business coming from Korea, Taiwan, and USA will increase in the coming years. Regarding FRT, The official closing was at the end of October 2023. We are very pleased with this acquisition. We are confident that FRT will meet our expectation regarding sales and profit for 2024. We are in the process of post-merger integration, which we expect to be completed later this year. FRT is well established in certain metrology applications for HPC and power devices based on silicon carbide, and we are preparing FRT to meet the increasing demand for these markets. We believe FRT has the potential to grow rapidly in the coming years. Regarding our assessment for 2024, In our last meeting, you heard us estimate that 2024 will be a record year in sales. Today, we are halfway through the first quarter, and based on our backlog and orders in pipeline, we feel even stronger that 2024 will indeed be a record year. However, it is too early to give accurate prediction about the expected growth in 2024. And now, Moshe will review the financial result.

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 appear in the table at the end of the press release issued earlier today. The FRT transaction and purchase accounting treatment are included for the first time in our non-GAAP reconciliations. Revenue for the fourth quarter came in at a record $88.7 million, an increase of 8% compared with the fourth quarter of 2022, an increase of 10% from the third quarter of 2023. The geographic revenue split for the quarter was as follows. Asia was 82% of our revenues, with US and Europe the remaining 18%. Gross profit for the quarter was $43.7 million. The gross margin for the quarter was 49.2, a slight improvement from the third quarter of 2023. This gradual improvement is a result of the efforts we have made throughout the year and we anticipate this trend to continue in the coming quarters. Operating expenses in the quarter were $18.2 million, compared with $17.4 million in the fourth quarter of last year and $17.2 million in the previous quarter. I know that this quarter we included for the first time the two months of FRT-related expenses, which explains the increase from the previous quarter. Operating profit in the quarter was $25.5 million compared to the $22.8 million reported in the fourth quarter of last year and $22.2 million in the third quarter. The increase is mostly due to the increase in the revenue and the improvement in the gross profit. Operating margin was 28.7% compared to 27.8% and 27.6% respectively. Financial income for the quarter was $5.7 million at a similar level to the previous quarter and higher than the $3.8 million reported last year. The increase from last year relates to significantly higher interest rates on our cash balance. Net income for the fourth quarter of 2023 was $28.2 million or 57 cents per diluted share. This is compared to a net income of $24 million or 50 cents per share in the fourth quarter of last year. Total diluted number of shares as of the end of Q4 was 49.1 million. Turn into some high level balance sheet and cash flow metrics. Cash and cash equivalents, including short and long-term deposits and marketable securities as of December 31st, 2023 were $448.6 million. This compared with $517.1 million at the end of the third quarter. The decrease is due to the $100 million cash for the acquisition of FRT. We generated $34.2 million in cash from operations in the quarter on the back of an increased revenue and good collection. Inventory level increased to $94.9 million. The increase over the previous quarter is in part to support the anticipated sales growth in the coming quarters, as well as the addition of FRT inventory. Accounts receivable decreased to $87.3 million in the quarter, despite the increase in revenue and the addition of FRT. This was done primarily as a result of strong collection in the quarter. Our day sales outstanding, DSO, decreased to 90 days. As Raffi said before, we expect revenue of between 93 and 95 million dollars in the first quarter, and that we look forward to a year of growth in 2024. And with that, Raffi, Rami, and I will be open to take your questions. Kenny?