Ladies and gentleman, thank you for standing by. I would like to welcome all of you to Camtek's Third Quarter 2021 Results Zoom Webinar. My name is Kenny Green, and I'm part of the Investor Relations team at Camtek. All participants, other than the presenters are currently muted.

Following the formal presentation, I will provides instructions on how to participate 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 Camtek's website from tomorrow. You should all have received by now the company's press release.

If not, please view it on the company's website. With me on the call today, we have Mr. Rafi Amit, Camtek's CEO; Mr. Moshe Eisenberg, Camtek's CFO; and Mr. Ramy Langer, COO. Rafi will open by providing an overview of Camtek's results and discuss recent market trends. Moshe will then summarize the financial results of the quarter.

Following that Rafi, Moshe and Ramy will be available to take your questions. Before we begin, I would 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 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 these forward-looking statements are subject to risks and uncertainties that may cause actual events or results to differ materially from those projected, including as a result of the effects of general economic conditions, the effect of the COVID-19 crisis on global markets and on the markets in which we operate including the risk of a continued disruption to our and our customers, providers, business partners, contractors' business, as a result of the outbreak and effects of the COVID-19 pandemic.

Risks related to the concentration of a significant portion of Camtek's expected business in certain countries, particularly China from which we expect to generate a significant portion of our 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 timing 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 risks identified in the company's documents filed with the SEC.

Please note that the safe harbor statements in today's press release also covers the contents of this conference call. Furthermore, during this call non-GAAP financial measures will be discussed. These are used by management to make strategic decisions, forecast future events and evaluate the company's current performance.

We believe that the presentation of non-GAAP financial measures are useful to investors' understanding and assessment for the company's ongoing cooperation and prospects for the future. A full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings press release.

And now I would like to hand the call over to Rafi Amit, Camtek's CEO. Rafi, please go ahead..

Thanks, Kenny. Good morning, and thank you for joining our call today. We continued the momentum of growth from quarter to quarter. In Q3 we demonstrated another record financial performance. We ended the third quarter with $70.7 million revenue, over 50% gross margin with 30.6% operating margin, and we generated over $16 million in cash.

The strong profitability is due to several factors. An increase in revenue, attractive product mix, the leverage that we have in our financial model, and the fact that the increase in expenses doesn't keep pace with the rapid growth in sales.

We are in a process of gradual increase in R&D investment and marketing channels to respond to market and customer demands. I will further discuss it later. We estimate that we will continue to see a moderate revenue increase for the next quarter, and we see positive signs for the first half of 2022.

Our revenue guidance for the fourth quarter is $72 million to $73 million. The reasons for the increase in demand of semiconductor as we mentioned in previous calls have not changed. We expect Camtek to continue benefiting from all these trends in the next few years.

In the third quarter approximately 50% of our sales where for inspecting Advanced packaging wafers, especially for Fanout application supporting mainly mobile phones. 20% of our revenue where for inspecting compound semi-wafers.

This wafer are used for power devices and RF devices, which will go into mobile phones and for automotive industry, especially for electronic cars. About 15% of our sales where for front-end applications, which continue to grow and will account for about 15% of our business this year. A few words about the potential of the compound semi-market.

A major segment of compound semi is silicon carbide used for power device market and it's been driven by power supply applications. The automotive industry is becoming the major market for silicon carbide applications following notable adoption by Tesla in 2018.

Since then, more Tier 1 OEM component and car maker have made announcement on their adoption of silicon carbide technology in some of their product. In the prospering silicon carbide power device market, the automotive segment is the foremost driver and as such will hold more than 50% of total device market share in 2025.

Other application include radar and face recognition. The compound semiconductors and especially silicon carbide manufacturing process is unique and requires dedicated solutions for inspection and metrology. In Q3, sales to Europe and the U.S. accounted for about 80% of the total sales, and I expect continued growth from these territories.

China continues to be our largest territory this quarter. We are aware of the energy problem that exist in China and may affect our customers, but we also understand the importance a strategic role of the semiconductor industry to China.

From our discussion with several customers we believe that the semi industry will get the priority in energy allocation. We are monitoring the China situation closely. Lately, we have won a major valuation at the global Tier 1 player and receive an order for our latest Eagle mode. We expect additional order in 2022 from this customer.

