Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtek's results Zoom webinar. My name is Kenny Green and I'm part of the Investor Relations team at Camtek. Camtek. Campos, participating in the live Q and A session.
I would like to remind everyone that this conference call is being recorded and the recording will be available on Camtek's website from tomorrow. You should have all received by now the company's presentation. If not, please view it on the company's website. With me today on the call, We have Mr. Rati Amik, Camtek's CEO Mr.
Moshe Eisenberg, Camtek's CFO and Mr. Rami Langar, Camtek's COO. Rami will open by providing an overview of Camtek's results and discuss recent market trends. Moshe will then summarize the financial results of the quarter. Following that, Rafi, Moshe and Rami will be available to take your questions.
Before we begin, I'd like to remind everyone that certain forward looking information provided in this call are internal company estimates unless otherwise specified. These statements are only predictions and may change as time passes. Statements on this call are made as of today, and the company undertakes no obligation to update any of the forward looking statements contained, whether as a result of new information, future events, changes in expectations or otherwise. Investors are reminded that actual events or results may differ materially from those projected, including as a result of the effects of general economic conditions, The effects of the COVID-nineteen pandemic on global markets and on the markets in which we operate, including the risk of continued disruption to our and our customers, Providers, Business Partners, Contractors Business, the risks related to concentration of a significant portion of Camtek's expected business in certain countries, particularly China, from which we expect to generate a significant portion of our revenues for the coming few quarters, as well as Taiwan and Korea, including the risks of deviations from our expectations regarding timing and size of orders from customers in these countries, Changing industry and market trends, reduced demand for our products, the timing developments of our new products and the reduction by the market, increased competition in the industry, price reductions as well as due to other risks identified in the company's filings with the U.
S. SEC. Please note that the Safe Harbor statement in today's press release also covers the contents of this conference call. In addition, during this call, certain non GAAP information measures Certain non GAAP financial measures will be discussed. These are used by management to make strategic decisions, forecast future results and evaluate the company's current performance.
Management believes that the presentation of non GAAP financial measures are useful to investors' understanding and assessment of the company's ongoing core operations and prospects of the future. A reconciliation of non GAAP to GAAP financial measures are included in today's earnings press release. I would now like to hand the call over to Ramy, Camtek's COO. Ramy, please go ahead.
Thank you, Kenny. Good morning, and thank you for joining our call today. We are enjoying a continuing growing demand for our systems, which has allowed us to demonstrate record financial performance quarter after quarter. We ended the Q2 of 2021 Canx. With $67,500,000 in revenues, over 52% gross margin and with 27% operating margin.
The strong profitability is a result of a rapid increase in sales and favorable product mix. Before I review the Q2, I would like to give a brief overview of the market environment. We're experiencing demand from all territories and especially from Asia. We expect to show continuous increase in sales In the next two quarters, we see positive signs for Q1 of 2022 based on focus from all segments and specifically the DRAM. Our revenue guidance for the 3rd quarter Camptus.
$69,000,000 to $71,000,000 The reasons for the increasing demand of semiconductors, As we mentioned in previous calls, are fueled by the transition to 5 gs mobile phones and the increased demand in data centers. The 5 gs based phones include new packaging technologies such as system in package, advanced CMOS image sensors, Advanced Packaging, RF and Power Device Modules. In addition, we see the automotive industry undergoing the major Change with electrification, connectivity and autonomous driving. We expect Camtek to continue benefit Canvys from all these trends in the next few years. Our success is a result of secular trends that we have been discussing in the past, Which have come to fruition, and we are enjoying them now, mainly the transition to advanced packaging with heterogeneous integration in fan out, Growing at a very fast pace, requiring extensive inspection and metrology as well as the increased demand for SiNi's image sensors.
China is becoming a major territory in the packaging segment. 3 out of the top 10 offsets are Chinese. Camtek. Most of the other foreign offsets have large facilities in China and we see new Chinese offsets entering the market. Camtek.
Camtek has been active in China for many years and is well positioned in the semiconductors market. Our global market position coupled with our technology leadership enabled us to leverage on the opportunities in the Chinese market. In addition, penetrate new segments such as the front end. We expect over 80% growth year over year for the 1st 9 months of 2021. We believe that we will outperform the strong industry growth Campt.
