Camtek Ltd Q2 FY2025 Earnings Call

Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtek's results Zoom webinar. My name is Kenny Green, and I'm part of the Investor Relations team at Camtek. I would like to remind everyone that this conference call is being recorded, and the recording will be available from the link in the earnings press release and on Camtek's website from tomorrow. You should have all received by now the company's press release. If not, please review it on the company's website. With me today on the call, we have Mr. Rafi Amit, Camtek's CEO; Mr. Moshe Eisenberg, Camtek's CFO; and Mr. Ramy Langer, Camtek's 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'd like to remind everyone that the statements made by management on this call will contain forward-looking statements within the meaning of the federal securities laws. Those statements are subject to a range of changes, risks and uncertainties that may cause actual results to differ and vary materially. For more information regarding the risk factors that may impact Camtek's results, please review Camtek's earnings release and SEC filings and specifically the forward-looking statements and risk factors identified in the results press release issued earlier today and other risk factors as discussed in Camtek's most recent annual report on SEC Form 20-F. Camtek does not undertake the obligation to update these forward-looking statements in light of new information or future events. Today's discussion of the financial results will be presented on a non-GAAP financial basis unless otherwise specified. As a reminder, a detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings release. And now I'd like to hand the call over to Mr. Rafi Amit, Rafi is Camtek's CEO. Rafi, please go ahead.

Thanks, Kenny. Hello, everyone. Camtek concluded the second quarter with a record performance. Q2 revenues reached $123.3 million, reflecting over 20% growth year-over-year. We also maintained our gross margin at around 52%, contributing a record operating income of over $37 million. Revenue distribution remained in line with our expectations and closely matched last quarter results. High-performance computing applications contributed approximately 45% to 50% of total revenue, while other advanced packaging applications accounted for about 20%. The balance came from CMOS image sensor, compound semiconductor, front-end applications, and other general applications. We continue to observe a shift in CoWoS-type production towards OSAT, a trend that plays to our advantages given Camtek's strong market position in this segment. We continue to see strong momentum heading into the third quarter. Based on the current orders, our sales pipeline, and ongoing customer engagement, we expect Q3 revenue to be approximately $125 million, representing an annualized run rate of $0.5 billion, a significant milestone for the company. In addition, we have a healthy order flow and pipeline into the fourth quarter. The advanced packaging segment is rapidly evolving with technological changes to support the fast-paced evolution of high-performance computers for AI applications. Based on analyst research on the semiconductor industry, the advanced packaging market that supports AI-related applications is expected to grow at an exceptionally rapid rate over the next few years. This growth is being driven by the adoption of new packaging technologies such as hybrid bonding, micro copper bumps with densities below 10 microns, RDL with line width of 2 microns and below and more. This advancement requires state-of-the-art inspection and metrology capabilities, combined with AI-based algorithms to detect defects, filter out noncritical issues and classify defects and ensure that only high-quality components enter the HPC module assembly line. By integrating advanced inspection and metrology tools, manufacturers can significantly increase yield and gain valuable insight into defect types, empowering continuous process refinement and production optimization. Camtek anticipated the upcoming technological shift several years in advance and made significant strategic investments to develop innovative solutions addressing these emerging opportunities. We have invested heavily in developing cutting-edge platforms that combine exceptional mechanical precision with state-of-the-art optical technologies. These efforts have culminated in the launch of the Hawk and Eagle G5 systems, delivering breakthrough performance and significantly higher throughput compared to our existing system. In parallel, we have been developing software solutions such as enhanced defect detection, EDC, and automatic defect classification ADC technologies that will strengthen our competitive edge in the market. The Hawk and Eagle G5 have been exceptionally well received by our customers and are expected to generate approximately 30% of total revenue this year with an even larger contribution projected for next year. In addition, our MicroProf metrology system, originated from the FRT acquisition, has been successfully adopted and accepted by a Tier 1 customer for multiple metrology applications. Over 30 systems have already been installed and are now operating seamlessly in full-scale production environments. In summary, Camtek has solidified its position as a market leader in its domain. We believe the packaging technologies highlighted today represent significant growth opportunities for us in the coming years. And now, Moshe will review the financial results.

