Camtek Ltd. (CAMT) Q4 2022 Earnings Call Transcript

Camtek Ltd. (NASDAQ:CAMT) Q4 2022 Earnings Conference Call February 16, 2023 9:00 AM ET

Company Participants

Kenny Green - Investor Relations Contact Officer

Rafi Amit - Chairman and Chief Executive Officer

Ramy Langer - Chief Operating Officer

Moshe Eisenberg - Chief Financial Officer

Conference Call Participants

Tom O'Malley - Barclays

Charles Shi - Needham and Company

Gus Richard - Northland Securities

Brian Chin - Stifel Financial Corp

Craig Ellis - B. Riley Securities

Kenny Green

Ladies and gentlemen, convey you for opinionated by. I’d for illustration to invited each of you to Camtek's Results Zoom Webinar. My sanction is Kenny Green and I americium portion of nan Investor Relations squad astatine Camtek. [Operator Instructions] I would for illustration to punctual everyone that this convention telephone is being recorded and nan signaling will beryllium disposable connected Camtek’s website from tomorrow. You should've each received by now nan company's property release. If you person not, please position it connected nan company’s website.

With maine coming connected nan call, we person Mr. Rafi Amit, Camtek's CEO; Mr. Moshe Eisenberg, Camtek's CFO; and Mr. Ramy Langer, Camtek's COO.

Rafi will statesman by providing an overview of Camtek's results and talk caller marketplace trends. Moshe will past summarize nan financial results of nan quarter. Following that, Rafi, Moshe, and Ramy will beryllium disposable to return your questions. Before we begin, I would for illustration to punctual everyone that definite accusation provided connected this telephone are soul institution estimates, unless different specified.

This telephone whitethorn besides incorporate forward-looking statements. These statements are only prediction and whitethorn alteration arsenic clip passes. Statements connected this telephone are made arsenic of coming and nan institution undertakes nary responsibility to update immoderate of those forward-looking statements contains whether arsenic a consequence of caller information, early events changes and expectations aliases otherwise. Investors are reminded that these forward-looking statements are taxable that these forward-looking statements are taxable to risks and uncertainties that whitethorn origin existent events aliases results to disagree materially from those projected, including arsenic a consequence of nan effects of wide economical conditions. Risks related to nan attraction of a important information of Camtek’s expected business successful definite countries, peculiarly China from which Camtek expects to make a important information of its revenues for nan foreseeable future. But besides Taiwan and Korea, including nan risks of deviations from our expectations regarding timing and size of orders from customers successful these countries. Changing manufacture and marketplace trends, reduced request for services and products, nan timely developments of caller services and products, and their take by nan market, accrued title successful nan manufacture and value reductions, arsenic good arsenic owed to different risks and uncertainties identified successful nan company's filings pinch nan SEC. Please statement that nan Safe Harbor statements successful today's property merchandise besides covers nan contents of this convention call.

In addition, during this call, definite non-GAAP financial measures will beryllium discussed. These are utilized by guidance to make strategical decisions, forecast early events and results, and measure nan company's existent performance. Management believes that nan position of non-GAAP financial measures is useful to investors knowing and appraisal of nan company's ongoing corporations and prospects for nan future. A afloat reconciliation of non-GAAP to GAAP financial measures are included successful today's net release.

And pinch that, I'd now for illustration to manus nan telephone complete to Rafi Amit, Camtek CEO. Rafi, please spell ahead.

Rafi Amit

Thanks Kenny. Good greeting aliases bully afternoon, everyone. Camtek ended different 4th of continued gross growth. Fourth 4th revenues were a grounds of $82 billion, a 11% accrued year-over-year. Gross separator came successful astatine 49% and operating separator astatine 27.8%. Over 60% of our revenues came from precocious interconnect packaging applications. Front-end and compound semi segments accounted for astir 20% of our revenues. The full revenues for 2022 was a grounds of $321 million, 19% gross year-over-year. This is nan 5th twelvemonth successful a statement pinch grounds revenues. In nan past 2 years, we much than doubled our revenues and tripled our operating profit. In 2022, we continued to grow our customer base. We now person complete 250 progressive customers and we person added much than 50 caller customers, truthful we expect them to lend importantly to early revenues.

