Business context and reporting period
Camtek Ltd. filed this audited Form 20-F for the fiscal year ended December 31, 2016, prepared under U.S. GAAP. It covers the full year, not standalone fourth-quarter results; the filing text does not provide clear Q4-only financial values. Camtek develops automated optical inspection systems for semiconductor and printed circuit board (PCB) manufacturers, and is developing a next-generation functional inkjet technology product.
Key financial metrics
Amounts below are U.S. dollars; financial statement figures are in millions unless noted.
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $109.5 | $99.3 |
| Gross profit / margin | $44.0 / 40.1% | $43.1 / 43.4% |
| Operating income (loss) | $6.6 | ($10.1) |
| Net income (loss) | $4.7 | ($10.1) |
| Basic and diluted EPS | $0.13 | ($0.30) |
| Cash from (used in) operations | ($17.3) | $1.5 |
| Cash and cash equivalents at year-end | $19.7 | $30.8 |
| Working capital | $53.6 | $53.2 |
| Total assets / liabilities | $105.5 / $32.2 | $116.3 / $48.1 |
- Product sales rose 14% to $95.7 million; service fees fell about 9% to $13.8 million. Microelectronics revenue was $79.0 million and PCB revenue $30.5 million.
- Cash used in investing activities was $6.2 million provided, mainly from release of restricted deposits, offset by capital and intangible asset spending. Financing cash flow was approximately zero.
- The company reported no outstanding bank loans at year-end. Its $5 million Bank Mizrahi credit facility was unused; the company reported compliance with related financial covenants. Working capital was positive, though operating cash flow was materially negative.
- Revenue from Asia-Pacific was approximately 85% of total revenue. China and Hong Kong accounted for about 31%, Taiwan 25%, and Korea 15%.
Material changes versus the prior comparable period
- Revenue increased about 10%, driven principally by product sales and microelectronics growth; PCB revenue was broadly flat. Service revenue continued to decline.
- Gross margin fell 3.3 percentage points, primarily reflecting FIT-related reorganization costs, including an approximately $4.8 million inventory write-off.
- Camtek returned to profitability from the 2015 loss, when it recorded a $14.6 million Rudolph litigation charge. The judgment was paid in August 2016, largely through forfeiture of a previously posted bond; the payment contributed to lower cash and restricted deposits.
- Operating cash flow shifted from $1.5 million provided to $17.3 million used, with increased receivables and payment of the Rudolph judgment among the principal factors.
- In 2016, Camtek discontinued support and commercialization of the existing Gryphon FIT systems and redirected development toward a new product. It also reported the final remaining Sela product sales in 2015 and no Sela product sales in 2016.
Outlook, management commentary, risks and unusual items
- Management described semiconductor-market momentum as positive and expected it to continue into 2017; it characterized the PCB market as stable. Management expected Asia-Pacific to remain the major revenue source.
- Management believed existing resources and operating cash flows would meet liquidity needs for at least the next 12 months. It cautioned that cash may be used for working capital, investment and legal costs, and identified alternative financing or expenditure reductions as possible responses if liquidity proves insufficient.
- The New FIT Product remained in development, with no assurance of successful or timely development or commercialization. The company had ceased the former Gryphon line and recorded related inventory and asset charges.
- Rudolph litigation remains a material risk. The Falcon judgment was satisfied, and an injunction bars U.S. sales of Falcon or colorable imitations. Two other patent cases remained pending: in the Condor/Gannet case, the company could not estimate a possible loss range; in the Eagle case, Rudolph sought damages, interest and potentially enhanced damages. Camtek said it intended to defend both.
- An Israeli tax authority inquiry concerning approximately $2.4 million of withholding tax on the bond forfeiture remained under discussion; no assessment had been issued. A separate dispute with the Israeli Innovation Authority over increased royalties had no accrual because management assessed an unfavorable outcome as less than 50% likely. The company also reported $6.5 million of Printar-related grants not repaid, but said it did not expect payment following the FIT strategy change and wrote off the related liability.
- Other principal risks include semiconductor and electronics capital-spending cycles, competition and pricing pressure, supplier concentration, inventory obsolescence, foreign-exchange exposure, geographic concentration in Asia, and operating and geopolitical risks in Israel and China. The company reported no open foreign-exchange hedges at year-end.
Important facts for investors to verify
- Review the audited cash flow statement and working-capital movements: reported net income contrasted with $17.3 million of operating cash use.
- Assess the sustainability of margins and earnings excluding FIT inventory and reorganization effects, the OCS liability write-off, and the prior-year Rudolph charge.
- Track the status, potential exposure and timing of the two pending Rudolph cases, and the Israeli tax authority inquiry concerning the bond forfeiture.
- Monitor execution and funding needs for the New FIT Product, including development milestones, customer qualification and any further inventory or impairment charges.
- Confirm the company’s liquidity outlook, credit-facility availability and covenant compliance, particularly if legal costs or working-capital needs rise.
- Consider the high Asia-Pacific sales concentration and the reliance on a limited number of suppliers and subcontractors.