Ehud Helft - GK, IR Rafi Amit - Chairman Moshe Eisenberg - CFO.

Brett Piira - B. Riley & Co. Jay Srivatsa - Chardan Capital Markets Krishna Shankar - Roth Capital Brett Ira.

Welcome to Camtek’s Second Quarter 2014 Results Conference Call. All participants are at present in listen-only mode. Following management’s formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded. You should have all received by now the Company’s press release.

If you have not received it, please contact Camtek’s investor relations team at GK Investor Relations or view it in the News section of the Company’s Web site, www.camtek.co.il. I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin..

Thank you, and good day to all of you. I would like to welcome all of you to Camtek’s second quarter 2014 results conference call and I would like also to thank Camtek’s management for hosting this call. With us on the line today are Mr. Rafi Amit, Camtek’s Chairman and CEO, and Mr. Moshe Eisenberg, Camtek CFO.

Rafi will discuss some of the recent development and provide an overview of Camtek’s strategy going forward. Moshe will discuss the financial results in second quarter and the outlook for the third quarter. We will then open the call to take your questions.

Before we begin, I'd like to remind our listeners that certain information provided on this call are internal company estimates unless otherwise specified. This call also may contain forward-looking statements. 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 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 changing industry and market trends, reduced demand for services and products, and timely development of new services and products under 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 statement in today’s press release also covers the content of this conference call. In addition, during this call certain non-GAAP financial measures will be discussed. These are used by management to make specific decisions, focus future results, and evaluate the Company’s current performance.

Management believes that this presentation of non-GAAP financial measures is useful to investors’ understanding and assessment of the Company’s ongoing core operations and prospects for the future. A full reconciliation of non-GAAP to GAAP financial measures is included in today’s earnings release.

I would now like to hand over the call to Rafi Amit, Camtek’s Chairman and CEO. Rafi, go ahead, please..

Great, thank you, Ehud. Hello to everyone and thank you for joining us. We are very pleased with the result of the second quarter. Revenues were in line with our expectations and came in at $23.1 million, at the center of the guidance range which was $21 million to $24 million for the quarter.

We are also pleased with the high margins across the board leading to a good level of net profitability in the quarter. Our non-GAAP operating income came in at $2.7 million and non-GAAP net income at $2.3 million. I would like to now go into the details of each of our two main markets.

The semiconductor inspection and metrology market particular in advanced packaging continuous to be solid and all sign point was strong year in 2014 with double digit organic growth for our semiconductor business.

We continue to invest in our growth in this business and at Semicon few weeks ago, we launched and begun sales of our next generation semiconductor inspection and metrology platform, which we have named Eagle, designed to support OQC application through vacant market and especially for that advanced packaging segment.

This is a milestone event positioning our semiconductor product line with the latest cutting edge inspection, metrology technology and expands our total addressable market in both 2D inspection and 3D metrology.

We see the fast growing advanced packaging market heavily reliant on advanced inspection and metrology to achieve the affordability and the ability required for the commercial success of 3D IC. In the PCB market, our market position remains strong and our Phoenix platform continues to be perceived as a leading inspection tool in the industry.

Our sales continues in line with our expectation and this market overall is stable. I would like to spend a few moments discussing the commercialization process of our 3D functional inkjet technology product for PCB solder mask applications, a product, which is now known as Gryphon. Our two beta sites have been ongoing for the few months now.

The results we are seeing are very good. We expect that these two machines will move into full production at this two customers and our plans are very much on track.

The more we run the machine in the production environment as well as meeting with potential customers, the more confidence will come in our belief that inkjet technology for solder mask will be the dominant technology in the PCB industry for years to come. During the first quarter we expect to begin initial, commercial Gryphon installation.

This means we would expect to see revenue from Gryphon in 2015. We intend to strongly leverage our existing install base and marketing channels worldwide to sell this product. As we have said before, we expect that the sales cycle and the penetration process will be gradual as we are introducing a new and revolutionary solution to the marketplace.

