Ladies and gentlemen, thank you for standing by. Welcome to Camtek's First Quarter 2020 Results Conference Call. All participants are presently in the listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Camtek's Investor Relations team at GK Investor & Public Relations. At 1-646-688-3559 or view it in the News section of the company's website, www.camtek.com. I would now like to hand over the call, to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin?
Yeah. Thank you, good day to all of you. I'd like to welcome all of you to Camtek's First Quarter 2020 Results Conference Call. I would like also to thank Camtek's management for hosting this call. With us on the line today are Mr. Rafi Amit, Camtek's CEO. Mr. Moshe Eisenberg, Camtek's CFO, and Mr. Ramy Langer, the Camtek's COO. Rafi will provide the overview of Camtek results, and discuss market trends in the first quarter of 2020. Moshe will summarize the financial results of the quarter. We will open the call to take your questions. Before we begin, I would like to remind our listeners. That certain information provided on this call, are internal company estimates unless otherwise specified. This call also may contain forward-looking statements. 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 expectation, or otherwise. Investors are reminded that actual events or results, may differ materially from those projected, including as a result of changing industry, and market trends. Reduced demands for services, and products. The timely development of new services, and products, and their adoption by the market. Increased competition in the industry, and price reduction. As well as due to other risks identified, in the company's filing with the SEC. Please note that the safe harbor statement in today's press release, also covers the content of this conference call. In addition, during this call, 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 is useful. To investor understanding, and assessment of the company's ongoing cooperation, and prospects for the future. A full reconciliation of non-GAAP, to GAAP financial measures is included in today's earnings release. I would now like to hand over the call, to Rafi Amit, Camtek's CEO. Rafi, go ahead, please.
Good morning, and thank you for joining our call today. First quarter 2020 shipment amounted, to approximately $33 million. In line with the company original guidance for the quarter. Recorded revenue were $30.2 million, due to incomplete installation of a few machines. Caused by the coronavirus situation. Based on order on hand, we have a very good visibility into the second and third quarters. We expect our second quarter revenue, to be $36 million-$38 million. Despite the coronavirus situation, the company is experiencing strong business momentum. The demand from our customers, for various applications point. To strong record, and third quarter, we are well organized to execute our plan. I would like, to reiterate point mentioned on our last call . Regarding the gross margin, in the first half of 2020.
Our strategy is to expand, our install base worldwide. In the mid-end, the back-end, and in the end of the line of the front-end. We are already the leading 3D metrology supplier, and in the process of becoming a leading supplier in the 2D inspection as well. For the first half of 2020, we have received orders from some of our customers. For multiple 2D inspection machines with basic configuration, and with relatively lower ASP. Which resulted in lower gross margin. In the first quarter, we indeed reported as expected. A relatively low gross margin of 45%, due to this product mix, and the lower revenue. Customers who have ordered machines, with basic configurations. Also have more complex applications. In the future, they are expected to purchase machines. With more capabilities at a higher ASP.
Looking to the second quarter, our revenue guidance is $36 million- $38 million. With continued revenue growth, and improved profitability in Q3. We are already seeing a change in trend with orders. For the third quarter for machines, with more advanced capability. Compared with the first six months. Let me give you some of the highlights of the first quarter. Taiwan and China were the largest territories in the quarter. Since the beginning of the year, we have received orders. For approximately 50 machines, for CMOS Image Sensor applications. Machine installation will be completed, by the end of the third quarter. We have received orders for multiple machines, from a Tier-One RF customer, mainly for 5G applications. We delivered the first Golden Eagle inspection machine, for 600 by 600 mm panel size. This machine is for Tier-One customers, for fan-out applications.
We expect to deliver the second machine. To a different customer, during the second quarter. Our customers believe, that fan-out packaging on panels. Will continue to grow, as this is cost-effective approach. Needless to say, that we continue our R&D efforts. Together with Tier-One customers to develop new inspection, and metrology capabilities. Supporting the next- generation packaging technologies. Regarding the corona pandemic, and its impact on the global economy, and on our business. So far, we are performing well. We are monitoring the situation closely, and we will update our plans as things change. I do hope that for all of us, we can put the pandemic behind us, and move back to normal life. I would like to specifically thank, our employees for their fantastic work. And ability to adapt quickly, to this new environment.
I would like to hand over to Moshe. For a more detailed, financial discussion of the financial results. Moshe?
Thank you, Rafi. 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. Appear in the table, at the end of the press release issued earlier today. As Rafi mentioned, first quarter 2020 shipments of machines to customers. Amounted to approximately $33 million, in line with the company original guidance for the quarter. First quarter revenues came at $30.2 million, a decrease of 11%. Compared with $34 million reported, in the first quarter of 2019. Coronavirus caused delays in installations, and as the company recognizes system revenues only after installation. It impacted revenue recognition of a number of systems, which were delivered. But installation was not completed, during the first quarter. The geographic revenue split for the quarter was as follows. Asia, 89%, and rest of the world, 11%.
