Ehud Helft - Investor & Public Relations, GK Rafi Amit - Chairman and CEO Moshe Eisenberg - CFO Ramy langer - VP Head of Semiconductor Division.

Edwin Mok - Needham and Company Craig Ellis - B. Riley Jonathan Art - Kaufmann Fund.

Ladies and gentlemen, thank you for standing by. Welcome to the Camtek Ltd. fourth quarter and full year 2016 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 call is being recorded.

You should have all received by now the company’s press release, if you have not received it please call GK Investor & Public Relations at 1 646 201 9246. I would now like to hand over the call to Ehud Helft of GK Investor & Public Relations. Ehud, please go ahead..

Mr. Rafi Amit, Camtek’s Chairman and CEO; Mr. Moshe Eisenberg, Camtek’s CFO; and Mr. Ramy langer, VP head of the semiconductor division. Rafi will provide an overview of Camtek’s strategy going forward. Moshe will discuss some of the recent developments and summarize the financial results in the fourth quarter.

We will then open the call to take your questions. Before we begin, I would 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 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 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 statement in today's press release also covers the contents of this conference call. 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 current performance.

Management believes that the presentation of non-GAAP financial measures is useful to investors’ understanding and assessment of the Company’s on-going 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….

advanced packaging, MEMS, RF and CMOS Image Sensors. The record growth is also reflected in our sales in Asia, which grew approximately 20% year-over-year In 2016, we also invested in developing superior 2D inspection technology and capabilities to increase our 2D inspection market share.

We have demonstrated our 2D detection technology to several of our customers and have already sold multiple machines for 2D applications.

A new product, our EagleT-I, which we introduced in the third quarter of 2016, is equipped with a high-end optical channel, new lighting configurations and an innovative detection engine, all designed to enhance our 2D inspection throughput and detection capabilities.

We expect our new 2D capabilities to contribute significantly to our sales in 2017 and we expect to increase our market share through our 2D technology. We are continuously working on keeping pace with the advanced packaging market developments to maintain our position as market leader in this field.

Earlier in 2016, we launched an innovative inspection method for Fan-Out Wafer Level Packaging, using CAD based inspection data as a reference. Since then we have shipped several systems with this capability. We are working closely with our customers on solutions for Fan-out production on panels that is expected to start ramping up in 2018.

We believe that we are well positioned to provide competitive solutions for this emerging market by leveraging our PCB experience. Another important development that we recently announced is the partnership with BISTel, under which we will include BISTel’s Yield Management software as part of our new comprehensive software portfolio.

This decision was a result of our customers asking us to provide this capability. We teamed up with Bistel, who is a leading provider in this market. Our solution includes a central Data Server to support multiple machines from different vendors, collecting inspection and metrology data for yield and process analysis.

The software offering will be part of our product portfolio and we expect to generate additional revenues from this new business already this year and more meaningful revenues in the following years Looking at the semiconductor market as a whole, most analysts forecast continued growth in 2017 and 2018.

We expect to benefit from this positive momentum as the areas in which we are active are expected to grow even faster. Looking through 2017, we expect to continue our growth at a double-digits rate. Regarding our PCB business, the inspection business for PCBs remained solid in 2016.

In the fourth quarter of 2016 this business showed strength which we expect to continue into the 1st quarter of 2017. We won multiple systems orders at some new key accounts which potentially will open the door for further growth in the future.

In addition, in China there are several manufacturers expanding their capacities at existing and new facilities, which we expect to benefit from in the next few quarters. With regard to FIT, We continue working on our next generation printer and improving the ink and the process.

We are collaborating with leading ink manufacturers to develop solder mask ink that meets the highest industry standards and is compatible with our system. We expect to complete this process in a little over a year’s time.

Once ready, we plan to join up with a strategic partner to take this business to the next level and we will continue to update you when we have news to share. And, I would like to hand over to Moshe for a more detailed discussion of our financial results.

Moshe?.

For the first quarter of 2017, we expect revenues at around the same levels or slightly higher than the fourth quarter which was $29.3 million. We will now open the call for questions.

Operator?.

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] The first question is from Edwin Mok of Needham and Company. Please go ahead..

advanced packaging, CMOS image sensors and then the MEMS market.

What are you seeing right now in the market in terms of demand for your products?.

Okay, I will ask Rafi to answer this..

Hi. I wouldn’t leave the growth to just one segment. We see strength in all of the segments we operate. The advanced packaging is strong, but the CMOS image sensor is very strong especially to the fact that are now three high end cameras in each of the phones coming out. The average market is very strong due to the good mobile market.

So, overall, all of our customers and in all of the segments are very strong..

Okay, all right. Thanks for the color there. And then talk a little bit about, I think on the prepared remarks and you guys announced this partnership on the software product.

