Ladies and gentlemen, welcome to the INFICON first quarter results conference call. I am Alice, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference was not recorded for publication or broadcast. At this time, it is my pleasure to hand over to Mr. Lukas Winkler, Chief Executive Officer of INFICON. Please go ahead, sir.
Thank you, Alice. Grüezi and good morning, everyone, and thanks for joining us today to review our results for the first quarter of 2019. After finishing a good year 2018 with record sales and net income, but with a negative trend quarter by quarter, we started into 2019 with a sequentially improved first three months compared to the last quarter of 2018. Nevertheless, we are far behind the record first quarter of 2018, primarily driven by reduced semiconductor and OLED activities in Asia. You can find a PowerPoint presentation, as always, on the investor relations tab on our website that supports our conference call. Please turn to slide number four, where we start with the key figures for the reporting quarter. In total, our revenues were almost 14% below last year's first quarter. We finished with sales close to $96 million.
Adjusted for foreign exchange currency fluctuations and acquisitions, the organic decrease was above 12%. On the other hand side, our sales slightly increased sequentially by 1.6%. With decreased sales, somewhat lower gross profit margins, but still above 50%, as well as reduced operating expenses, we finished the quarter with operating income of $16.7 million, or 17.5% of sales, compared to the record $24.6 million, or 22.2% of sales for the same quarter a year ago. Sequentially, the operating income margin improved from 15.8% to 17.5%. After tax, net income reached $12.8 million, or 13.4% of sales. Matthias Troendle will review the numbers with you in more details later, while I now highlight some important developments in our markets first. Please turn to next slide, number five, where you see the sales breakdown to our served four key markets, as well as the regional sales trend.
The pie chart on the left side shows an increased contribution from the general vacuum and refrigeration, air condition, and automotive market at the expense of a reduction from the semi- and vacuum coating market. The trend chart on the right-hand side indicates dramatically the slowdown in Asia compared to the more stable North American and European markets. Now let us do a quick analysis market by market, starting with the smallest one. In the security and energy market, slide number six, sales decreased 13% year-over-year and more than 20% sequentially and reached $5.8 million. We had a slow start into 2019. Although the majority of the sales was still for security applications, we are facing a weak demand from large government agencies in the U.S. and China. Political as well as trade uncertainties are the main drivers behind the slowdown.
We are working on some interesting [Hapsite] projects, but the timing, as well as the budget approvals, are hard to predict. Therefore, we remain cautious for the coming month. On the energy side in this market, which represents a smaller part of our business, we continue to see an increasing interest in new green energy technologies, such as bio-methane gas applications, especially in Europe, as well as new landfill applications in the U.S. In the energy market, we do serve a much larger customer base from the private as well as from the government sector. Therefore, our energy business is less lumpy compared to the security activities. Overall, we expect a weak 2019 in the security and energy market.
Moving to the refrigeration, air conditioning, and automotive market on slide number seven, where we reached a new quarterly record, partly due to the small acquisition that we made in October 2018. Sales increased 3% year-over-year and 16% sequentially and reached $21.4 million. The growth can be allocated to American and European customers primarily, while sales in Asia slowed down. INFICON is the preferred supplier for all quality leak checking applications in the refrigeration and air condition manufacturers market, and we have been able to defend our number one market share position. Using the same world-class technology and application know-how enabled us to enter the automotive manufacturing market. In the meantime, we became a preferred partner in this market as well, especially due to the increased regulation requirements.
The production of lithium-ion batteries for e-cars is one of those new and growing applications where leak tightness is a critical security issue. E-car battery manufacturers around the world rely on our technology for quality assurance. Similar requirements will soon start to be necessary for small rechargeable batteries for all kinds of wearable and mobile devices as well. Additionally, we continue to expand our distribution network for our full line of handheld battery-powered after-sales service products around the world. The previous mentioned small acquisition is a nice addition to our existing products and enables us to get better access to the automotive after-sales service market. We expect 2019 with a stable market development and some growth coming from our after-sales service activities.