Thanks, Rafi. Revenue for the second quarter came in at a record $123.3 million, an increase of 20% compared with the second quarter of 2024. The geographic revenue split for the quarter was similar to last quarter as follows: Asia, 90% and the rest of the world accounted for 10%. Gross profit for the quarter was $64 million. The gross margin for the quarter was 51.9%, similar to the previous quarter and an improvement from the second quarter of last year. Operating expenses in the quarter were $26.6 million compared to $21.6 million in the second quarter of last year and $24.4 million in the previous quarter. Operating profit in the quarter was $37.4 million compared to the $30.8 million reported in the second quarter of last year and $37.3 million in the first quarter. These record results were achieved despite an increase in the operating expenses, which were mainly due to the exceptionally high shipping expenses related to the conflict with Iran. Operating margin was 30.3% compared to 30% and 31.5%, respectively. Financial income for the quarter was $4.9 million, similar to the $5 million reported last year and a decrease from the $5.4 million in the previous quarter. The decrease from the previous quarter was mainly an impact of the weakness of the U.S. dollar on re-evaluation of certain balance sheet items. Net income for the second quarter of 2025 was $38.8 million or $0.79 per diluted share. This is compared to a net income of $32.6 million or $0.66 per share in the second quarter of last year. Total diluted number of shares as of the end of the second quarter was 49.3 million. Turning now to some high-level balance sheet and cash flow metrics. Cash, cash equivalents, including short- and long-term deposits and marketable securities as of June 30, 2025, were $544 million. This compared with $523 million at the end of the first quarter. We generated over $23 million in cash from operations in the quarter. Accounts receivable increased to $112 million from $100 million in the previous quarter, mainly due to the timing of collection. Inventory level increased to $149 million from $142 million. The increase over the quarter is primarily to support the anticipated sales growth of our new Eagle Gen5 and Hawk products in the coming quarters. As Rafi said before, we expect revenues of around $125 million in the third quarter. And with that, Rafi, Ramy and I will be open to take your questions.

I would like to start by asking for an update on the composition of the business, particularly for the second half of the year or the full year, whichever you prefer to discuss. Specifically, for HPC, what are the expectations for the second half in terms of the mix? In the first half, it was around 45% to 50%. Will it remain at a similar level for the second half or the full year? Additionally, could you provide the current expectation for China's contribution to the total revenue for the year? Previously, you mentioned it might be around 35% to 40%. Have those figures changed?

Thank you, Charles. Let's address your first question. We are seeing positive momentum in the second half of the year. As mentioned in Rafi's discussion, we have a robust order flow and pipeline. We have provided positive guidance for the third quarter, and we will discuss guidance for the fourth quarter in our next earnings call. Concerning HPC, we anticipate that its contribution to our revenues in the second half will be similar to that of the first half. Regarding China...

Charles, regarding the China contribution to the business, altogether, China is obviously significant to Camtek and has been for many years. Last year, the contribution was around 30%. We expect that this year, the contribution will be a little bit higher than that. Still early to say how much will be the contribution for the second half, but we expect it to be a little bit higher.

Okay. Specifically on China, no additional quantitative view for the year. Maybe a second question, a little bit more at a higher level, and maybe this is more about product and technology. KLA has been making a good amount of inroads in 2.5D, especially at the leading foundry and looks like they are looking at the HBM opportunity as well. But so far, it looks like it's more around hybrid bonding related HBM opportunity, maybe a little bit concentrated at one customer that is focusing on hybrid bonding. I want to get your general thoughts on Camtek's position versus potential entry of KLA in your existing HPC markets? And what's management thought on how to compete effectively versus KLA? And yes, let's go from there.