This month we are celebrating the shipment of 1000 Eagle system, since we introduced this model in late 2014. Our Eagle platform was originally designed with modular concept since the production of the Eagle, we have developed three new generations of the semi basic platform, and have recently started to shape the fourth generation.

This modular design has enable us to maintain our leadership position and run our business while meeting our customer requirement in a very efficient manner. In addition, we are in the process of developing new products based on new technologies that we intend to introduce 2022 and beyond.

We will continue to invest in R&D and adjust the level of investments to the technological challenges we see in the coming year. R&D capabilities is a key factor to continue maintaining our leadership position and to meet our customers roadmap.

To summarize, high demand for semiconductor component have been leading to an increased demand for inspection and metrology systems. Camtek is strongly positioned in the market, and we expect the fourth quarter to close 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.

Moshe?.

We can't hear you. They can't hear you. Start again from..

Okay. Thanks, 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 tables at the end of the press release issued earlier today.

Third quarter revenues came at a record $70.7 million, an increase of 76% compared with the third quarter of 2020 and 5% compared with the previous quarter. The geographic revenue split for the quarter was as follows, Asia 82% and the rest of the world 18%. I would know that this represent a significant increase in revenue from U.S. and Europe.

Gross profit for the quarter was $36 million. The gross margin for the quarter was 50.9% versus 48.8% in the third quarter of last year, and 52.1% in the previous quarter. This is the third quarter in a row of gross margin of above 50%. A result also significant increase in the business volume.

The change in the gross margin from the previous quarter was due to the slightly different mix of products. Operating expenses in the quarter were $14.3 million. This is compared with $11.9 million in the third quarter of last year, and to the $16.7 million reported in the previous quarter.

Our quarterly operating expenses are mainly influenced by the sales channel mix, and the level of R&D expenses. In Q3 we enjoyed relatively favorable sales channel mix. Both R&D and sales extensive are expected to increase in Q4. As Rafi mentioned, we plan to continue to invest in R&D.

Operating profit in the quarter was $21.7 million compared to the $7.6 million reported in the third quarter of last year, and $18.5 million in Q2. Operating margin was 30.6% compared to 19% and 27.4% in previous quarter. The high operating profit is a result of the factors I have just mentioned.

Net income for the third quarter of 2021 was $20 million, or $0.45 per diluted share. This is compared to a net income of $7.3 million, or $0.18 per share in the third quarter of last year. Total diluted number of shares as of the end of the third quarter was 44.7 million Turning to some high level balance sheet and cash flow metrics.

Inventory level was $61.8 million, and it went up by $2.8 million over the quarter. This is to support the current demand for our products and to ensure the availability of key components. We monitor the supply chain concerns on an ongoing basis. At this point, we do not foresee any issues with it.

We generated $16.5 million in cash from operations in the quarter. Net cash and cash equivalents and short-term deposits, together with $10 million cash that we have in long-term deposits as of September 30, 2021 is $215 million.

Since the beginning of October, we have received orders for over $26 million, which definitely gives us confidence in our business momentum. We expect revenues of $72 million to $73 million in the fourth quarter. With that Rafi, Ramy and myself we'll be open to take your questions.

Kenny?.

Thank you, Moshe. [Operator Instructions] Our first question is going to be from Craig Ellis of B. Riley. Craig, you may go ahead..

Yes. Thanks for taking the question, and congratulations on the strong revenues and the robust margin performance team. Moshe, I'll start just following up the comment that you and Rafi made about quarter-to-date orders.

I was hoping you could provide some insight on the composition from an end use standpoint, whether those were predominantly advanced packaging, high bandwidth power or whether you are seeing continued strong momentum out of compound semi, which was very strong in 3Q?.

Yes. Hi, Craig. This is Ramy.

First of all this, what is interesting about this part of orders, they are from multiple Tier 1 customers mostly IDMs and from application point of view, it really follows the applications that we are seeing for our that - Rafi mentioned, it's that 50% advanced packaging, it's compound semi that is coming very strong, and also front end application.

So it really ease across the entire application range that we have been increasing - experiencing lately. And also what is interesting about dispatch it's from all the territories. It's not related to a specific territory..