Due to our focus on the fastest growing segments, technology leadership, our ability to respond quickly to customers' Camps. Excellent local support and our strong position in Asia. I would like to highlight a few points about Q2. 88 of our sales came from Asia with China being the largest territory. About 60% of the systems Camptus.
We are also expanding our packaging application, including fan out and introduce integration, which are expected to continue growing Camptus in the coming quarters. CMOS Image Sensors is also a solid segment for Contex and 18% of our revenues Canv. We have a healthy backlog for the second half of the year. We are in the process of expanding our production capacity To address our long term growth strategy, we're adding cleanroom space for integration and testing of our systems. In addition, we are increasing our inventory levels and headcount to support the increased demand.
To summarize, high demands for semiconductor components have been leading to an increasing demand for inspection and metrology systems. Camtek is providing its customer with reliable high performing systems tailored to their special requirements. Camtek. Camtek is strongly positioned in the market and as things stand today, we expect 2021 to be an exceptional record year in sales, Campus. I would like to hand over to Moshe for a more detailed financial discussion of the financial results.
Thank you, Marie.
In my financial summary ahead, I will provide the results on a non GAAP basis. The reconciliation between the GAAP results and the non GAAP results Camtasia, appear in the tables at the end of the press release issued earlier today. 2nd quarter revenues came at a record level of Canx. $7,500,000 an increase of 82% compared with the Q2 of 2020 and 18% compared with the previous quarter. The geographic revenue split for the quarter was as follows.
Asia was 88% of the quarter, with the rest of the world 12%. Gross profit for the quarter was $35,200,000 The gross margin for the quarter was 52.1% versus 46.1% in the Q2 of last year and 50.7% in the previous quarter. The improvement in the gross margin was due to significant growth in revenues as well as more profitable products and sales mix Canx. Operating expenses in the quarter were $16,700,000 This is compared with $10,700,000 in Q2 of last year and to the €13,500,000 was reported in the previous quarter. The increase from the previous Canv.
Operating profit in the quarter was $18,500,000 compared to $6,400,000 reported in the Q2 of last year Canvys and $15,600,000 in the previous quarter. Operating margin was 27.4% compared to 17.2 Canx. The high operating profit is a result of the high gross margin together with the rapid growth in revenues, while we are still in the process of adjusting our expense structure To support the increased volume, we expect same level of operating margin in the next couple of quarters. Campe. Net income for the Q2 of 2021 was $17,100,000 or $0.38 per diluted share.
This is compared to a net income of $6,300,000 or $0.16 per share in the Q2 of last year. Total diluted number of shares at the end of the second quarter was 44,800,000. Turning to some high level balance sheet and cash flow metrics. Inventory level was $59,000,000 And it went up by $10,000,000 over the quarter. This is to support the current demand for our products and to ensure The availability of key components.
Account receivables went up by €5,800,000 due to the increased sales offset by improved collection in the quarter. We generated $19,900,000 in cash from operations in the Net cash and cash equivalents in short term deposits as of June 30, 2021, were $189,300,000 and together with the $10,000,000 cash that we have in long term deposits, Camtasia. The total cash amount is $200,000,000 for the quarter. This compared with $180,000,000 at the end of the Q1. Kant.
With the current business momentum, we expect revenues of $69,000,000 $71,000,000 in the Q3. Can't. And with that, Raffi, Rami and myself will be open to take your questions.
Thank you, Moshe. Canth. At this time, we will begin the question and answer session. If you have a question, please raise your hand via the Zoom platform. I will introduce you and ask you to unmute after which you may ask your question.
As we have a lot of people on the call, we will take a few moments to poll for your questions. Our first question will be from Craig Ellis from B. Riley. Craig, you may go ahead.
Yes. Thanks Canvys. I just wanted to start with a clarification On the strength in revenues in the Q2 and in the guidance versus my model at least, 2Q is about $3,500,000 better, the guide about $5,000,000 better. Can you just talk Moshe or Rami about Where you might have seen strength that is above expectations from 3 months ago across the business, whether it's in CIS or Advanced Packaging or other areas.
Hi, Craig. I think it's both. You can see there was a very strong quarter for the CMOS image sensor, 15% of the revenues came from it. Kempe. It was more it was higher than we expected as we discussed in the previous quarter.