Let's go to the semi and vacuum coating market, which includes solar display optics and, of course, semiconductor applications on slide number eight, where sales decreased 25% year-over-year and reached $39.2 million. Compared to the already weak fourth quarter 2018, sales decreased another 3%. Almost all of reduced sales can be attributed to weak semiconductor and OLED flat panel display market in Asia. Design wins in the EUV lithography technology market, as well as increased sales of our semi manufacturing software in Europe and North America helped to offset the very low investment in new semi and OLED tools, especially in Asia.
Nevertheless, we expect that this slowdown in demand for semiconductors will reach or has reached the bottom, and that the business will come back in the second half of 2019, since the need for new and existing applications for all kinds of smart sensors, for industrial health and automotive applications, as well as Internet of Things, big data, artificial intelligence, and other new high-tech application has not changed. The speed of the China Semi Initiative will depend on the outcome of the China-U.S. trade discussions, as well as the availability of know-how, meaning manpower with semiconductor experience. The first issue can be resolved easier and probably sooner as well. Looking ahead from a long-term perspective, the semiconductor market will remain the most attractive growth opportunity for INFICON. New chip designs, new material and manufacturing processes are asking for more accurate process control and monitoring.
We are working very closely with OEMs and end users to develop new sensors, solutions, and methods to assure high-quality mass production of new chips. We expect a challenging 2019 from a market or financial point of view. From a technology point of view, challenges mean new growth opportunities for new solutions together with our customers. Finally, we had a mixed first quarter 2019 in the general vacuum market on slide number nine, with sales of $29.3 million, which is an increase year-over-year of 6%, but decreased 6% sequentially. As you know, we sell analysis, measurement, and control products for many different industrial applications through private label partners, which are primarily vacuum pump manufacturers, but also direct sales channels to OEMs and distributors.
A positive economic environment together with new private label product initiatives and direct market share gains, especially in North America, will be modest growth contributors to INFICON. As a positive last topic, our Contura S400 leak detector for food packaging applications has reached the market acceptance breakthrough in Europe, and therefore, we decided to expand our distribution into the U.S. market. Before I turn over to Matthias, I like to close my part of the presentation with an outlook on slide number 10. As I said already, 2019 will be kind of a transition or challenging year with geopolitical uncertainties, with an expected semiconductor rebound in the second half, but nobody knows the exact timing. With technical advanced solution in many new applications, such as the growing extreme ultraviolet use in the lithography and new ALD and CVD processes for three-dimensional seven nanometer wafer technology, and so on.
The current OLED overcapacity in the market reduces the need for new tools. At the same time, new flexible OLED displays will soon be available on new mobile phones. The current traditional automotive market is down. The growing e-car activities need new and improved batteries, and the battery manufacturing capacity is behind the demand, which will generate new leak-checking opportunities for INFICON. All in all, we see many growth opportunities. At the same time, we are facing some market risks. We do not change our previously published guidance of sales around $400 million and operating income of approximately 19% of sales. With that, I'd like to turn over to Matthias, who will give you more details about our financial performance. Please.
Thank you, Lukas. Good morning to everyone to our first quarter 2019 conference call. I will start, as usual, my presentation with a financial performance and then follow by some words to the guidance. My commentary starts with slide 12 of the PowerPoint on our website. As communicated in our press release this morning, revenues for the first quarter of 2019 came out at $95.7 million, compared with $110.7 million in our record quarter Q1 of last year. Total sales decreased by $15 million or 13.6%. Compared to one year ago, the U.S. dollar did strengthen against some of our major currencies, for example, the euro. Due to that, we had some negative exchange rate effects of 2.6%. Further, we had some positive impacts due to acquisitions of 1.4%, which means we had an organic sales decrease of 12.4%.