The company's diversified vulnerability to aggregate customer secular trends and territories contributed to our success. We person managed to summation our business successful nan Heterogenous Integration conception which service nan precocious capacity computing and successful addition, it has partially been qualified for nan adjacent procreation DRAM products. We expect these 2 applications to proceed to lend important revenues successful 2023. Compound Semiconductor and specifically silicon carbide marketplace continues to turn quickly and we person been capable to triumph respective inspection steps astatine respective different customers.

Last win, arsenic reported a fewer weeks ago, was a Tier 1 shaper for an bid totaling of $18 cardinal for aggregate machines to beryllium installed successful 2023 and 2024. In 2022, we person developed respective caller products and technologies which we scheme to present successful 2023. We expect it will further summation our marketplace position and grow our capabilities successful entering caller marketplace segments. Looking astatine 2023, world system maturation is projected to slow down, frankincense affecting wafer fab instrumentality successful wide and specifically nan representation segment. Also, regarding nan caller US restrictions connected China semiconductor manufacture from a fewer months ago, we person yet to spot really it influences nan industry. After 3 years successful which nan full accumulation proviso concatenation was disrupted, 2023 is expected to beryllium a challenging twelvemonth pinch customers being much cautious and hesitant successful expanding accumulation capacity earlier receiving orders from their extremity user.

However, we are besides receiving affirmative awesome from respective customers regarding expected betterment successful nan 2nd half of 2023. We judge that our starring position successful nan circumstantial segments, wide and diversified customer guidelines and semipermanent strategical relationships pinch customers will alteration america to again outperform nan wafer fabrication equipment, which is predicted to diminution by 20% to 30% successful 2023. Regarding nan first quarter, we estimate nan income to beryllium astir $71 cardinal to $74 million, which represents a diminution of 6% year-over-year and 12% sequentially astatine nan midpoint. After doubling income successful nan past 2 years, while focusing connected supplying systems connected clip and providing a bully consequence to customers, we now attraction connected a company's efficiency. Also, we are cautiously monitoring definite equilibrium expanse items specified arsenic inventory levels and relationship receivable.

We are adjusting our expenses and headcount to nan existent demand. Moshe will reside our scheme successful much details. I would for illustration to reason by stating that nan semiconductor is simply a strategical manufacture and each starring countries are heavy invested successful it. I would for illustration to manus complete to Moshe for much elaborate chat of nan financial results. Moshe?

Moshe Eisenberg

Thank you, Rafi Amit. In my financial summary ahead, I will supply nan results connected a non-GAAP basis. The reconciliation betwixt nan GAAP results and nan non-GAAP results appears successful nan tables astatine nan extremity of nan property merchandise issued earlier today. Fourth 4th revenues came astatine a grounds $82.2 million, an summation of 11% compared pinch nan 4th fourth of 2021 and somewhat much than nan erstwhile quarter. Revenues for nan full twelvemonth were a grounds of $321 million, 19% summation year-over-year. The geographic gross divided for nan 4th was arsenic follows. Asia 80% and USA and Europe accounted for 20%. Gross separator for nan 4th was $40.2 million. The gross separator for nan 4th was 49% versus 50.9% successful nan 4th fourth of past twelvemonth and nan aforesaid arsenic successful nan erstwhile quarter.

In statement pinch our erstwhile guidance range, we proceed to acquisition inflationary unit connected earthy worldly and labour which I cannot afloat walk connected to customers. However, we are taking steps to mitigate this effect by improving our efficiencies and costs arsenic a result, amended our gross separator complete nan mid to agelong term. Operating expenses successful nan 4th were $17.4 million. This is compared pinch $16.8 cardinal successful nan 4th fourth of past twelvemonth and $17 cardinal reported successful nan erstwhile quarter.

Operating profit successful nan 4th was $22.8 million, compared to $23.2 cardinal successful Q3 and $20.9 cardinal reported successful nan 4th fourth of past year. Operating separator was 28%, akin to nan erstwhile 4th and to nan 4th fourth of past year. Financial income for nan 4th was $3.8 million, compared pinch $2 cardinal successful Q3 and $200,000 past year. The mostly of nan summation relates to importantly higher liking rates connected our deposits connected an accrued rate balance. We expect nan financial income to proceed to summation passim 2023 arsenic nan liking rates stay high. Net income for nan 4th fourth of 2022 was $24 million, aliases $0.50 per diluted share. This is compared to a nett income of $19.7 million, aliases $0.40 per share, successful nan 4th fourth of past year.