Gross profit for the quarter was $13.6 million. The gross margin for the quarter was 45.2%, versus 50.6% in the first quarter of last year. Due to the lower revenue, and sales mix affecting the margin. As Rafi mentioned already before. Operating expenses in the quarter were $10 million. This is compared with $9.9 million in the first quarter of last year, and to the $10.5 million reported in the previous quarter. We expect our operating expenses in the second quarter. To return to the Q4 2019 levels, and certain R&D project expenses will be recorded then. Operating profit in the quarter was $3.7 million. Compared to the $7.3 million, reported in the first quarter of last year. Operating margin was 12.2% compared to 21.5%. Mainly, as a result of the lower gross margin. Overall, we expect significant improvement in our operating margin, over the coming quarters.
Net income for the first quarter of 2020, was $3.6 million or $0.09 per diluted share. This is compared to a net income of $6.7 million, or $0.18 per share in the first quarter of last year. Turning to some high-level balance sheet, and cash flow metrics. Inventory level has gone up, by approximately $3 million. Some of it has to do, with the shipped machines. That were not recognized, and are included in the inventory. And some is to support the increase in business volume. Which we expect in the coming quarters. We generated $1.3 million in cash, from operations in the quarter. Accounts receivable increased from $31.4 million to $37.1 million. This is due to timing of payments from customers. During April, we already collected more than $15 million. And we expect a strong positive cash flow, during the second quarter.
Net cash and cash equivalents, and short-term deposits as of March 31st, 2020. Increased to $90.6 million, compared with $89.5 million at the end of 2019. As Rafi mentioned earlier, we have a record backlog. We therefore expect revenues of $36 million-$38 million in the second quarter. With continued revenue growth, and improved profitability in the third quarter. With that, Rafi, Ramy, and myself will be open, to take your questions. Operators?
Thank you. Ladies and gentlemen, at this time, we'll begin the question- and- answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift your headset before pressing your numbers. Your questions will be pulled, in the order they are received. Please stand by, while we pull for your questions. The first question is from, Quinn Bolton of Needham & Company. Please go ahead.
Hey, guys. Nice results, and good to see the strong guidance for the second quarter. I wanted to start on the profitability of the gross margins. You sort of went through, the lower margins on the basic 2D systems. That you're shipping in the first half. You've talked about seeing the backlog, supporting a higher gross margin into the third quarter. And just wondering, if you might be able to give us some sense? Is that on the range of 50 basis points-100 basis points improvement into the third quarter? Could it be higher? Just any sense you could give us on, what the trend might be? Into the third quarter for gross margin.
Thank you, Quinn. Yeah, basically, as you mentioned. Our current backlog supports, a higher gross margin towards the third quarter. We believe that we can basically, go back to the kind of normal level. That we reported throughout 2019. Probably, closer to the second half of 2019.
Great, thank you. Then on the CMOS Image Sensor, I believe you said. That you already received orders for 50 systems this year. I think that would imply, a pretty strong mix shift in your business towards CIS this year. Wondering if you see, that strength continuing past the third quarter? Or does your visibility, just today extend into the third quarter? For the CMOS Image Sensor portion of the business.
Well, hi, Quinn. This is Ramy. We are seeing today, two quarters ahead. Which is more than we usually see. It's very hard at this stage, with everything that is going around. To go and anticipate, what will happen in the fourth quarter? We don't see any negative signs at this stage. However, I think this is the most, that we can say at this stage. We definitely see the CMOS Image Sensor strong, in the first three quarters of this year.
Great. Then the last question I had was, you'd mentioned the panel-level packaging inspection system. I think, you said you shipped one system in the first quarter. Expect to ship a second system here, in the second quarter for fan-out applications. Just wondering, if you could give us more details? Are those systems going to a large foundry? Is it going to a more traditional OSAT customer? Just wondering about the adoption, of panel-level packaging more broadly? Thank you.
The panel-level machines are going to OSATs. As you know, panels, it's related to the cost reduction of fan-out applications. It's a very important trend. We see this trend of fan-out increasing overall, and fan-out was always on the roadmap of the OSATs. And indeed it is starting to happen. It's very hard to say today, to what extent it will go. Definitely people believe in it, and believe that this will provide. A cost-effective way, for fan-out applications. As we said, we are shipping to a Tier One OSAT, which has shipped to a Tier One OSAT in the first quarter. And we will ship to another Tier One OSAT on the second quarter. By the way, I would say that power devices. Probably, match very nice this concept, and we see more, and more power devices. That goes to this direction, fan-out components.
Great. Thank you very much, for the additional color.
The next question is from, Craig Ellis of B. Riley FBR. Please go ahead.
Hey, guys. This is Carl Lynch on for Craig. I guess starting with the gross margin front. Some of the other people in the semi caps side. Have noted higher freight costs impacted margins. I just wanted to know, if you guys are seeing any of that? And how much of an impact, that might have had in the quarter or in the outlook?
Yeah, indeed, freight and shipping expenses went up pretty sharply. We will see most of the impact actually, I think in the second quarter. Not so much in the first quarter, as most of the first quarter. We still did not suffer much, from the coronavirus impact. Yes, we will see, and we are seeing an increase in shipping expenses, in the next couple of quarters.