To summarize, I’m very excited with regard to our future, as we move through 2014 and especially as we approach 2015 and beyond I see tremendous potential for Camtek. I would now like to hand over to Moshe for a more detailed discussion of the financial results of the quarter. Moshe..

China was the strongest region representing approximately 38% of overall revenues. Taiwan was 26%, Korea was 6% and the rest of Asia was 17%. U.S. sales accounted for 10% with the rest of the world remaining 12%. I will now summarize the rest of the financial results. Unless otherwise stated I will summarize the rest of the results on a non-GAAP basis.

The reconciliation between the GAAP and non-GAAP results appear in the table at the end of the press release issued earlier today. Gross profit for the quarter was 11.5 million, representing a gross margin of 49.5. This is compared with a gross margin of 44.5% in the second quarter of last year.

I do note that the gross margin in the current quarter is particularly high, above the higher end of our normal range. The exceptional high gross margin is mainly due to a unique revenue mix in the quarter. Operating expenses in the quarter were $8.8 million. This is compared with $8.7 million in the second quarter of last year.

R&D expenses were 15% of revenues versus 16% last year, while SG&A expenses were 23% of revenue, the same as last year.

Looking ahead, I do note that we are expecting to increase our operating expenses in the coming quarters as we are increasing headcount, primarily in preparation for initialization of our 3D functional inkjet technology product - Gryphon. That was the end of the year. I also note that the ongoing strength of the Israeli shekel versus the U.S.

dollar continue to have a negative impact on our operating expenses across the board. Operating profit for the quarter was $2.7 million or 11.5% of revenue. This is compared with an operating income of $1.2 million in the second quarter of last year. Net income for the second quarter of 2014 was $2.3 million or $0.08 per share.

This is compared to a net income of $1 million or $0.03 per share in the second quarter of last year. Net cash and cash equivalents and short term deposits as of June 30, 2014 were $20 million. This is compared with $20.3 million as of June 30, 2013.

We had a negative operating cash flow in the quarter of $3 million, mainly due to a timing of collections. During July we have collected a significant amount and we don’t see this as an issue. During the second quarter we also increased inventory by $1 million.

This was primarily due to the launch of two new products, the first one being the launch of the new semiconductor platform the Eagle, and the second being the introduction of the 3D inkjet systems the Gryphon. In terms of guidance for the third quarter of 2014, we expect revenues at around the same level as those of the second quarter.

The current run rate represents annual revenues over $90 million in 2014, versus $85 million in 2013. Moreover I note that the 2013 revenue included the contribution of a few million of dollars of revenue from the seller business line, which has significantly decreased this year as a result of our strategic decision to focus all other areas.

We will now open the call for questions. Operator..

Thank you, sir. (Operator Instructions) The first question is from Brett Piira of B. Riley & Co..

In your guidance, just what would you expect each of the segments? Maybe you think semi can grow this quarter sequentially?.

Basically our guidance represents a slight quarter-over-quarter and this actually reflecting flat revenue in both of our major markets, PCB and semiconductor..

Maybe just on the semiconductor side, can you just give us an update of what you think that your served available market is there and just how fast you’re seeing advance packaging, when can we see PSV use come into play when your growth can really pick up?.

Okay. Maybe I can give you some information about it. Actually, we do not know exactly how fast this grows and how it’s going to help. And what we can see here and more and more supplier move to this technology.

And everyone that just today considered purchasing system definitely would like to see the system that can meet this future demand, because I believe that this is let say an evolution process of moving to TSV and to all this 3DIC. So I can’t tell you exactly if it’s going to be 5%, 10%, 20% or more percent.

We also based on survey and a lot of article about it and most of them predict something like 18% to 20% growth per year, starting from this year..

Maybe one more on the Gryphon side and then I’ll jump back into the queue. It seems like expectations as a whole are unchanged.

Does that mean that your unit expectation outlook for a calendar '15 is kind of unchanged?.

I am not sure if I understood your question..

I think before you’ve given a unit expectation that you think that Gryphon can hit in calendar '15, is that unchanged or are you providing any outlook for the year?.