Total diluted number of shares arsenic of nan extremity of Q4 was 48.3 million. Turning to immoderate precocious level equilibrium expanse and rate travel metrics. So full cash, including rate equivalent, short and agelong word deposits arsenic of December 31, 2022 was $479 million. During nan 4th quarter, we had a beardown affirmative rate travel and we generated $19.9 cardinal successful rate from operations. And altogether for nan twelvemonth we person generated $57 million. Accounts receivable accrued to $80 cardinal successful nan quarter, chiefly owed to nan timing of gross and postulation wrong nan 4th Days outstanding for Q4r were 90 days. Since nan opening of nan year, we knowledgeable beardown postulation and we expect nan relationship receivable equilibrium to travel down by nan extremity of Q1. Inventory level was $70.9 cardinal and it went down by $3.9 cardinal complete nan quarter.

In nan past fewer years, we accrued nan inventory successful bid to support nan growth, particularly successful ray of nan proviso concatenation issues. The simplification this 4th is successful statement pinch our target to optimize nan inventory level fixed nan caller business environment.

Moving to nan guidance, successful Q1, we expect gross successful nan scope of $71 cardinal to $74 million. Our gross separator is affected by nan business measurement and nan summation successful nan measure of worldly resulting from nan proviso concatenation issues, ostentation and labour cost. We, truthful expect gross separator to beryllium astir 48% successful Q1. Our attraction successful nan past fewer years was connected gathering nan phenomenal growth. In bid to amended nan gross separator this year, we scheme to attraction connected costs simplification done engineering and creation optimizations and proviso concatenation initiatives. These steps return clip and we expect that they will assistance america successful gradually improving our separator complete nan coming quarters. We proceed to put successful R&D to meet our customer roadmaps and beryllium good positioned for growth. However, we are adjusting each different operating expenses to nan existent gross level successful bid to move america person to our target operating exemplary erstwhile maturation returns to our markets.

The existent spot of nan US dollar versus nan Israeli shekel is helping our existent operating expenses level arsenic well. I would for illustration to item nan publication of our rate reserve connected our results. We person adjacent to $0.5 cardinal successful rate that enjoys nan expanding liking rates and puts america successful an fantabulous position to turn inorganically and we are actively looking astatine opportunities.

With that, Rafi, Ramy and myself will beryllium happy to return your questions. Kenny?

Question-and-Answer Session

Operator

[Operator Instructions]

Kenny Green

Thank you, Moshe. Our first mobility will beryllium from Blayne Curtis from Barclays.

Tom O'Malley

Hey, this is Tom O'Malley, not judge what happened pinch nan queue successful there, but I conscionable wanted to understand, successful nan December quarter, you usually springiness a breakout by extremity marketplace from a percent position of what contributed to nan revenue. Could you conscionable break it down betwixt precocious packaging? I cognize you said greater than 60, but immoderate much granular, it would beryllium great. Compound semi, front-end, CMOS image sensing, and past different conscionable immoderate granularity location would beryllium really helpful. Thank you. Just for nan quarter.

Ramy Langer

Okay. Hi, Blayne. So this quarter, it’s Tom. Sorry. Hi. This Ramy. So if we look astatine nan 4th quarter, our precocious packaging came to adjacent to 67%. This is nan operation of nan wide if we look astatine nan yearly basis, it's astir 60%. Our compound and front-end business, they were together conscionable supra 20%. And past location were a fewer others. The CMOS Image Sensors this twelvemonth is simply a small spot little than different years. And this is for nan logic of nan income of mobile phones. So it ended up astir 6%. And past location were a fewer mini items. Okay.

Tom O'Malley

Helpful. Yes. So 6% was for nan afloat year, you're saying, aliases 6% for nan December quarter?

Ramy Langer

December quarter. And overall, this twelvemonth was astir 6%. The CMOS Image Sensors, arsenic we anticipated, was obscurity than usual. Our accustomed 10% for this segment.

Tom O'Malley

Okay. And past you guys are making immoderate comments astir nan afloat year. You’re saying you deliberation you'll do amended than wide based WFE, but you're besides saying, hey, nan 2nd half is going to beryllium stronger than nan first half. Could you conscionable thief place which extremity markets are going to beryllium weaker successful nan March and June quarter? And really should we deliberation astir what June should look for illustration disconnected of March fixed nan truth that it sounds for illustration June is nan bottommost for you guys and really utmost should that look? Thank you.