So let me start with the hybrid bonding. So we see the hybrid bonding as a great opportunity for us. This field is still in the early stages, and we are running our tools today at strategic customers, and we believe that we have the necessary capabilities and inspection and metrology to address the hybrid bonding opportunity. Now we discussed the KLA penetration and trying to get into this market. I think we discussed it also in the last call. And we've already been engaged in competition with KLA on multiple occasions, different customers, I would say, for the last couple of years. And we demonstrated that our equipment is highly competitive. I think we are very well positioned to meet the specific requirements of this unique market. And with our latest products, the Hawk and the Eagle 5, even more than in the past, looking into the future, we offer a very competitive market. Now in general, the advanced packaging is our market. We are well known. We have an excellent relationship with our customers, and we understand exactly their requirements moving into the future. Therefore, I think if I would like to summarize, the unique combination of our technology scale, which is important here and flexibility are key reasons why many customers choose to work with us over larger competitors who often are slower to respond.

So I guess, first, for your product ramps, can you go over where you're seeing the greatest traction today for both the Eagle G5 and the Hawk in terms of applications? And kind of what are the primary drivers behind the strong customer reception here?

So I think it's a few things that drive the new products. So let me start with the Hawk. I think the Hawk provides 2 very important capabilities that are, first of all, very high throughput that is very important where people are very sensitive to the footprint in the fabs. And on the other side, it provides the path to very, very, I would say, difficult applications that people will need now or into the future. People are looking into this changing market where the products are changing, and they are not sure what they will need in a year or 2. The Hawk provides a path to address those challenges with the capabilities it has today. And this obviously relates to the microbumps with the pitches coming very small, very high numbers of bumps, hybrid bonding, and a lot of challenges in the inspection market. All of these challenges, the Hawk provides a very good solution moving forward. On the G5, I think compared to the Eagle, it's much faster, and I think it addresses, again from the optics point of view, the ability to detect, I would say, defects that we couldn't previously address with the current products and other capabilities. For the price tag of $1 million plus, no doubt today, the Eagle provides the best-in-class solution in the market. I would say it's 2 different reasons. It's 2 different product lines. And I think these are the reasons for the very high traction by our customers. As we said in our prepared notes, we were able to achieve 30% of our revenues this year with 2 product lines, which is exceptionally well. I expect that we will see more next year. Maybe a few words about the applications. So as I said, the applications include a large number of bumps. That's very important, very small defects. The Hawk will address defects down to 150 nanometers. This is very challenging and critical for hybrid bonding and other 2D inspection requirements. Of course, the throughput and similarly, the Eagle G5 on a different, not to the extent of the capabilities of the Hawk, but definitely a very good solution in the price range that is being offered. Have I answered your question?

Perfectly. And then as a follow-up, given the success you're seeing in these new product ramps and continued success into next year, can you maybe offer some early thoughts based on your visibility and customer conversations about how you're thinking about Camtek's growth prospects overall for the company into 2026?

'25, '26?

'26. So look, regarding '26, I think our market and specifically the high-performance computing is expected to grow rapidly in the coming years. This market also technologic changes, and the HPC is undergoing a lot of changes that we believe will create opportunities for us. For example, and I think Rafi mentioned it in his prepared notes, fine pitch microbumps, hybrid bonding, HBM 4 and many others. If I look at these opportunities and our market position, assuming a positive market environment in 2026 will no doubt support another growth year for Camtek.

I guess it's a 2-parter. First, can you talk a little bit about the content uplift from HBM3/3E to HBM4 for you guys? I know there's a couple of different paths people are going with it. So what you're seeing there? And then second part of that question would be from a CapEx perspective, what you're seeing at your customers and what you're seeing for HBM specifically as we wait for potential qualification.

So obviously, the HBM market from a capacity point of view continues to grow, and we're seeing customers adding capacity. Now in general, the uplift goes in a few ways. First of all, there are more HBMs per product. We see the density is growing, not drastically. I think the major jump in density from the HBM will come probably late '26, early '27. But definitely, on the 4, it's moving to more layers. And eventually, this means that we will scan more wafers. There is some change in the number of bumps, some pitch differences. But all in all, we've already been qualified at some customers for HBM 4. So all in all, it's a very positive path. We're getting very good, I would say, inputs from our customers. So I expect that definitely HBM 4 will be a positive opportunity for us.

Got it. Then if you could just talk a little bit about what you're seeing in terms of timing for customer spending and kind of the shape of that spend? In terms of HBM 4 specifically?