No doubt on the advanced packaging, there is a lot of activities And there is a good strength in the short term and strength looking forward. The use of heterogeneous integration and fan out are both at a very high increase. We're getting a lot of repeat orders and also new customers. So overall, there is, I would say, yes, a little bit more revenues than we expected, and definitely, the outlook is very positive.
Dot That's really helpful, Rodney. And as a follow-up question, I wanted to tack to something that's a little bit longer term. I think in the press release and in the comments, the company Camp commented on visibility into early 2022, which is unusual for this time of year. Campus. I was hoping that you could frame up what you're seeing as you interact with your various customers as you look out to 2022 On trends that are at play either with things that we've just talked about like image sensors or potentially high bandwidth memory, frontendmacroinspection and then advanced packaging as we move to much more of that with high performance compute.
Canopy. How do the revenue dynamics frame up with their gives and takes as you look to calendar 2022? Not asking for guidance, but just Your sense of the market next year?
No, no. I think at this stage, what we can see is People are positive and starting to ask for slots in early next year. I think I mentioned specifically on the DRAM, We have been asked we have a solid forecast for sales for the DRAM market, Kant, which shows some of the strength of the market. And it's I think when we look forward, there is nothing Very specific that comes out. I think it comes across from the from our applications, CMOS image sensors.
It's obviously the advanced packaging. And in the advanced packaging, the memories, and we see also strength in other areas As the compound said, the power devices, RF, you know that the industry is moving in a very positive momentum. People are very anxious to see deliveries. They want to see their machines already in their facilities. Kempe.
And then as a result, people are starting to talk about slots for early in next year. Canv. So the overall picture is definitely very, very positive.
That's encouraging and thank you. I'll shift the next question Camptus. Before getting back in the queue over to Moshe. Moshe, real nice job on the margins in the business. But the question is one of the things we've seen not just in semiconductors and capital equipment, but more broadly in technology is that there are supply chain costs that in many cases are impacting margins.
It doesn't appear that that was the case in the Q2 or in the color that we're getting on margins for the Q3 for Camtek. Kempe. But can you just clarify, were there any supply chain issues that would have impacted shipments or your ability To deliver and is there any gross margin impact related to those issues in the quarter or the outlook?
Yes. So No doubt that there is some pressure from the supply chain across the board. We see shortage. We see price pressures. Canvys.
And with such a huge growth year over year, this comes into play in the last Fuel. So far, we've managed to work around it. There are some price increases, but not So overall, I we do see some pressure and some supply chain
issues, but Not to the extent that they have
huge impact on the margin itself.
Canvys. That's helpful. Thanks team and congratulations again.
Thank you, Craig. Our next question will be from Charles Hsieh of Needham.
Campe. Congrats on the nice results. I think the first question I want to ask It's around your advanced packaging side of the business. Obviously, 2021 has been very, very strong. And I understand there are things you consider as secular, for example.
I do remember you've said your Canx. Tools can you expect about from a few million to possibly a couple of tens of 1,000,000 bumps per wafer, But that requirement is really coming up and you've been asked to inspect about 500,000,000 bumps Wafer at about the same time or maybe a similar feel good. So How do we think about that secular trend in terms of complexity, but we also face another thing that may be a little bit more Transitory here because 2019, 2020, there may be a little bit underinvestment by the industry in 2021, there was a little bit of catch up demand. How should we think about how the secular versus transitory demand playing out in 2022? How does that shaping up from your vantage Point about our Advanced Packaging business of yours.
Thank you.
Let's talk about the secular. I think you mentioned the number of bumps. So today, I would say Kempe. The typical wafer would have about 10,000,000 to 20,000,000 bumps per wafer. We are getting wafers today from 60,000,000 to 100,000,000 bumps.
And obviously, down the road, there's going to be a lot more bumps per wafer. So this is something that the industry is going to go through Because of the requirements for power consumption, for bandwidth, for all kind of things that are required Canx. As the components go and progress. So this is a trend, this is a secular trend, This is an enabling technology to move ahead in the roadmap of all the major players. So that's something that is going Canv.