Ramy Langer

So first of all, we didn't opportunity that June is going to beryllium thing astir June. I'll talk successful a infinitesimal astir what we are seeing beyond Q1. But let's talk astir nan segments. So nan segments are going to beryllium akin adjacent year, I'm expecting and I look astatine our backlog and nan pipeline. Advanced packaging is going to beryllium very beardown adjacent year. Coming from nan Heterogeneous Integration, a batch of nan move from DRAM to precocious bandwidth memories. This is besides going to lend important revenues. Silicon carbide is going to beryllium beardown and nan wide different markets are going beryllium okay. So from nan segmentation constituent of view, we don't spot thing different. Keep successful mind that we person 250 customers that helps america a batch successful balancing nan business. And we've acquired 50 caller customers this twelvemonth that I'm expecting that immoderate of them will bargain further instrumentality successful 2023. So this will springiness america a balanced forecast. But looking astatine Q2 and beyond, nan full twelvemonth of 2023, we person a coagulated backlog and a coagulated pipeline.

Now, you person to retrieve that we are moving successful a very move environment. Things are changing. We did not get immoderate awesome cancellations. However, location is much hesitancy than before. So therefore, it is excessively early to springiness a forecast for Q2 aliases moreover talk astir nan remainder of nan year. But arsenic we said successful our prepared remarks, we expect to outperform our marketplace segment.

Kenny Green

Our adjacent mobility will beryllium from Charles Shi from Needham.

Charles Shi

Hi. Can you perceive me? Yes. Thank you very much. I want to inquire a spot astir nan gross margin. It seems for illustration you are facing immoderate inflationary costs unit and you're taking action to reside those. And you really sewage it down a first 4th gross separator by a smidge. My mobility is, I deliberation historically it's not conscionable nan measurement and besides costs input that influences your margin. I deliberation nan merchandise operation sometimes play a bigger role. I cognize you didn't really talk astir merchandise operation into ‘23, but is location a favorable aliases unfavorable operation that could be, I mean, affirmative aliases antagonistic to a gross separator for nan afloat twelvemonth successful ‘23? Because you person bully backlog, I deliberation you person immoderate visibility into nan mix. Thank you.

Moshe Eisenberg

Hi, Charles. So I would opportunity yes, you are right, merchandise operation has a batch to do pinch nan gross separator arsenic well. But we decided to attraction this clip connected nan costs building because we spot immoderate unit connected gross separator from nan costs elements. We spot immoderate summation successful nan measure of worldly some from components, labour costs and altogether we spot immoderate pressure. So yes, merchandise operation whitethorn person a affirmative impact. I deliberation that nan 48% that we gave arsenic a guidance should play arsenic a bottommost and we whitethorn spot complete nan twelvemonth immoderate betterment coming besides from nan initiatives that we are already taking. And arsenic I said, it whitethorn return time, but we expect to spot immoderate effect already successful nan 2nd half of nan twelvemonth and besides from nan merchandise operation that mightiness beryllium much favorable than we presently think.

Charles Shi

Thank you. Maybe nan 2nd question, I really want to spell backmost to nan mobility asked by Tom earlier connected nan afloat year. What you deliberation astir nan conception operation is going to be, I deliberation you said it's rather similar, but I besides heard you opportunity nan champion packaging, which includes representation DRAM, seems to beryllium doing good this year. And should we benignant of expect that precocious packaging arsenic a percent successful your operation possibly is increasing a spot this twelvemonth pinch others. You said that they're okay, but I don't perceive that they are going to be, I don’t perceive like, nan condemnation from you that they're going to beryllium arsenic awesome arsenic nan precocious packaging segments for you.

Moshe Eisenberg

We waited, I talked astir retired nan segmentation earlier, I didn't talk astir nan forecast. That was nan 2nd portion wherever I said we're not successful a position coming to do immoderate forecast beryllium above, let's say, beyond nan first 4th that we person already stated. Regarding nan mix, whether nan precocious packaging will beryllium a small spot much than 60%, it's still excessively early to say. But it's decidedly we spot successful nan backlog and nan pipeline that this is going to play a awesome portion of our business, proceed to beryllium a awesome portion of our business. And it will be, I would say, astatine slightest 60% whether it will beryllium importantly much arsenic nan 4th quarter, I still don't know.