That's really helpful color, Ramy. Thank you for that. My next question is related to the comments on the compound semi market. So one, I was hoping the team could just provide some context on that market size say a year ago, because certainly add 20% of sales in the third quarter. It looks like it's growing quite dramatically.

And is it the company's view that this is a level of revenue that could be sustainable going forward? And is this something that is completely semi expensive, or is this cannibalizing some of the power management market, and IGBT area that might have thought that the company could have had some exposure to?.

No, no, this is not compromising any of their applications. I mean this is definitely a segment that has been growing, and I would say it's surprising growing a little faster than we thought. It's very hard at this stage to tell you whether this is sustainable at the level of percentage from our overall business.

But it's definitely building up to be a sizable business. And then I believe within a few quarters, we'll be able to size it better from the opportunity point of view. What is interesting about this specific market that we sell both the front end portion and also the back the end of the process until post dosing.

So really there are a few steps that we are doing each for few applications - I would say it's from different customers at different territories. So definitely the opportunity is there. And as I said we will size it over time and more accurately..

Well, congratulations on that. Important progress in a fast growing application area. My last question before I hop back in the queue. I'll direct to Moshe. Moshe OpEx came in much better than I expected in the calendar of third quarter. Were there any timing issues or one-time items there? And you mentioned, the OpEx would be up in the fourth quarter.

Can you provide some qualitative or quantitative color on that? And then just help us with the trajectory of buybacks from there given the expected investment in R&D and sales and marketing? Thank you..

Yes. Thanks, Craig. So the issue with the OpEx, as I mentioned in my prepared remarks, we must beforehand is that it influenced by mainly by two factors. The level of R&D spending and sales and marketing.

In R&D, Rafi mentioned, we are in a process of gradual increase of the R&D level of R&D expenses and you will see some increase over the course of the next few quarters, and that's definitely in the plans. With respect to the other item, it's mainly sales channel mix.

In some territories we walk directly and other territories we used reps and agents to support the sales activity. This quarter indeed it came a little bit lighter or lower than we anticipated. Our plans for the fourth quarter is that it will come back to a more sustainable level.

So we will see some increase on the sales and marketing level of expenses in the fourth quarter..

Thanks, Moshe, and congratulations again, team..

Thank you, Craig. Thanks, Craig. Our next question is from Charles Shi from Needham. Charles, you may go ahead..

Also my congratulations on the strong results. I did notice your Q3 sales is almost close to your 2016 semiconductor sales for the full year, and very few company can achieve that kind of level of sustained growth. Congratulations. So, I want to follow up that the orders you recently received since October.

You mentioned a little bit about that application space, what kinds of customers.

What's your expected delivery date for those batch of orders? Can you give more color on that?.

Some of these orders will be shipped in the fourth quarter very few, but mostly are for the first half of next year..

Thank you. So my second question is on the DRAM side. I noticed that unless I missed that, you didn't make a comment in the prepared remarks. Obviously you're expecting DRAM to come back. But in recent months, there has been lots of cross currents in this part of the market.

So are those orders - are you seeing those are still firm or you're seeing any changes?.

No, we don't see any changes. We are expecting to ship multiple machines to more than one customer for DRAM applications in the first half of next year..

Got it. Thank you, sir. My last question is around CMOS Image Sensor. I want to look a little bit ahead into '22. Obviously, this has been a little bit the investment level has been coming under a little bit in 2021. Do you sort of expect that things will pick up again? I know that has been your stands.

But I just want to understand what you see in that part of the market? And how much upside you can drive for your 2022 sales? Thank you..

So Charles, I do expect, yes '21 is a little bit lower or slower in the investment side compared to the previous year, but still it's going to be a sizable number this year and we expect to maintain the double-digits next year as well. It's definitely a significant market for us. We are speaking with our customers. There is a lot of activities there.

So it might go up a little bit, you know, but all in all we are talking about double-digits for the CMOS Image Sensors market..

Thank you..

Thank you, Charles..

Thank you, Charles..

Our next question is a dial-in question. Please identify yourself as we only have your number here..

This is Tom O'Malley from Barclays. Thanks for taking the question. My first one is related to the major evaluation at a global Tier 1 player that you mentioned in the preamble. You said you expected additional orders in '22 from this customer.

Could you just size for us what that opportunity looks like in terms of total revenue over the next couple of years?.