To happen and to continue and it relates to primarily a Trademus integration, you talk about fan out And all the other segments are going to grow. So maybe there is a catch up this year and there'll be less catch up next year. But when I look 2, 3, 5 years ago, no doubt that this trend is going to continue. And I think as the leader in this segment, Definitely, we will go we are going to enjoy it in the longer term in the shorter term and in the longer term.
Canopy. Thank you. So thank you for the nice color. I want to go over to the other segment of yours CMOS image Camps. I heard you did say the other segment DRAM you see some pick Camtab in early 2022.
And how about the CMOS image sensor, which has been a very, very important sector and Canvas segment that kind of serves as one that dampens the decline in bad years for other segments. So the thing I want to ask is, one trend we're really seeing In CMOS new sensor is the IDMs appears to be outsourcing more to foundries, especially to foundries in Taiwan. We've heard Samsung maybe Canvassourcing more to UMC. We also heard TSMC maybe setting up a fab in Japan, which could take some of the outsourcing orders from Sony. I wonder Whether you view that kind of outsourcing trend from the CMOS image sensor IDMs to foundry has been net positive, net Camptum.
Negative or neutral to your business and the second part of this question is really, it has been strong this year And especially this quarter, but on a run rate basis, cinema streaming sensor seems to be lower this year than 2020. Are you seeing any signs so Canvassar.
So I'll start with the first question. Canv. I think the trend to outsource by some of the players to go to foundries, I think it's a neutral Canvysen from our point of view. And I don't think it will affect drastically our business. And we are going to enjoy this business Canv.
Anyway, wherever it goes. Now to your second question. I think we said in previous Canvysen, that we expect that the business this year will be double digits. We thought it will not be as high to the extent that we enjoyed it Canx. From a percentage point of view, as last year, we thought it will be lower in percentage, but still significant, will be double digits.
We're still forecasted in the same way. I think the second quarter was extremely strong. Canx. The next quarters may be a little bit lower, the numbers. But all in all, we are seeing and talking to our customers.
We continue to see in the next few quarters healthy growth and the expanding share Camptus in this area. So no doubt, the CMOS image sensors we expect it to continue to be a significant part of our business.
Our next question is going to be from Thomas O'Malley from Barclays. Tom, please go ahead.
Hey, guys. Can you hear me all right?
Yes, we hear you well.
Great, great. Thanks for taking my questions and congrats on the next results. My first one is really for Moshe. When you look at this past quarter, you're already operating above your long term model. The gross margins are great and the fall through is really great as well.
Campe. You mentioned in your prepared remarks that you're adjusting expenses to kind of match the run rate of your business. Can you talk, 1, The timing of those rolling on expenses into the back half of this year, what should we see in terms of those additional investments and the timing around that? And then 2, If you're able to operate at these better gross margins, could you kind of update us on what the new or what an updated model may look like given the success that you're
Canfield. Hi, Tom. So first of all, I'll touch upon the gross margin question. It depends on revenue mix, depends on profitability of the deal mix. And also Canv.
And I don't expect to deviate much from that perspective, even with the supply chain pressure or with other issues around it. So I believe that between 50% 52% is the right margin for us to operate at this level. With respect to operating expenses, We are in the process of adding headcount across the board, mainly in R and D functions, as well as in production and customer support. That's the main area that we are hiring for, and that these people are needed to to support the growth. We are talking about the process that will take, I would say, 3 quarters, Q3, Q4 and Q1.
And throughout this time, we will adjust the headcount level. And at the same time, we are adding some other operating expenses to support the growth. All in all, I think that what we are going to see in the next three quarters is relatively higher gross operating margin CAMS. Our target model, so the current level of 27%, will be will stay with us in the next Kemps. And then based on our ability to adjust the expense level, I think we will be anywhere between 27% 25% and 27%.
So that's kind of how I see the long term or the mid term in terms of operating profitability.
Great. That's helpful. My follow-up is really about the visibility into the beginning of 2022. You mentioned some activity with DRAM customers. You also mentioned in the prepared remarks about some new OSAT customers in China.
Can you talk about the mix of business into next year that you're seeing? Where are you feeling most comfortable? I know you mentioned DRAM a bit earlier, but particularly in China, what's the cadence of new customers that are coming online? And are they representing a large part of what your forecast is
Canv. I think when we talk about the applications, It's not just in China. I think it's similar as in most of the territories. 60% is our advanced packaging. In advanced packaging today, it's a technology that is used more and more for high end applications and we see it Kampe everywhere in all the geographies.