Looking at the end market development, all markets except refrigeration, air conditioning, and automotive decreased. The semi and vacuum coating market had, not unexpected, the highest decline and decreased by approximately 25%. The general vacuum market showed a decline of 5.5%, and security and energy market had a lower first quarter sales and decreased by 13%. The picture looks a little bit different on a sequential basis. Sales in the first quarter did increase slightly by 1.6% compared to sales level in the previous quarter, Q4. This increase was mainly driven by a solid growth in general vacuum and the refrigeration, air conditioning, automotive market, which did grow by 5%, respectively 16%, while sales to the other two end markets, semi and vacuum coating and security and energy, did decrease. How does the regional performance look like?
On a geographic basis, Europe reached 31%, North America 32%, and Asia Pacific ended with 36% of total first quarter sales. As you can see in the chart, Asia sales did decrease sharply by approximately 33%, which was mainly driven by the semi and vacuum coating market. Europe developed stable and North America did grow by approximately 7%. Compared to previous quarter, Q4, sales did decrease in Asia by -14%, again, mainly semi and vacuum coating, while Europe and North America did grow by 9%, respectively 18%, and in both regions, all markets showed growth. Let's go to slide 14. The gross margin for the first quarter of 2019 reached 50.1% compared to 51.1% in the same quarter of last year. The margin percentage decreased by 99 basis points. The absolute margin decreased by $8.6 million or 15%.
Compared to previous quarter, Q4, the margin improved from the low 47.5% level, thanks to a more favorable shipment mix and less adjustments and reserves we took. Moving on to our operating expenses. R&D expense in the first quarter reached $8.6 million and increased by 8.9%. The number includes acquisition impacts as well as some favorable foreign currency impacts as a percent of sales, which represents 9% after 7.1% in last year, Q1. SG&A expense in the first quarter was $22.6 million or 23.6% of sales, a decrease of 6.2% or $1.5 million. The decrease in the SG&A is influenced by lower variable compensation and commission spend, as well as some favorable foreign currency impacts. Let's turn to the bottom line for the first quarter 2019. With that, we achieved income from operations of $16.7 million or 17.5% of sales.
This compares with last year's figure of $24.6 million or 22.2%, which means the result did decline by roughly 32% compared to last year, which was, by the way, our best and record quarter so far. The decrease is mainly driven by the lower sales volume and therefore lower gross margin contribution, while cost did decrease slightly. Let's go to the next slide. For the first quarter 2019, we recorded tax expense of $3.7 million, which represents an average tax rate of about 22.5%, slightly 0.4 percentage points lower due to our profit mix and the different country tax rates. As a result, the net income for this year's first quarter reached $12.8 million or 13.4%, which compares to $18.7 million or 16.9% in the same quarter last year. The decrease of 31.6% is comparable to the operating income development.
This decrease is in line with the net income development. Now let's move on to the balance sheet on the next slide. Our net cash position in Q1 was $65.4 million, which represents roughly 21% of our total assets. This compares with $62.3 million at the end of last year, which means we had a slight increase of about $3.1 million. The operating cash flow, which you can also see on that slide, did increase from previous year's negative level and reached for the first quarter with high payouts and some reductions in accounts, a good $7.3 million.
For the first quarter, our day sales outstanding slightly improved and reached 50.1 days compared to 51.4 days at the end of last year. Inventory turns did decrease and reached 3.2 turns while the working capital level was stable and the ratio did end up with 28.8%. On the balance sheet graph on the left side, you see the structure and composition of assets and liabilities. The equity ratio, which closed close to 70% in Q1 after 57%
Excuse me, 75.9% in Q4. No material long-term liabilities and the net cash position of $65 million confirm a solid balance sheet structure. With that, I covered our current quarter results. I conclude my portion with the guidance. Mr. Winkler did already give insights and comments on our view of the various end markets. Based on our assessment, we confirm the previous guidance for the year. We expect sales around $400 million with an operating income level of around 19%. The last slide shows our corporate calendar and the upcoming dates. This concludes now the formal part of the presentation. We are ready to take your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets when asking a question. Anyone who has a question may press star and one at this time. Our first question comes from the line of Michael Foeth from Vontobel. Please go ahead.