Charles Shi

Okay. Thank you. Maybe past one. I really want to inquire you astir nan geographical mix. So what you're seeing coming based connected your bid book, Asia Pacific versus US, Europe, do you spot that operation benignant of changing to ‘23? Maybe Asia Pacific whitethorn beryllium increasing a small spot faster successful ‘23 comparative to US and Europe? Or do you spot nan different measurement around? Thank you.

Moshe Eisenberg

No, I don't deliberation location is going astatine this stage, astatine least, what we spot connected nan existent numbers and our plans. I deliberation that nan Asia 80% versus US and Europe 20%.I deliberation astatine this shape we expect this to stay.

Kenny Green

Our adjacent mobility will beryllium from Gus Richard from Northland.

Gus Richard

Yes, acknowledgment for taking nan question. I was conscionable wondering if you could talk astir benignant of wherever you're slotting devices astatine this point. How overmuch has that lead clip compressed? And conscionable immoderate wide thoughts around?

Moshe Eisenberg

The main issue, and I deliberation we said astir it besides successful nan past call. What we spot coming that customers are very hesitant successful turning nan pipeline into existent POS aliases moreover scheduling nan shipment time. And nan logic for that, they are waiting to spot that their extremity customers are giving their business. And arsenic a result, we've seen our lead times spell down from about, I would opportunity 4 to six months, coming down to thing for illustration 3 to 4 months. And conscionable I would springiness you these are nan unsmooth numbers. And truthful decidedly and this is nan logic that from our constituent of view, it's very difficult coming to forecast beyond nan first quarter.

Gus Richard

Got it. And past you mentioned successful your prepared comments astir immoderate caller products and I was conscionable wondering if you could springiness a small much colour successful position of description of marketplace opportunity aliases immoderate colour connected nan types of applications you're going to beryllium addressing.

Moshe Eisenberg

In general, I will beryllium very observant astir it because immoderate of this accusation is evidently very confidential. But I would opportunity that location are 2 areas wherever we are processing products. First of each is to summation our TAM. We've been expanding it gradually and location are areas that we person identified that we person bully opportunities and we person nan technologies to enter. And these are areas that we create products and will present it. In parallel, we are moving pinch our customers connected their roadmaps and this requires improvement connected our broadside to meet those roadmaps. This is very important for america to support our marketplace position, summation nan business pinch our existing customers. So this would beryllium nan 2 types of developments that we will beryllium introducing successful ‘23.

Gus Richard

Okay, benignant of immoderate colour connected front-end precocious packaging? Is it conscionable immoderate benignant of –

Moshe Eisenberg

So it will beryllium successful nan precocious packaging, it will beryllium successful nan front-end, it will beryllium for silicon carbide and I would opportunity moreover definite applications, moreover successful nan CMOS Image Sensors. So this is really crossed our full portfolio and applications we will beryllium showing improvements successful caller capabilities successful our products.

Kenny Green

Our adjacent mobility will beryllium from Brian Chin of Stifel.

Brian Chin

All right. Sorry astir pinch that. Is that better? Great. Yes. Good afternoon. Sorry astir that. Thanks for letting america inquire a fewer questions. I admit nan colour connected nan lead times, and but still if you spot an bid now, possibly you get a transportation May, June. So you possibly person a small spot of visibility and backlog going into 2Q. But do you deliberation based connected that first half gross is mostly stabilizing astir first 4th levels? That’s my first question.

Moshe Eisenberg

Well, Brian, I talked astir it before, it’s nan existent position moreover erstwhile we look astatine our backlog and pipeline that they are solid, still we are very hesitant successful giving you much colour connected nan 2nd 4th because things are changing. But arsenic I said before, we did not person immoderate awesome consolations. So we consciousness we are affirmative astir nan business. But still, it's very difficult astatine this shape to put a very clear number.

Brian Chin

Okay, yes, adjacent enough. Because if you conscionable tally Q1 revenues level crossed nan year, and you're evidently a small spot much optimistic astir 2nd half, but that would that would evidently get you possibly down 10 for nan twelvemonth aliases thing a batch amended than possibly what nan benignant of nan benchmark mightiness beryllium successful position of manufacture walk this year. Maybe a mates of different questions. I cognize you pinch China, I cognize you don't aggregate China vulnerability arsenic a whole, and truthful not asking you to do that, but tin you supply immoderate consciousness of really you deliberation holistically your gross successful China could inclination this twelvemonth comparative to past year. And also, generally, what makes you much optimistic. Maybe that nan distribution of this gross improves later successful nan year.