In HBM 4 specifically, I would say that customers are talking to us about HBM 4. We are starting to see initial forecasts to support the uplift of the HBM 4. I think more than that, I will not be able to discuss during this call.

I wanted to follow up a little bit on HBM 4 to start. So it sounds like it's a very immaterial part of revenues today and the visibility may not be clear on when you'd get the crossover from HBM3 to HBM4-related revenues. But if you have some idea of that, sounding like 2026, it would be helpful. The question is more this. When you look at the specific feature enhancements in either G5 or Hawk, what are they that are very advantageous for HBM 4? And what does that mean for the trajectory of gross margin as we move through the HBM 4 ramp-up period?

Okay. So thank you, Craig, for the question. Now first of all, the equipment that we sold, or most of the equipment that we sold to HBM3, will be used for HBM4 as well. It's not that what we sold in '25 or '24 is irrelevant for the additional growth. Some of this equipment has already been qualified to address HBM 4. So specifically, this is in general. However, there is an uplift; there is going to be an increase in capacity for the HBM 4. What I indicated in my previous answer is that we are already in the process of talking to customers about the forecast for HBM 4. Definitely, this will start to happen early in '26, where we will ship equipment to support HBM 4. More than that, I will not be able to give you any details. Now going to the Hawk versus the Eagle. The advantages of the Hawk, as I discussed in one of the previous questions, are 2 things. First of all, it's the throughput, which means it's better footprint in the fab. It's the ability to address a large number of bumps and the HBM is going into this direction. Its inspection capabilities today already down to 150 nanometers, and we're demonstrating it at customers. This capability will also support the HBM and the hybrid bonding requirements. Definitely, when a customer is looking today at whether he wants an Eagle versus he wants a Hawk, those that are thinking about the future and want to ensure that they will be able to support their products in 2 or 3 years, some of them lean towards making a higher investment today and buying the Hawk. From gross margin, in general, the Hawk is more expensive, and it will have a positive contribution to our gross margins. Did I answer your question, Craig?

Yes, it does, Ramy. Thank you very much. And the next question is a somewhat intermediate to long-term question. And I'll start by congratulating the team on being just inches from driving the business to its $500 million run rate target. So good for you for getting so close to that target. But the question is this; if we look at the list of incremental growth drivers, we spent a lot of time on HBM4, and it sounds like that would be at the top of the list. But as we think about growth through 2026, what are the next couple of applications that we should be focused on as your bigger incremental growth drivers over the next 18 months?

So I think, first of all, no doubt the high-performance computing is going to be a main driver for our business. This goes to metrology, in general, 3D metrology. Rafi, in his prepared remarks, talked about the phenomenal success we have seen at the Tier 1 customer with our metrology line. That's a line that's also going to contribute. I think it's a very good growth engine for our business. So I would say that the high-performance computing and getting into more applications, we are gaining more and more traction in the inspection part. Definitely, that's a big market with our capabilities on the G5 and on the Hawk specifically, the ability to go and detect very small defects in the range of 150 nanometers will definitely drive a lot more applications outside also the high-performance computing. I think we are going to gain some traction with our new software capabilities, which we discussed in the prepared remarks, the EDC and the ADC technologies, which are going to push us to gain more strength on the inspection side. All in all, we are in a market that's going to grow at a run rate with what I hear from all the different analysts over 25% growth in the next few years. So this is the main driver. Our task is to gain more applications in this market. Now we haven't forgotten the other markets. The conventional advanced packaging, fan-out and other applications still have very nice momentum. Lastly, we see many opportunities in the front end. Compound semi was comparatively depressed in the last couple of years, but definitely, this is an opportunity looking into the future. Don't forget, we have about 350 customers, 200 active every year. A lot of 1s and 2s that will provide additional opportunities in the foreseeable future.

Just in terms of the OSATs, can you talk a little bit about what you're seeing in terms of applications, how that compares to the traditional foundries that do advanced packaging for HPC?