And this is definitely is strong and going to stay strong. When we talk about DRAM, it's again, it's Kemps. In the as part of the advanced packaging, it's I would say it's a specific application CAMS. For advanced packaging. And then are all the rest of the application.
If it's front end, it's an area that we are gaining momentum Kempe. It's power devices compound semi, of course CMOS image sensors that we discussed. So basically, we don't see a major change in the application mix. I think they're going to stay around the numbers that we mentioned.
Great. Congrats on the nice results, guys.
Thank you.
Thank you, Tom. As a reminder, if you have a question, please raise your hand on the platform. Our next question will be a follow-up from Craig Ellis from B. Riley. Craig, please go ahead.
Thank you for taking the follow-up question. Just a very strong performance on numerous assets of the business including Converting strong operating performance into cash and with cash investments balance Up to $200,000,000 it's a good opportunity to check-in and see what the company is seeing On the potential acquisition front, I know that's part of the strategy. I know that the COVID restrictions make it hard to do some of the front end execution That go along with that, but can you give us an update on how you're thinking about M and A in this environment, Tim? Thank you.
Yes, Craig. Yes, indeed, we are very focused on the M and A front. We said that this is our number one priority for cash use. We and actually the team that is Involved in this process is Dlassy, Rami and myself. So we are really investing a lot of efforts and time on that.
I think we are making progress. We have list of targets, and we are very active. Nothing that will be immediate, but we hope this We will have something to report at some point. We are working hard on that, and there are opportunities, and hopefully, something will
Question, I don't know if it's possible, but can you elaborate a little bit on Areas of technology interest, geographic interest or maybe customer acquisition interest that might be at play Camtek. As you and Rafi and Rami work through different options and think about how you use M and A to position Camtek for another leg of growth.
Okay. The way
how we select potential companies Canx. 1st of all, based on, let's say, 1st priority to find company that we can see a good synergy That's number one priority. Other priority, of course, it's always to be in the same market that we are active. And we're trying to select profitable company. We don't want to look on startup.
Kant. And even if we find some potential company, the fact that we cannot travel, we cannot visit, we cannot Accelerate this process, this is definitely it is obstacle, and it's not so easy for us To manage it only by remote control. So definitely, this type of M and A right now in this time
Campt.
Indeed, Zoom works great for earnings call, maybe not Canvys. Raffi, thanks so much for that color. Thanks team.
Canopy. Thanks, Craig. Our next question will be from Patrick Ho from Stifel. Patrick, please go ahead.
Supply Chain. You addressed it in your prepared remarks and some questions. But I was just wondering from an inventory building perspective, do you believe that 3Q is probably the peak in terms of trying to get additional parts Kempe. To buffer yourself or is this something that could also carry into Q4 as well?
We are in the process of Building up inventory further to support the growth, and we are taking a commitment also for 2022 now, Canvys. Given the strength and the improved visibility into the beginning of 2022, So no, it's not the peak. We are continuing to build up inventory as we continue to increase revenue levels.
Great. That's helpful. And maybe just as a bigger picture question on the technology front. Canvys. You mentioned Herradenius integration several times on the call and that's obviously a key growth market In the Advanced Packaging segment, from I guess the types of device that you're seeing the greatest interest, one of them is high performance computing.
But what other areas or what other type of devices are you seeing the interest, especially on the heterogeneous integration front?
I think it's primarily today high performance computing. This is, I would say, the main application.
Great. Thank you very much.
You're welcome. Thank you.
Thank you, Patrick. Thank you, Patrick. Canvys. And that concludes the question and answer session. Before I hand over back to Rafi, I'd like to remind everyone that in the coming hours, we will upload the recording of this call to the Investor Relations section of Camtek's website.
I want to thank everybody for joining this call. And again, we'd appreciate any feedback you have with regards to this new format. And with that, I'd like to hand back to Rami for the concluding statements.
I would like to thank you all for your continued interest in our business. Again, I would like to thank all of our employees and the management team for their tremendous performance, and we look forward to continuing it. CAM. To all our investors, thank you long term for support. I look forward to talking with you again next quarter.
Thank you, and goodbye.