Yes, good morning, Lukas and Matthias. Several questions. The first one is regarding your comments on the semiconductor markets. Actually, a lot of other players talk about very low visibility into the second half of 2019 and feel that it's difficult to call the bottom of the cycle, and you sound much more confident regarding the rebound in the second half. I was wondering what sort of evidence do you have that you base your comments on? That's my first question. The second one is also relating to semi and the dynamics in Asia and America. Just trying to understand what the demand levels from the OEMs in the United States are versus what you are shipping to Asia and China. There seems to be a pretty significant discrepancy in terms of the growth dynamics. If you can comment on that.
My final question would be regarding the OLED market. The question is whether you're seeing already any concrete capacity expansion plans for flexible OLED. If you see any particular CapEx that will be deployed in the market that will drive revenues for you in the second half of the year. Thank you.
Good morning, Michael. A lot of questions. Let me start with the last one. In the OLED market, what we see and what we expect is that there is already some installed capacity for flexible displays in Korea, but it does not look like there is enough capacity in China. As you know, even the Chinese mobile phone makers will soon launch or start to sell certain products with flexible displays. We do not see a lot of activities on the OLED OEM market, with a few exceptions, as I mentioned. That will go to China.
We also see some increased OLED activities on the end user side, which is an indication that where we sell so-called yield enhancement product and monitoring product, which is an indication that the tools are actually used, displays are manufactured, and obviously they seem to have some issues with the reaching higher productivity on the yield side. Having said that, overall, and I mentioned that before, the OLED market for the full year will be behind the 2018 figures just for OLED alone. We see some indications, especially coming from China, that there will be some investments coming for kind of a new type of flexible displays. Turning to the semi market. Here we really have to distinguish between at least two elements. One is the dynamic in the end user side and the dynamic on the OEM side.
If I say that we might see the bottom, nobody can give you a perfect guarantee. From an INFICON point of view, we serve both markets, the end user as well as the equipment manufacturers. There is always some time lag in between, and the drivers are not necessarily almost the same. On the OEM side, we clearly have to distinguish between, let me call it the traditional process equipment for deposition and etching. This market is down. There's no doubt about that. You asked about dynamic between U.S. and Asia. I would not like to comment on that because at the end of the day, it depends heavily on where the OEMs actually have their manufacturing location. Even American equipment manufacturers do not make most of the equipment in America anymore. They make them somewhere in Asia.
We simply see that the equipment manufacturers market for traditional deposition etching tools are down. On the other hand, that's an indication that new technologies are actually growing. The EUV lithography market is clearly growing. That's, again, that's an equipment manufacturer's market. In that case, it's primarily in Europe. Together with the EUV, we also see some ALD tools and some high-end CVD and etch tools are growing as well to make sure that they can make those seven nanometer or even five nanometer chip designs. You can clearly see that traditional technologies are down, but the high-end side is already showing some growth. With the EUV, clearly shows a lot of growth.
Coming to the end user side, where we see an increase in the use of advanced sensor solutions as well as software, more in the U.S., Europe, and a little bit in China, where else the traditional Korean and Taiwanese end users are behind, or wouldn't say behind, but are in a relatively weak phase compared to where they used to be a year ago. We see increased interest in our solutions for so-called manufacturing software to increase the yield and having a better productivity level, especially for 2nd-tier chip manufacturers, primarily in the U.S. and in Europe. The end user dynamic is already showing some indications of recovery.