Moshe Eisenberg

So, first of all, we did not spell and arsenic you said, we don't springiness immoderate segmentation successful Asia. But all-in- all, China is coming retired of nan Coronavirus. It's going to unfastened and we'll spot really things activity location successful a mates of months. But erstwhile we look successful China, we are, nan business location is stable. The backlog is stable, nan pipeline is stable. We don't spot immoderate awesome change. I deliberation our customers location are continuing to bid machines. The manufacture is increasing there, nan caller customers there. So I don't spot immoderate change. However, location are some, I would opportunity immoderate things that we will request to hold and spot really nan full point successful China is playing out. I deliberation Rafi talked successful present successful his prepared remarks astir really nan US restrictions would activity there. There are a batch of unknowns, but I deliberation from our constituent of view, we do not spot a awesome alteration there. And Rafi, possibly you want to remark further.

Rafi Amit

I opportunity that if during nan Q1, nan proportionality betwixt China, Asia and different territory are astir nan aforesaid arsenic past year. And we person to return into information that China was nether a very reliable clip and very dense slowdown. So arsenic acold arsenic I know, nan authorities now want to make a very speedy recovery. So decidedly it tin make, this action could decidedly amended nan business successful China. But arsenic I said, it's excessively early to say. We person to hold possibly 1 aliases 2 months and past we tin consciousness much comfortable what is going on.

Brian Chin

Okay, that's helpful. Maybe very past question. Silicon carbide has travel up, you mentioned a fewer times connected nan call, wrong possibly that 20% of revenue, which Q4 and possibly akin to past year. But what's nan value exiting twelvemonth of your silicon Carbide aliases its powerfulness instrumentality gross and benignant of pinch caller products, existing products. Is that a business disconnected its smaller size correct now? It looks for illustration it could moreover turn this year. And benignant of geographically, wherever are you stronger and wherever are you targeting, if you deliberation conscionable not by customer, but Europe, US, Japan, possibly China. Any colour location would beryllium helpful.

Moshe Eisenberg

So, first of all, nan silicon carbide, nan compound semi successful general, it's a world business, and it's successful each territories. And evidently I'm hesitant. I don't want to disclose immoderate names of customers, but we are serving, I would say, astir of nan awesome players successful this area. I deliberation we talked astir nan $18 cardinal of bid which we received a fewer weeks ago. And that's decidedly from a number, it's a important number. What I tin talk astir this is conscionable 1 customer pinch circumstantial steps. We are doing further steps astatine this customer, this circumstantial customer that location is moreover much perchance that circumstantial opportunity. And for illustration this customer, location are respective different customers that tin bid machines. So silicon carbide is increasing very. We person a bully position successful all, I would say, connected astir of nan awesome Tier 1 customers that are retired there. And decidedly it's a business that I'm expecting to grow. We are going to turn some arsenic nan business grows, but we are besides uncovering much and much steps wrong nan process that we are going to address.

Rafi Amit

I would for illustration to adhd silicon carbide really is chiefly for nan electrical car and everyone cognize what's going on. This is 1 of nan segments that is nan CAGR is over, I deliberation 20%. So decidedly this thrust nan silicon carbide very aggressively and this is why we consciousness very comfortable pinch it.

Kenny Green

Our adjacent mobility will beryllium from Craig Ellis from B. Riley.

Craig Ellis

Yes. Can you perceive me, guys? Yes, wonderful. So congratulations connected nan 5th twelvemonth of growth. Really a awesome way record. I wanted to travel up connected nan manufacture outperformance issue, and I wholly understand that nan quality of things makes it difficult to really supply actual colour astir nan businesses dynamics beyond nan existent quarter. So I'll effort it this way. If you look astatine nan imaginable to outperform manufacture this year, tin you springiness america immoderate scope of imaginable outperformance that you deliberation is possible? And if you can't quantify that could you rank nan factors that you deliberation are astir important successful starring to an outperformance margin?