Got it. I guess, kind of turning to OpEx. Obviously, ticking up a little bit in the second quarter. Can you just give us a sense for, what the linearity is through the year? Do you have further R&D kind of projects in the pipeline. That you'll have to increase OpEx, for in maybe the third quarter or the fourth quarter?
In terms of R&D, I don't expect a much increase over, what I just mentioned before? It will be pretty linear moving from second quarter, to the rest of the year. There is some fluctuation on sales, and marketing. Or could be, based on the way we approach sales. When we sell direct, obviously, the level of commissions to agents are lower. If we work through agents, there is an impact on the sales, and marketing expenses.
Got it. Okay, that's helpful. I guess, last one from me. Obviously, it sounds like the Image Sensor business is doing well. Can you just kind of talk, through some of the puts and takes? In the quarter, and the outlook in some of the other end markets? Just kind of, how those are playing out? Any color there would be great.
I think overall, our end markets are behaving so far, in the way we anticipated. Since Image Sensors, as I said, they are going to be strong for the first three quarters. We don't see any negative in the fourth quarter, but we don't know enough about it. Advanced packaging is the second portion, and it is healthy. And there are many activities there, and we are shipping machines to this market. I think, the memory portion of the advanced packaging is still not picking up. I expect this portion to pick up, towards the latter part of this year, or early next year. As the DRAM manufacturer start, or continue to add capacity. What we are seeing is also an increase in our RF business. Rafi mentioned it in his summary. We have a nice order for multiple machines, from one of the Tier- One players in this market.
This is again related, to the same end markets of primarily 5G. Of course, there are all ones, and twos, and other 2D applications. That in general complement, the rest of the applications. Overall, the three main applications are the ones that I just highlighted.
Got it, a ll right. Thanks, guys.
Thank you.
The next question is from, Gus Richard of Northland Securities. Please go ahead.
Yes, thanks for taking the question. Can you talk a little bit about linearity of shipments? In the quarter, and logistical issues getting things installed? Obviously, there have been some problems, and just want to sort of know. What you guys are doing to address those?
Well, if I talk about linearity, I think the first quarter. The linearity with Chinese New Year, the January. And the first month of the quarter was pretty, I would say, was pretty low. The second, and third months of the first quarter were strong. Both of them, and they were the same, more or less. I think overall, there isn't a big linearity. I think most of the month, the growth is across the entire quarters in the next. Let's say if I look at the second, and third quarter. We are going more or less, to ship similar number of machines. With some increase, further increase in the revenues. Overall, the number of machines, will be similar from month to month. This is very important for us, as this allows us to streamline. The manufacturing, and the installation of the machines in a better way.
As for installations, we have dedicated teams. Or our own teams in each of the regions, in each of the territories. And they will be doing the installations, and there is very little support. That they require from here, from our headquarters. From that point of view, I don't foresee any major issues with the installations. We think, that there are enough flights out, to the different regions. We'll be able to ship, all of the machines. If we look at the situation today, we don't see any issues. Of course, as we said, this whole situation. Some of the things we don't know. And we will update, if something needs to be updated. At this stage today, we do not foresee any issues in shipments, and installation in the next couple of quarters.
Okay, just a little bit of a further revenue breakdown. Roughly, what percentage of revenue is China Q1, in the next couple quarters? What's the mix these days, between front-end macro defect inspection, and back-end?
Well, we don't look at it. We look at it as front-end, mid-end, and back-end. It's very hard for me just, to pick the numbers out of my sleeve here. I will tell you, I think the main business is in the mid-end. A smaller part is in the front-end. I would say, the second in the middle is the back-end. Some of the applications in the back-end, I would say these are number two. Definitely, the mid-end is the most dominant part in our business. Regarding China.
China?
Regarding China, we don't give the accurate numbers. But definitely it is significant, and I think it is similar to other semiconductor companies. There is a lot of investments in China, and they are going on. I think, what makes things more the Asian way? As the coronavirus is less effective, less at this stage, the second quarter. The U.S., and Europe are very heavily affected by the coronavirus. We will see more business coming out of Asia. No doubt China is very important, and it's very significant.
Got it, o kay. Thank you.
Thank you, Gus.
If there are any additional questions, please press star one. If you wish to cancel your request, please press star two. Please stand by, while we poll for more questions. There are no further questions at this time. Before I ask Mr. Amit to go ahead, with his closing statement. I would like to remind participants, that a replay of this call. Will be available on Camtek's website, www.camtek.co.il, beginning tomorrow. Mr. Amit, would you like to make your concluding statement?
I would like to first thank you all, for your continued interest in our business. Again, I would like to thank all our employees. And my management team, for their tremendous performance. And we look forward to continuing it. To our investor, I thank your long-term support. I look forward, to talking with you again next quarter. Thank you, and goodbye.
Thank you. This concludes the Camtek's First Quarter 2020 Results Conference Call. Thank you for your participation. You may go ahead, and disconnect.