Gus, we find the current developments quite fascinating because we had anticipated around a year ago that the OSATs would begin to engage more in high-performance computing. This is indeed what we are witnessing now. A few years back, they started exploring heterogeneous integration, and now we’re observing leading OSATs focusing on CoWoS, as noted by TSMC in their remarks about specific entities. It’s evident that all the major OSATs are moving towards CoWoS or similar techniques, which is turning into a substantial business. We are definitely experiencing a notable surge in orders from these key OSATs for such applications.

Yes. Can you hear me?

Yes. Did you hear my answer?

No, but I can follow up later.

Alright. So we'll have a follow-up later.

Follow-up is how do you see the opportunities for chiplets and advanced packaging?

Well, look, we look at chiplets in general as part of the high-performance computing. Ultimately, it's a chiplet, which is either the GPU or CPU, depending on the actual design of the high-performance computer. And with it, it's surrounded by high-bandwidth memories. From that point of view, when we talk about HPC, we specifically talk about chiplets, the high-end chiplets. There’s no doubt, this market is picking up as part of all the changes in the market. From all the numbers that I'm seeing, it will continue to grow in a very healthy way in the foreseeable future.

Apologies if this got asked already, I just jumped on from another call. But I think you guys gave advanced packaging is about 20% of the revenue mix in the quarter. Can you talk about how much of that is HBM today versus a year ago? Has the percentage within advanced packaging grown pretty materially? And maybe give us an update of how much of that is HBM today?

Okay, let me get the numbers right. Seventy percent of our business is in advanced packaging, which includes high-performance computing, or HPC. From that 70%, 50% is allocated to HPC and 20% to conventional advanced packaging like fan-out. We don’t break down the specific contributions of chiplets and high-bandwidth memory within HPC because it changes based on order timing and is quite complex. Therefore, we've been discussing high-performance computing as a whole. For the past few quarters, we've been maintaining a run rate where 50% of our total revenues come from high-performance computing, which encompasses HBM and chiplets.

Got you. I wanted to ask a little bit of a strange one, so bear with me. In a world right now where you have 2 major memory suppliers that are qualified on HBM for the largest guy in the world, and there's a third that's attempting to do that pretty aggressively, which world suits you the best into next year, a world in which it is still 2 guys that are qualified that need to add more capacity or a world in which there are 3 qualified guys all who are serving the market? If you could walk through that, that would be super helpful.

So we don't have any preference, whether it will be 2 or 3, all of the players today are very good customers to us. If one of them that is not qualified will be qualified, we will enjoy it with additional applications and steps, and we're working very closely with all of them. So we are fine with 2, and we will be very fine also with 3.

Moshe mentioned high shipping costs that may have elevated your OpEx. Has that moderated now?

Yes. This has been kind of an exceptionally high level of shipping expenses due to the conflict with Iran. Now that the conflict is muted to some degree, the shipping expenses went back to normal rates, and we don't expect anything like that in the third quarter if the situation remains as it is.

And can you quantify what the impact was in the second quarter?

It was over $0.5 million.

Got it. And just to clarify on the positive momentum that Ramy was talking about and you're seeing in the second half of the year. Are there any seasonal puts and takes that could impact the fourth quarter? Or should we also expect that to grow revenue sequentially? And for the 2026 expected growth, the Street is modeling about 7% total revenue growth, but that's slower than what's typical for you. So maybe you could help us reconcile any divergence there or any reason why we shouldn't see another year of double-digit growth for Camtek in 2026?

So it's too early definitely to talk about Q4, and we will discuss it in the next earnings call. But as I said before, there is positive momentum in the second half based on orders on hand and orders that are in the pipeline. We provided a guidance for Q3 that is positive. Therefore, the overall second half is definitely a positive momentum. I'm going back to '26, and there are lots of discussions today about how '26 will look like. But again, I think really this is much too early to discuss it. It's a very dynamic market. Things are changing so fast here. This is true with the technology. This is also true with everything that we do. The high-performance computing is growing rapidly and will continue to grow in the foreseeable future. Assuming a positive environment in '26, it will definitely lead to another growth year for Camtek. What will be the percentage? It's really too early. Unfortunately, it is too early today, but we'll talk in future calls.