Well, I would say that definitely, obviously we cannot go into details, it means as we are under NDAs, but it's definitely, it's in the area of advanced packaging. This is a very important customer and also a big name. So it's influential in the industry. It's multiple machines over the next couple of years..

All right. That's helpful. And then I just wanted to ask a question on the geography split. This quarter it looks like you're seeing some increased exposure for the rest of world, and you specifically called up U.S. - the U.S. and Europe.

Could you talk about what trends are going on there that's making those regions be a bit better and call out the particular area where you're seeing the success there?.

Well, what I can say about the - in Europe and the U.S., and they are similar in the sense that it's mainly Tier 1 IDMs, that where we do most of the business. And what we are seeing expansion in these Tier 1 IDMs, and this is the reason for the increase in the business..

Thank you. I appreciate it..

What I can add a little bit more, these are IDMs, that we have penetrated in the last several years. And I think this is the reason for the upside in the business that we are currently see..

Thank you..

Thanks a lot, Tom. We will poll again the questions if anybody wants to ask please let us know. And we have a follow-on question from Craig Ellis of B. Riley. Craig, your line is open..

Yes, thanks for taking the follow-up questions team. I wanted to just ask a longer-term question, really and I'm not looking for a specific guidance. I know the company doesn't buy that out for the next year, but I wanted to get a sense qualitatively of some of the things that you were saying on the growth horizon, as we look at calendar '22.

And I wanted to get your perspective on that in a way that I don't typically ask because typically I would be focused on things like advanced packaging or compound semi or RF et cetera, but given some of the big fab projects that we're seeing being built. I'm wondering if that has an impact in next year's growth.

So if you could just help us understand what you're seeing as you look ahead to calendar '22 with some of your key growth drivers. That would be helpful..

Let me try and I'll give you any answer. If I'm not clear enough know you can just ask further. But first of all, the $26 million that we've just received is definitely indication of the kind of business momentum we are starting to see for next year. So this is a strong indication. Now we are looking at our backlog for next year.

We are looking at the pipeline. We are having a lot of discussions with our customers, and also the DRAMs specifically, as I said, we are expecting to get - we are expecting to ship machines in the first half. So if you take all of this together this gives us a very, I would say positive feeling moving into '22.

So now you asked specifically, and so I'm very hesitant to answer about specific fabs because this would indicate some customer - some delicate customer information which we are very sensitive about.

But definitely, I can say that the tailwind from building all these fabs we are filling it and it's definitely business that eventually from these expansions we will see additional business..

That's really helpful, Ramy. Thanks for providing that color. The second thing I wanted to follow up on is really a clarification. Moshe, from your comments I infer that there wasn't a material negative impact in the third quarter from our supply chain issues either to revenue or gross margin.

Was that right or was there just not a material sequential impact? And to what extent are things like higher shipping costs and other things impacting the gross margins that we're now seeing?.

It was a very, very minimal impact obviously shipping expenses are going up, that's for sure. And we see some components prices are going up, but overall the impact of these, a very limited and minimal to the results in the third quarter, and also in the fourth quarter..

Got it. Okay. Thank you very much team. Appreciate the help..

Thank you..

Thank you..

We have questions over the chats which I'll read out.

Can you discuss whether any of the big orders are from new fab bills as opposed to capacity increases?.

The new order is a $26 million which we mentioned. I'm looking at the - in front of me, and it's mostly at this stage, I can say that there is one specific order that comes from a new facility, they are mostly expansions of existing facilities..

Okay. We have a follow-up to that.

How much of the new business appears to be due to new technology nodes requiring new inspection techniques, such as what we see with the new stack DRAM requirements?.

So there is some business that is related. It's very hard for me to quantify to on this call. But definitely some of the business going to a technological changes and but as I said, I would say the bulk of the business is expansion, but there is significant, I would say it's in double digit to this order definitely going to technological changes..

Okay. Thank you for that. If anyone has any additional questions, you may raise your hands. Looks like there is no additional questions. So before I move back to Rafi, this call will be available from Camtek's website in the coming hours. Thank you everybody for joining, and now back to you, Rafi..

Okay. 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 my management team for their tremendous performance. And we look forward to continue it. To our investor, I think your long-term support, I look forward to talking with you again next quarter. Thank you, and goodbye..