Just curious how do we think about sales of these products and are these recognized as one-time, do you sell those areas as a one time software sell or are they more licensed type arrangement and what impact they would have on your gross margin?.

In general, we expect the revenues, as Rafi said, the revenues will be – we’ll recognize some revenues this year and it will be more meaningful in the forthcoming years. As related to gross margins, I expect as we're using another vendor, I expect the gross margin to be similar to the gross margin that we see today across our products..

In general, the way how we are calculating – usually, customer based by each machine, it’s like a license per machine for this package. And specialize in this system that actually customers can connect any machine; we're not limited to only Camtek machines, so even all the installed base could be connected to this system.

And definitely, there are more what we call side product of this software and also some software package that Camtek develop for ADC and other type of solution. So we believe that more customers will start using software as a tool for enhancing the yield and their efficiency..

Okay, all right, great and that’s helpful. And then on the 2D products, you guys talked about kind of growth to that product had been the driver for growth as you start to see the market in 2016. Just curious again go back to the same thing about the advanced packaging, CMOS image sensor and MEMS RF market.

I am just curious which market are you guys seeing the greatest pool right now for this product? And how do you kind of think about in terms of as you rollout this year, should we expect one that – you are seeing stronger demand in the near-term and eventually fan-out the other ones or is that across reward maybe you can give us some color on that?.

In general, the 2D that we're talking about is for the advanced packaging segment that's the segment that we're targeting our 2D. And regarding fan-out, no doubt in the fan-out there is significant 2D opportunity that we expect to leverage.

And we talk about the CUD technology that we implemented and this is again related to a 2D application, which again we believe that we will be able to take some significant market share. So all in all to your question the 2D is for the advanced packaging. We are very strong on the 3D in the advanced packaging.

And we expect to be able to leverage our customers to use our 2D. We are seeing success is already in 2016 and we expect to see this trend going into 2017..

Great, that’s all I have. Thank you. I appreciate it..

Thank you. The next question is from Craig Ellis of B. Riley. Please go ahead..

Thank you for taking the question and congratulations to the team on what was a record year in the business overall and in the semi business. I just wanted to start with two clarifications on some of the financial items from the fourth quarter for Moshe. Moshe, gross margins were a little bit better than my model.

Was there anything unusual and non-recurring in the fourth quarter’s gross margin and somewhat similarly with regard to the higher legal expense in the fourth quarter? Is that more of a one-time item or is that more structural and something that should persist through 2017?.

Okay, with respect to the gross margin, there was nothing special about gross margin in the quarter. This is a result of a product mix. As we said all along, our gross margin is typically varied between 44 to 46 and any gross margin in this range is very much in line with our model. And we expect this gross margin to continue into 2017 as well.

With respect to legal expenses, they really vary from quarter-over-quarter based on the level of activity that we have. Specifically on the fourth quarter, we had higher than usual legal expenses. Typically, the expenses are a bit lower. So we should expect some reduction in this item going into the first quarter..

That’s very helpful. The second question is a follow up to Edwin’s inquires on the software business and I will frame it this way. As we think about the potential for the Company to derive incremental software sales with the new BISTel Agreement.

Should we think about that being an opportunity that exists as you're selling incremental systems into your customers or is there an opportunity to sell software into your installed base.

And so the question, would be how many different avenues or channels do you have as you begin to take that to market?.

So I would say for both, I see this opportunity for the both I think that you mentioned. First of all, there will be incremental revenues from the fact that we're selling up a new product portfolio, which is the software and as Rafi mentioned there are various softwares that are included in.

We will sell it to our existing, to the entire installed base and that's one opportunity. No doubt, this will make our equipment more competitive. And I believe that we'll be able to achieve additional sales as a result of the fact that we have these capability built in our portfolio..

I would like to add one more information, about this product. The drive for selling, or for purchasing such product, I would say it is not only by the direct client. In many case the end user, the end user usually is all the giant companies. They today are more involving every and each process in the food chain of the supplier.

And they are demanding on getting detail and understand what happened in this process. It’s tough to get them, one to understand when it happened, in what process. So they would like to tighter control all over. And in many cases they forced their supplier to adopt such a tool.

So if something happened, they can make follow up and understand exactly when it started and how to improve it. So I believe this is just the beginning of this trend. You have the tool, you have the demand, you have the end user that insists of that. So I believe that we’ll see more and more demand for using this product..

That makes sense and a follow up would be with regards to the sales cycle. I would imagine that when the software is sold with a piece of equipment the sales cycle would match the piece of equipment.

And I know it's very early innings but can you talk about the sales cycle when the sale is made into these installed base where there isn't equipment it's just a pure software sale?.