I think regarding the Gryphon, we are meeting our expectation. We -- as I explained from technology point of view we are ready for sales, okay. The machine running in production --running production load. We now focus on operation and building machines. So the first few machines that will be ready for sales will be ready by the beginning of Q4.

This is why we can start installation not before beginning of Q4. So this information, we gave it few months ago. And we keep this schedule..

The next question is from Jay Srivatsa, Chardan Capital Markets. Please go ahead..

Rafi, could you give us an update on what you’re seeing in terms of demand for Eagle.

I know you introduced it few weeks ago? What has been the response from customers and when do you start to see real meaningful shipments there?.

Okay. First of all the Eagle running in one of our customer on production law day-by-day and the result are very positive. And based on this, we already start the selling process. We sold few systems from the Eagle.

And definitely most of our advance customers, when they consider placing order for us, they would like to see the Eagle as their next product. And I would say the main reason is the 3D capabilities in term of support and accuracy. Because all the 3D, I see the TSV. This technology, the main we show is what we called Micro Bump.

And today the demand is to go up to two micron height of bump. And it’s not easy to get million of bumps or wafer and give it precise result and high throughput. So we proved that we can do it and we do. Their profitability is excellent. So customers, if they right now placing order, they would like to (indiscernible)..

Okay. In terms of the guidance, it appears -- there seems to be clear indications that the semiconductors equipment cycle is on upturn, but your guidance seems to reflect more of a flat quarter.

So can you help us understand, what the disconnect is between what we’re hearing in the market from what you’re giving in terms of your own guidance?.

Okay, I am not sure what type of information you have, but we sell to the back-end market. Usually delivery time that in the back-end could be sometimes six weeks, eight weeks. So some customer delay their decision about when to buy, when to place order until the last minute.

So right now, it’s based on booking that we have and what we call in the pipe, a discussion with customers. Based on this we can predict what it is going to be but we cannot do it for sure. And we always try to be conservative and to give what we know at this moment. So although the trend is for growth but it’s a matter of timing.

Usually in the back-end they will not place order, if we don’t get the order from their end-user. So this is like, one depend on the other and sometime we can see, we get order, then they want delivery time in few weeks. So this is the way how our segment works.

So I think believe that if you talk about in overall trend, definitely we also, in the yearly growth rate, we see about 20% growth and this is nice, but we can see -- maybe in one quarter, we can see more, the second quarter a little bit less. So eventually in the yearly level, I still feel that this is going to be the growth rate..

Fair enough. Last question for me.

In terms of the Gryphon, given some of the tests that you’re running, what has been the feedback from the customers in terms of the product itself and how does the Gryphon compare with LDI that’s being used pretty extensively in the industry? And what do see as a switching cost that your customers have to incur before they move over to the Gryphon?.

Okay, first of all I would say depending where do you see it, in general the LDI right now doesn’t fit solder mask application because the low energy. Usually for solder mask application, you can see it mainly in Asia, in Japan, some DI. It’s called direct imaging. We provide that is not laser at all because laser cannot provide the energy.

But in general, you’re right because when customer use LDI for the external layer, definitely it cannot run the whole lot with a mask. It needs something like LDI or like DI, any tool that can solve the registration and alignment problem. In this case, LDI can do it, DI can do it and our inkjet technology can do it.

But when you go and try to compare the cost or price, so we are about 40% of LDI or DI or all this type technology. This is from cost point of view. Addition to that there are many more benefit that only this technology can provide. So customer can see it immediately and like it very much.

I would say that the main obstacle or what can -- if we talk about risk, is how long it takes to the end user to accept the appearance because when you use printing or spraying or any other technique of applying solder mask, the texture is not the same as they used to see today.

It’s passed all the qualification and all the tests, but it’s a matter of -- they used to see something. Now a little bit not the same. They cannot see it with bare eyes only by microscope. Some of them say, okay, we like it very much, some say no, but it’s not the same as we used to see.

So this is what we call an education of the market and this is why we said it may take time to convenience end users to adopt this technology. But I am so confident that eventually this technology will be the only technology because all other benefit and the functionality and also the appearance, we think it’s very nice as well..