I wouldn't call it a perfect recovery yet, but at least all those manufacturers who try to be in the forefront of the technology, using new material, using new, small designs with 3D design and seven nanometer technology, they need to invest in yield enhancement and monitoring solutions. That's where we have a very good market position, and we are ready to take market share wherever we can. I would say, if you would summarize it, then I cannot say that we have reached the bottom yet on the traditional semiconductor equipment manufacturer side, but we clearly see a good momentum in the EUV market as well as in the high-end end user market. Does it explain your question?
Perfect. Thanks a lot.
You're welcome.
As a reminder, if you wish to register for question, please press star and one on your telephone. The next question comes from the line of Philippe Saliba, HSBC. Please go ahead.
Yes, hello. Thank you very much. A few questions from my side. Firstly, you say that the book-to-bill is below one. Can you shed some light on that? Is it significantly below one, just a notch below one? To have some color there. In terms of Q2, are you able to provide an update in terms of how sales have progressed so far as well as orders? In order to see a stronger H2, when would we need to see the orders flowing in? In terms of an H2 recovery, is it rather, let's say, a sequential recovery from H1 into H2 or also a year-over-year increase H2 2019 versus H2 2018, and how strong could that recovery be? Maybe also could you shed some light on, I guess that is what you mentioned also with traditional investment.
Do you see any signs in the memory market of recovering? Thank you.
A lot of questions, a lot of very detailed questions. Let me go quickly. Start with the last one again. I maybe start with the first one. You're right. Traditionally, the memory market does not require seven nanometer technology yet. They are relying on larger line width. They don't require a high-end EUV and advanced ALD and ALE processes yet. That is exactly what I mentioned before. Those memory makers are using more traditional deposition and etching tools. They are clearly down. That's true. Let me go back to the first question. We do not disclose order intake figures in details. We never did. I like to stay with that. You also have to understand that our lead times vary between two days and probably two months.
Certain orders we can very quickly turn around, others will take some time. I don't see the book-to-bill being below one as a big concern for INFICON. As I mentioned, we are very quick in turning around orders into revenue anyway. What do we see Q2? It's two weeks old. So far so good. There's no indication that I have to be worried about. You're right that if H2 needs to be better than H1. That's probably we might see first indications at the end of Q2. If we don't see something by the end of Q2, our predictions would be wrong. On the other hand side, if we have to get to our guidance, the second half of 2019 needs to be at least at the level of the second half of 2018, or a little bit above.
That's what we expect will happen. Of course, with a certain risk as always. Our salespeople around the world work on project lists, and they provide us with a monthly forecast, and what we give as a guidance is basically the summary of all the inputs that we collect from all the intelligence around the world, and that's what we see currently. You're right, we need to see some clear indications by the end of Q2 for an improved order intake in order to make our guidance with a better second half than the first half.
Thank you very much, Mr. Winkler.
You're welcome.
Once again, to ask a question, please press star and one on your telephone. We have a follow-up question from Mr. Michael Foeth. Please go ahead. Mr. Foeth, your line is open. You may ask your question.
Yes, thank you. A follow-up on the food packaging market. You talked about breakthrough in commercialization in Europe. I was just wondering if there are any changes since the announcement of your full year results that you want to mention, or if it's just a reiteration of what you said earlier in the year.
It's a reiteration of what we said, because we said that basically a month ago. It's basically just confirming that we are on the way of clearly growing that business. Still a low level, but with huge growth rates, and we expect a couple of new orders now coming soon, also from the U.S. market. It's a reiteration.
Okay. In terms of contribution to sales in 2019, still expected in the $ single digit million range or already above that?
That's true. Single digit.
Okay. Very good. Thank you.
You're welcome.
Gentlemen, there are no more questions at this time.
If there are no more questions, I simply like to thank you for your patience, listening to our earnings calls, and, since you are in the middle of the week and expecting a long weekend, I will wish you a nice Easter break, hopefully with some good weather and not too much traffic on the street. Thank you, and talk to you in three months. Bye-bye.
Bye-bye.
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