Ramy Langer

Let maine try. We talked astir nan segmentation. So I deliberation that nan precocious packaging conception will be, I would say, coagulated this year. So this is simply a conception that is 60% of our business successful nan 4th fourth was 67%. This is simply a conception that will maintain, I would say, a bully performance. And erstwhile I talk astir this segment, I'm including nan DRAM to precocious bandwidth memory, potentially, location is nan DDR5. So decidedly 60% of our business, I deliberation astatine least, I tin say, successful bully shape. Then nan rest, I deliberation silicon carbide is an area that should besides execute well. As Rafi said, this is going to electrical cars, and this is simply a conception that is going to proceed to turn because location is simply a modulation from nan electrical cars. We spot it everywhere, and location comes, I would opportunity nan rest. But I deliberation wherever location is an uncertainty is successful nan capacity. And immoderate of our customers that are very hesitant astir expanding their capacity.

And that's nan area wherever it's very difficult to springiness a number to quantify. So we consciousness comfortable astir it will outperform nan capacity of nan market. But to springiness you an nonstop number, it is difficult.

Now, 1 point that decidedly I deliberation is simply a positive is our vulnerability and spot successful China. Definitely, arsenic Rafi said, they are coming. There are immoderate unknowns, but decidedly this is an area that's going to proceed and grow nan industry. There is nary choice. We spot that nan number of caller customers exertion decidedly I'm expecting that this will beryllium a positive for america successful ‘23. Rafi, you want to adhd something?

Rafi Amit

No, it's fine. That's correct -- nan situation.

Craig Ellis

Ramy that was really helpful. Moshe, I'll flip 1 complete to you. So it sounds for illustration wrong operating disbursal there's immoderate different dynamics going connected nan R&D line. The institution is committed to each nan things that are going to make those caller products that you've talked about. So it sounds for illustration spending location is astatine slightest stable, but perchance up. But connected different parts of operating disbursal you're looking for efficiency. So really does that nett retired successful nan first 4th and done nan year? Does it nett to reasonably level OpEx? Would they spell down successful absolute dollars done nan year? Help america pinch nan contour of that line.

Moshe Eisenberg

Yes, truthful yes, you're right. We will proceed to put successful R&D. And arsenic a matter of fact, we will spot immoderate summation successful R&D complete nan year. So that intends that different areas will person to compensate for that. And these are income and trading and G&A. And present we are going to tackle income channels improvements. We are going to look into travel. Basically, we will beryllium doing for illustration immoderate institution that is looking to amended profitability. We will beryllium overmuch much cautious pinch respect to each kinds of expenses. We will show it much carefully. Not that we person not done it successful nan past, but obviously, erstwhile you are successful a much challenging business situation, we will do it moreover more. So, net-net, we will spot immoderate simplification successful operating expenses from nan Q4 numbers.

Not by much, but we will spot immoderate reduction. So if we ended Q4 pinch 17.4, we would spot immoderate simplification successful Q1 successful nan level of operating expenses.

Craig Ellis

That's really helpful. And then, Rafi, I'll inquire you a question. So nan institution has done a awesome occupation increasing its customer base. And nan 250, 25% summation past twelvemonth is beautiful remarkable. As you look astatine 2023, really overmuch further room is location to grow nan customer guidelines and really important tin that beryllium comparative to what was a really large twelvemonth successful 2022?

Rafi Amit

First of all, regarding customer base, moreover from clip to clip we are amazed observe caller customer, galore of them by nan way, successful China arsenic a caller customer that you don't cognize astir them, cipher knows and each of a abrupt you get much and much customers. So decidedly China is 1 of nan awesome territories that we tin spot caller customers and erstwhile we talk astir caller customers, sometime it is nan aforesaid customer but different conception successful this circumstantial customer. For example, if we penetrated to a Tier 1 customer to a circumstantial exertion and past he recovered that we tin springiness him amended solution successful different exertion successful different department. So each of a abrupt you person much than 1 customer. Like sub customers. So we spot that location are capable room for america to create our expertise to galore different segments and particularly erstwhile we talk astir OQC, front-end application, location are much and much play that from clip to clip we spot that we person nan tool, we person nan expertise successful bid to spell there.

And this is why we consciousness very comfortable that nan 250 customers decidedly are helping america and reducing our consequence erstwhile location are immoderate slow down effect. And we decidedly proceed doing each our efforts to proceed expanding nan customer, nan installed guidelines of customers.

Craig Ellis

So plentifulness of room for stock and stock of wallet description arsenic you should look ahead. That's helpful. Thanks Rafi. Moshe, I'll flip it backmost to you arsenic my last question. So, very important summation successful liking income successful nan quarter. Would you expect that benignant of increase, again, successful nan first quarter? And really overmuch long should we expect pinch these increases successful mean liking rates crossed your different rate and finance instruments, arsenic we look astatine ‘23.