Very good. Last question maybe for Moshe.

In terms of OpEx and going forward any CapEx expenditure? It looks like you’re guiding for some increase due to Gryphon and as you look at 2015 when you get into more of a formal launch of these products, what level of CapEx should we expect?.

The level of CapEx or OpEx you’ve asked?.

Well, both. Please give us both if you could..

Okay, generally speaking we’re gradually starting to increase mainly headcount to support the launch and the start installation of the Gryphon. I think the full impact will probably be fully materialized into 2015. Still early but I would say it's probably between $1 million to $2 million additional operating expenses on a yearly basis.

As for CapEx we don’t see any material increase in capital expenditure. I think we’ve mentioned if last time in the conference call that if at all we need some type of a solution for the ink production, not necessarily we will do it in house but we can use either solutions such as sub-contractors that can produce the ink for us.

So I don’t see any significant increase in CapEx in 2015..

Next question is from Krishna Shankar of Roth Capital. Please go ahead..

Yes, congratulations on the result. With the initial good feedback on the Gryphon product, can you give us some sense for how quickly the Gryphon products could ramp in 2015 and maybe a range for the number of units you may expect to ship in 2015..

The one million dollar question.

This is a matter of, as I mentioned we believe that if -- not if, as we said we intend to start the selling process, meaning demo center installation in a few customer sites during the first quarter and when we get more I would take sense about how long it takes to get qualification and acceptance by the end user and when I said end users it’s not our direct customer like the PCB shops, it’s their customers.

When we get some feeling, how long it takes them to accept, to approve it, then we can know exactly how many systems we have to start building. In Israel for example, in our two sites we make the most end users and they like very much and they already start running production lot and they get [indiscernible] and it go very well.

So we have to do it in the U.S. as well, but there are about you know 1000s of customers and I would say that when few customer will accept it, it could be go very quick.

So in general I believe that by the end of this year, we know for sure if we can sell during 2015 20 machines or 40 machines, or 50 machines, but we are preparing some inventory to start the process, but also I believe that always the longer the item we also are going to place order.

So we have to prepare ourselves for any direction or for any response depending on the trend of the market..

Okay, and then the Eagle product line for the semiconductor market, will that contribute most of the growth for 2015..

Yes, in general the semiconductor, we predict every year roughly like 20% growth rate in general, while the PCB inspection very solid. We don’t see -- because in general as a mentioned in the semiconductor the driven for gross is technology change.

Customer moved from a package to different advanced packaging and this advanced packaging needs much more inspection tools. So this is why we see more demand and growth in this specific area. On the other hand PCB, the technology is very stable, very solid. You don’t see any de-revolution over there.

So it depend on how many system, how many tablet, how many laptop the market need and buy and usually it’s one digit growth, not more than this. So this is why we don’t see the growth come from the PCB, unless we talk about the 3D inkjet, but this is again technology change.

Technology driven can go to two digits growth and if it’s just organic growth, nothing special it will be about 5%, 7%. Thank you..

Great, thank you..

The next is a follow up question from Brett Ira..

Hey, thanks, maybe just one more on your gross margins.

In the outlook would you expect them to pullback then to a more normalized mid-40% rate?.

I would be very happy to see this kind of margins in the following quarters, it could help them but this quarter was exceptionally high. Again it all depends on revenue mix and, so this quarter was high. I don’t see that -- for modeling purposes I wouldn’t take this as our gross margin moving forward.

Most likely we will go back to the normal gross margin rate..

Thank you. (Operator Instructions) Please stand by while we poll for your questions. There are no further questions at this time. Before I ask Mr. Amit to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available on Camtek’s Web site, www.camtek.co.il beginning tomorrow. Mr.

Amit, would you like to make a concluding statement?.

Okay. I would like to thank you for your continued interest in our business. I look forward to talking with you again next quarter. Thank you and goodbye..

Thank you. This concludes the Camtek second quarter 2014 results conference call. Thank you for your participation. You may go ahead and disconnect..