Camtek Ltd. — 2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019. Although the request identifies 2019 Q4, this filing is an annual report and does not provide a standalone fourth-quarter results summary. Financial statements are prepared under U.S. GAAP; amounts below are U.S. dollars unless stated otherwise.
Business context
Camtek develops and manufactures automated inspection and metrology equipment for the semiconductor fabrication and packaging industry, along with related services. It reported one operating segment. Asia Pacific generated approximately 86% of 2019 revenue; South Korea, China and Taiwan together generated approximately 75%. One customer represented 11% of revenue. The company reported an installed base of approximately 1,049 systems.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $134.0 million | $123.2 million |
| Gross profit / gross margin | $64.8 million / 48.3% | $60.8 million / 49.4% |
| Operating income / margin | $22.0 million / 16.4% | $20.0 million / 16.3% |
| Continuing-operations net income | $20.8 million | $18.7 million |
| Net income, including discontinued operations | $22.0 million | $18.7 million |
| Diluted earnings per share | $0.57 | $0.51 |
| Operating cash flow | $24.6 million | $16.8 million |
| Cash and cash equivalents | $38.0 million | $54.9 million |
| Short-term deposits | $51.5 million | None reported |
| Total assets / total liabilities | $170.4 million / $34.1 million | $141.5 million / $40.1 million |
At year-end, cash and short-term deposits totaled approximately $89.5 million; working capital was approximately $116.1 million. The company reported no outstanding bank loans or credit facility. Current liabilities were $31.6 million. Cash flow used in investing activities was $51.6 million, principally reflecting the placement of $51.5 million in short-term deposits; financing activities provided $10.0 million, including Chroma’s share investment and option exercises, offset by a dividend payment. Reported 2019 capital expenditures were approximately $1.4 million for operating purposes.
Material changes versus 2018
- Revenue increased 9%, primarily because more product units were sold. Product sales were $127.4 million and service fees were $6.6 million.
- Gross profit rose 7%, but gross margin declined by about 1.0 percentage point, which management attributed mainly to product and sales mix.
- R&D spending increased to $16.3 million from $14.6 million as development activity expanded. SG&A was broadly stable at $26.5 million.
- Operating cash flow increased to $24.6 million from $16.8 million, with lower inventory contributing to the improvement.
- Cash and cash equivalents declined, but the company placed $51.5 million in short-term deposits. Total cash and deposits increased from $54.9 million to $89.5 million.
- Chroma’s 2019 transaction included $16.2 million paid to Camtek for newly issued shares and a separate purchase of shares from Priortech. The transaction also established joint voting arrangements and Chroma’s right to nominate two directors.
- The 2019 net income included $1.2 million of additional consideration from the 2017 sale of the PCB business, reported in discontinued operations.
Outlook, risks and unusual items
- Management said available capital resources and operating cash flows should meet liquidity needs for at least the next 12 months. The filing provides no specific revenue or earnings guidance for 2020.
- COVID-19 was identified as a significant uncertainty after the year-end. Camtek said it could not reasonably estimate effects on future results, cash flows or financial condition. Potential impacts include order delays or reductions, production and supply interruptions, travel and service constraints, and weaker semiconductor-industry investment.
- The company’s markets are cyclical and competitive, and its pronounced Asia-Pacific concentration exposes it to regional economic, political, trade and customer-investment risks. Reliance on limited- and sole-source suppliers and subcontractors could disrupt deliveries.
- The U.S. dollar weakened 8% against the NIS during 2019. Camtek had no open currency hedges at year-end and disclosed approximately $6.2 million of net NIS-denominated liabilities; a 1% exchange-rate change would affect expense or income by approximately $62,000.
- The 2017 patent litigation settlement with Rudolph Technologies involved a $13 million payment. The parties dismissed claims, and the agreement provided a three-year period during which neither could bring actions seeking damages against the other.
- Camtek paid a $0.17-per-share dividend, approximately $6.6 million in total, in September 2019. It intends to retain tax-exempt earnings; distribution could trigger estimated taxes of approximately $6.0 million.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2019.
Important facts for investors to verify
- Review the full audited statements and notes for the composition, maturity and availability of cash and short-term deposits, and the terms and obligations associated with leases and purchase commitments.
- Track COVID-19’s actual effect on customer orders, installations, deliveries, service activity, suppliers and operating cash flow; the filing’s impact estimate was unavailable.
- Assess whether revenue growth can be sustained while restoring gross margin, given the 2019 mix-related decline.
- Monitor Asia-Pacific and major-customer concentration, including the customer that accounted for 11% of 2019 revenue.
- Confirm the effects of the Chroma transaction and voting agreement on governance, related-party oversight, share count and potential dilution.
- Consider the tax, currency and contingent-liability disclosures, including IIA grant obligations and the potential tax due if tax-exempt earnings are distributed.