Moshe Eisenberg

So, arsenic you can, we each know, liking rates are beautiful precocious these days, and we are trying to return afloat advantage of nan precocious liking rates. We person reported $3.8 cardinal of financial income successful nan 4th quarter. And, yes, we expect this number to proceed to turn to five-ish cardinal dollars connected a quarterly ground successful 2023. And again, this is each assuming that nan liking rates stay astatine nan existent level.

Kenny Green

Our adjacent mobility will beryllium from Allen from Leader.

Unidentified Analyst

Yes, hi, tin you perceive me? Yes, hi, I'm from Atab not from leader, by nan way. Yes, my mobility is astir nan memory. It was a spot slow-ish successful nan past mates of years and you speak astir it arsenic a imaginable for 2023. Could you elaborate a spot astir what's nan imaginable there?

Ramy Langer

Yes, this is an illustration wherever nan exertion of nan DRAM is changing. So coming location are much and much applications, and this is tied up to nan precocious capacity computing and nan heterogeneous integration. You spot nan precocious bandwidth memory; these are memories that are successful stacks. They are very fast. They're very businesslike from nan powerfulness consumption, from bandwidth, from each aspect. So each of nan manufacturers are starting to nutrient them. They person been producing them, but they are ramping up nan quantities. The capacity is growing. And obviously, our machines are present utilized to inspect nan bumps connected nan wafers. And that's an exertion that we are very ascendant passim each nan awesome players successful this segment. And that's an area, it's not huge, but it is large capable to mention it. I'm expecting ‘23 and besides ‘24 we expect to bask from this application.

Kenny Green

Our adjacent mobility will beryllium from Shahar Cohen.

Unidentified Analyst

Hi guys. What astir silicon carbide? What's your marketplace stock complete there? Are you for illustration nan ascendant subordinate successful nan silicon carbide inspection? And do you person besides play connected gallium nitride connected apical of silicon carbide? And what we see, we spot awesome description from crossed each customers from connected to wharf to Infineon. Why you are saying nan customers are reluctant to adhd capacity? What we spot is simply a aggregate maturation of capacity successful that area. So if you tin speak much astir that, that would beryllium helpful.

Ramy Langer

So, Shahar, I cannot speak astir customers names, but I deliberation arsenic we said before, this is decidedly a market. The extremity marketplace is increasing and nan usage of silicon carbide is besides increasing and much and much group are adapting silicon carbide successful their electrical cars. So decidedly that's an area that we will spot maturation complete nan adjacent fewer years. And I deliberation Rafi mentioned nan CAGR is astir 20% plus. So yes, we are a ascendant subordinate successful definite applications, not successful each of nan application, but it's an area that we are gradually processing capacity and expanding our beingness to different applications, different steps, process steps wrong nan silicon carbide. So that's decidedly a very promising marketplace for us. It has been increasing complete nan past fewer years, and I deliberation from a azygous digit number to double digit numbers this year. And we decidedly expect to spot much maturation successful this conception complete nan adjacent fewer years.

Unidentified Analyst

Okay. Gallium nitrate. Is location a gallium nitrate –

Ramy Langer

Yes, gallium nitrate is besides has immoderate advantages successful different applications. I deliberation nan marketplace location still astatine this shape is smaller, but decidedly it's a marketplace that we play in, successful gallium nitride, gallium arsenide. There are galore flavors here, and each of nan spirit has different aspects and intends and capacity. I deliberation it's a small spot much analyzable to effort reply each of this successful a fewer minutes, but you tin springiness maine a telephone and we tin speak astir it more.

Kenny Green

I judge that is nan extremity of nan mobility and reply session. Before I manus complete backmost to Rafi, I'd for illustration to fto you each know, successful nan coming hours, we will upload nan signaling of this convention telephone to nan investor relations conception of Camtek’website@camtek.com. I'd for illustration to convey everybody for joining this telephone and for illustration to manus backmost to Rafi for a closing statement. Rafi, please spell ahead.

Rafi Amit

Okay. I would for illustration to convey you each for your continued liking successful our business. I want to particularly convey nan labor and my guidance squad for their tremendous performance. To our investor, I convey your semipermanent support. I look guardant to talking pinch you again adjacent quarter. Thank you and goodbye.