This is Denis on for Brian at Stifel. So for my first question, maybe you could discuss that for HBM 4. What is the expected ratio of Hawk versus Eagle shipments? Would you expect it to be roughly even? Or do you think for HBM 4 that customers will require more of the newer system?

So first of all, this is very customer dependent. We don't really give these numbers of Eagle versus Hawk per application. As I said, the Hawk has specific advantages in terms of capabilities in throughput, accuracy, and other aspects that for certain applications, and specifically for those that want very high volumes in the HBM4 may focus on some of the capacity moving into Hawks. But then again, this is very customer-specific. Both products are very successful in the market. There's a lot of business going to the conventional advanced packaging, and there are many other applications where the Eagle line is the best product for the price it is offered today in the marketplace. We'll probably, as time goes by, give you a more accurate estimation.

Okay. Great. And then for my follow-up, maybe you can tell us a little bit more about the OSATs. So do the OSATs continue to exhibit more signs of strengthening? And maybe you can tell us what's driving this? Is it just purely CoWoS or something else? And do you have any view of foundry OSAT logic expansion plans for second half of 2025 and into 2026?

Definitely, 2026 is too early to discuss the OSATs. Don't forget, a lot of these players are still planning '26 and are still not in a position to release orders to give us the actual forecast. But for OSATs today, we see a lot of the growth coming, first from the HPC as we discussed before. The major OSATs are starting to produce CoWoS and CoWoS-like applications, and this is definitely a very high-growth area. I think this trend started a year ago. We see it undergoing today and will continue into the foreseeable future. There is also a lot of regular advanced packaging fan-out and other applications. We see a lot of this business still strong in the OSATs, and we're shipping equipment to address those applications as we speak in each of the quarters.

This is Michael Mani on for Vivek Arya. To start, I just wanted to ask about one of your major chiplet customers, which is covering some challenges currently. They recently revised their outlook for their CapEx in 2026 pretty meaningfully. So the question is, have you seen any major changes to the investment plans at any of your chiplet customers? And to what extent could this already be reflected in your backlog? And could we see this demand be made up by some of your other customers over time as well?

There are discussions about the forecast, and they may move by quarter here and there. This happens regularly on a monthly basis that people move around their forecast. We have not seen anything significant in terms of changes in the focus of our shipments. I can’t comment on anything more than what I just said.

Got it. Understood. And just on your newer products, you said that 30% of sales this year would come from Hawk and G5. Could you give us an idea of how much of that is weighted in the second half? And then I guess my main question, kind of the spirit of other questions that people have asked earlier in the call. I mean, how much incremental growth are these new tools driving for you? Would you say that they're mainly replacing demand that you would normally see for your older systems? And is it possible that we won't see the incremental growth from new applications and customers really until we get to something close to HBM4? Just how would you frame the incremental growth opportunity over the near term from these new tools?

So let me answer your first question. First of all, the G5 was actually introduced in the market a little earlier than the Hawk. We started to ship it in larger quantities already at the beginning of the year. If I recall correctly, the first shipments were done in Q4 of '24, and then we gradually increased it. It was really loaded nicely already in the first half, and we continue to see growth into the second half as well. The Hawk shipments actually started a little later, and it’s more, I would say, the load will be divided across 3 quarters. Clearly, most of the shipments will come next year. As for applications, definitely, we are seeing more applications. Our product lines today, when we talk about the G5, are more competitive than the Eagle, specifically compared to our competition. This will potentially lead to taking market share as we move into the future and gaining some applications that require more performance, throughput, and better detection.

Thanks, Vivek. That will end our question-and-answer session. Before I hand back to Rafi for his closing statements, I'd like to mention that in the coming hours, this call will be available from the Investor Relations section of Camtek's website at camtek.com. And with that, I'd like to thank all of you for joining this call. Rafi, please go ahead and make your closing statements.

I would like to sincerely thank all of you for your continued interest in Camtek. A special note of appreciation goes to our dedicated employees and exceptional management team for the outstanding performance and commitment. To our investors, I am truly grateful for your trust and long-term support. I look forward to updating you on our continued progress in the next quarter. Thank you.