Camtek Ltd. — FY2012 Form 20-F
Reporting period: Fiscal year ended December 31, 2012. Although the request identifies 2012 Q4, this filing is an annual report and does not provide a clear standalone fourth-quarter income statement or cash-flow values. Financial statements are audited and prepared under U.S. GAAP; amounts below are U.S. dollars.
Business context
Camtek designs, manufactures and sells automated optical inspection systems and related products for semiconductor, PCB and IC-substrate manufacturers. It also develops semiconductor sample-preparation equipment and digital material deposition systems for PCBs. Approximately 79% of 2012 revenue came from Asia Pacific. No individual customer represented more than 10% of revenue.
Key financial metrics
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $84.5 million | $107.0 million |
| Gross profit / margin | $37.1 million / 43.8% | $47.4 million / 44.3% |
| Operating income (loss) | $(0.02) million | $9.0 million |
| Net income | $3 thousand | $5.4 million |
| Basic and diluted EPS | $0.00 | $0.18 |
| Cash from operations | $4.0 million | $9.8 million |
| Cash used in investing activities | $6.0 million | $0.5 million |
| Cash used in financing activities | $1.2 million | Cash provided: $3.4 million |
| Cash and cash equivalents | $18.9 million | $22.2 million |
| Short-term deposits | $7.2 million | $4.1 million |
| Bank debt | $6.3 million | $6.8 million |
| Total assets / liabilities | $99.0 million / $38.7 million | $104.8 million / $44.8 million |
| Working capital | $43.1 million | $46.9 million |
Product sales were $66.9 million and service fees were $17.6 million. Operating cash flow remained positive, but fell substantially year over year. Cash and short-term deposits totaled approximately $26.0 million at year-end, compared with $6.3 million of bank debt. Bank loans were secured by a lien on the company’s Israeli facility and charges over its assets; Camtek reported compliance with its financial covenants at year-end.
Material changes versus FY2011
- Revenue fell 21%, primarily reflecting weaker customer spending amid a slowdown in the markets served. PCB and IC-substrate sales declined 46%; microelectronics sales declined 13%.
- Gross profit declined 22%; gross margin slipped 0.5 percentage points to 43.8%. Management cited lower revenue, fixed costs and inventory write-offs.
- Operating results moved from $9.0 million of income to approximately break-even. Net income fell from $5.4 million to $3 thousand.
- 2012 operating expenses included a $3.0 million impairment charge: $1.5 million of goodwill related to SELA, and $575 thousand of goodwill plus $957 thousand of acquired in-process R&D related to Printar.
- Inventory write-offs increased to approximately $2.0 million from $1.0 million. The filing also classified $7.1 million of inventory as non-current, versus $2.0 million in 2011.
- Cash from operations decreased from $9.8 million to $4.0 million. Cash declined $3.3 million during 2012, while investing activities used $6.0 million, mainly for deposits and fixed assets.
Outlook, risks and unusual items
- Outlook: Management expected the slow pace of business to continue into the first or second quarter of 2013. It expected existing resources and operating cash flows to cover liquidity needs through 2013; additional financing or spending reductions could be needed if liquidity proved insufficient. No revenue or earnings guidance is provided.
- Utechzone: Camtek reported that Utechzone breached their distribution agreement in Q4 2012, adversely affecting revenue and profitability in 2012 and Q1 2013. The company said the timing and likelihood of restoring the relationship were uncertain.
- Patent litigation: Rudolph Technologies’ remanded patent case could expose Camtek to damages of up to approximately $8.2 million, excluding interest; no accrual was recorded. A separate contempt-related award had been reduced to approximately $646 thousand, excluding interest; Camtek appealed and posted a $729 thousand bond. The outcome of both matters remained uncertain. A second Rudolph patent case was stayed pending patent reexamination, and the possible loss could not be estimated.
- Other contingencies: Camtek disputed approximately $700 thousand claimed by Israel’s Office of the Chief Scientist (OCS) and recorded no provision, stating the probability of an unfavorable outcome was below 50%. OCS royalty obligations and restrictions on transferring or manufacturing certain grant-funded technology outside Israel also apply.
- Market and execution risks: The business is cyclical, faces larger competitors and long sales and qualification cycles, and depends on limited or single-source suppliers. The company cited product-development delays and weaker-than-expected markets for Xact and GreenJet; related impairments were recorded in 2012.
- Other exposure: Geographic concentration in Asia, foreign-exchange movements, Israeli operating and geopolitical risks, and Priortech’s approximately 57% controlling stake may affect results or shareholder interests.
Investor verification priorities
- Review the audited statements and notes for the reported near break-even result, impairment charges, inventory reserves and classification of long-term inventory.
- Check subsequent disclosures on the Utechzone relationship and whether it resumed, and assess any continuing effect on revenue and margins.
- Track developments, accruals and cash exposure in both Rudolph patent matters, including the appeal bond and potential interest or damages.
- Assess liquidity and covenant headroom against the 2013 business slowdown, debt maturities, purchase commitments and other contractual obligations.
- Monitor commercial progress and further investment or impairment risk for Xact/SELA and GreenJet/Printar, and verify whether OCS matters or royalty obligations change.