Well in general I would expect the sales cycle for software to be shorter than the two and because the cost is lower. And, however we are new to it, and we’ll need to see and learn exactly how to sell this portfolio. We have quite an experience selling our current portfolio, which is more limited.

And so I would say that overall I expect a shorter cycle. But also of it will be part of the machine cycle and then it will be remained the same. So we'll see both..

Thank you, and then the last question for me is that, the business did a nice job of generating operating cash flow in the quarter. As you’d look at the cash balance. Can you address your comfort with the cash balances, it currently stands or whether it needs to be augmented in any way? Thank you gentleman..

Moshe.

Yeah I can address the question, in general we feel comfortable with the current level of cash. Generally speaking we are generating cash across the year, we don't have any immediate need for cash, so at this point, we are comfortable to the extent that we need additional cash for other purposes.

We had access to a bank line of credit and other sources to augment it..

Thanks gentlemen. Good luck..

Thank you..

Thank you. The next question is from Jonathan Art of Kaufmann Fund. Please go ahead..

Hi good morning Rafi. Good afternoon. Could you talk, you talked about the demand being so strong, does that mean that most of your tools are already scheduled for at least in the semi-side for shipment for the first quarter. And how far does this ability extend to demand right now..

Okay, first of all, in general I would say that we could see this trend for the first half year of 2017. And we can analyze this by looking on the backlog but the delivery time but the amount of pressure from customer to make urgent shipment, so right now it looks like it is not like a peak in Q1.

But it's a trend going to at least through the first six months of this year..

And can you talk about the 2D market generally how large is the 2D market. How much of your 16 shipments do you think are 2D and how significantly can you take market share in 2017..

The segment that we're talking about the 2D and if you take above the overall advanced packaging, it's about two thirds of the market.

And I would say that for every 3D machine, there probably two machines 2D machines are sold roughly and so in this segment of the advanced packages it's very, this market doesn't have an accurate number but it was low. I think our market share was comparatively low. If you take the 3D where we are very dominant we have – I would say 50% to 60%.

On the 2D it is much lower and we've gained significant market share in 2016 and I believe we will continue in this trend in 2017. However, I don't expect this in 2017 to be dominant..

But given that the opportunity is twice as large.

Is there any way to sort of quantify what the dollar opportunity is in 2017 or 2018 and then to defill?.

I think at this stage it's a little too early and I would be careful to put now a dollar amount about it but it's no doubt it's significant..

And one other question to what extent does competition relying on lasers create a competitive headwind for them going forward as you proved out LED light sources?.

Okay. Now we are in – these are two things, there are two different things. And when you talk about the lasers this relates to a different technology than ours. But when you talk about LEDs, which we are starting to use, here there is an advantage in the rebuilding consistency of the detection.

When you talk about laser this is for different applications and it's not exactly here apples to apples. I cannot really compare between these two..

Okay. And I guess my last question is can you talk about the fan-out applications, there are many different approaches our flavors of fan-out, there’s TSMCs for Apple or Cypress with DecaTech, Infineon has Zero approach.

Have you shipped into any of these applications yet and what gives you a sense that 2018 will be a breakout year for fan-out?.

Okay. First of all, when you talk about fan-out we have to distinguish between fan-out on wafer and fan-out on panels. This is two different words. Fan-out on wafer, we already see customer doing production, we ship machine for production and we ship machine in –for different customers.

When you talk about fan-out on panels, I would say this is just the beginning and we’d expect ramp up only in 2018. And nobody still know exactly if its going to be plastic, glass, silicon what type of material still everyone try to develop different ways. And it’s not yet decided who’s to going to win or what technology is going to win.

But when we talk about the wafer level, wafer size, we can see more and more fan-out. Most of them I think doing general similar concept, okay, you don’t see a great different between all of them. Its like they do with what we call a reconstruct wafer.

They place the dyes on the reconstruct wafer, they use some plastic let’s call it liquid to get the molding, they polish it and they start with spattering and building the image into connection. This is very typical to most of the applications and its depending on the resolution, the industry would like to go to two micron line and space.

Today most of them doing other 8 micron, so there’s still a long way to make our deal using micron lines nobody still do it. So we still even here can see, I would say a lot of development in improving the yield and until these come to certain level I couldn’t see a real ramp up for this process.

But for wafer level at least that all the machine are there. For panel many process there’s no breakup of machines so this is why we believe it takes more time for fan-out on panels..

Great. Thank you very much..

Thank you. [Operator Instructions] There are no further questions at this time. Before I ask Mr. Amit to go ahead with his closing statements, I would like to remind participants that a replay of this call will be available on Camtek's website www.camtek.co.il beginning tomorrow. Mr.

Amit, would you like to make your 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 good bye..

Thank you. This concludes the Camtek’s fourth quarter 2016 results conference call. Thank you for your participation. You may go ahead and disconnect..