Ladies and gentlemen, thank you for standing by. Welcome to Camtek's 1st Quarter 2020 Results Conference Call. All participants are presently in a 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 And Public Relations at 1646-688-3559, or view it in the new section of the company's website. Www.pamtech.com. I would now like to hand over the call to Mr. Andrew Helft of GPA Investor Relations.
Mr. Helft, would you like to begin?
Yeah. Thank you, and good day to all of you. I'd like to welcome all of you to Camtek's first quarter 2020 results conference call, and I would like also to thank Camtek's management for hosting this call. With us on the line today, Sebastian Mead's Camtek CEO, Mister Moshe Ayenberg, Camtek CFO, and Mister Ramilander, the Camtek COO. Rafi will provide us the overview of Camtek Resolves.
And discuss market trends in the first quarter of 2020. Once you will then summarize the financial results of the quarter, we will then open the call to take your questions. Before we begin, I'd like to remind our listeners that certain information provided on this call, our 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.
Statement 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. Industrial reminded 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 timing development of new services and products and the adoption by the market, increased competition in 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 contents of this conference call. In addition, during this call, certain non GAAP financial measures will be discussed. These are used by management to make specific decisions forecast future results and evaluate the company's current performance.
Management believes that the percentage of non GAAP financial measures is useful to investor understanding an assessment of the company's ongoing cooperation and specific for the future. A full reconciliation of non GAAP to GAAP financial measures is including today's earning release. I would now like to hand over the call to Rafael Mead, Camtek's CEO. Duffy, go ahead, please.
Good morning, and thank you for joining our call today. First quarter 2020 shipment paid for approximately
$33,000,000,
in line with the company original guidance for the quarter. However, recorded revenue were $13,200,000 due to incomplete installation of a few machines caused by the coronavirus situation. Based on order on hand, we have very good visibility in through the second and third quarters. And we expect our 2nd quarter revenue to be $36,000,000 to $38,000,000. Despite the coronavirus situation, the company is experiencing strong business momentum.
The demand from our customers to various applications point to strong records and third quarter We are well organized to execute our journey. I would like to reiterate point mentioned on our last call regarding the gross margin in the first half of twenty twenty. Our strategy is to expand our installed base worldwide in the meeting, the backend, and in the end of the ride of the front end. We are already the leading 3 d metrology supplier and in the process of becoming a leading supplier in the 2 d inspection as well. For the first half of twenty twenty, we have received orders from some of our customers for multiples to the inspection machines with basic configuration and with relatively lower ASP, which resulted in lower gross margin.
In the first quarter, we initially reported as expected. A relatively low gross margin of 45% due to this product mix and the lower revenue. Customers with all of their machines with basic configurations also has more complex applications and in the future, they are expected to purchase machines with both capabilities at a higher ASP. Looking to the second quarter, our revenue guidance is $36,000,000 to $38,000,000. 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 capabilities compared with the first 6 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 all the, for approximately 50 machines for CMOS image sensor applications. Machines installation will be completed by theendofthethirdquarter.
We have received order for multiple machines from a Tier 1 RF customer, mainly for 5G applications. We delivered the 1st bonded eagle inspection machine for 600 by 600 millimeter Panest size. This machine is for Tier 1 customer for Fairhouse applications. We expect to deliver the 2nd machine to a different customer during the second quarter. Our customers believe that fan out packaging of panels will continue to grow as this is cost effective approach.
Needless to say that we continue our R and D efforts together with Tier 1 customers to develop new inspection and technology capabilities, supporting the next generation packaging technologies. Regarding the Corolla pandemic and its impact on the global economy and on our business, So far, we are performing well, but 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 proven for the 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, Rafael. In my financial summary ahead, I will provide the results on an ongoing 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 $33,000,000 in line with the company original guidance for the quarter.
However, 1st quarter revenues came at $30,200,000, a decrease of 11% compared with $34,000,000 reported in the first quarter of 2019. Coronavirus cause delays in installations, and as the company recognizes system revenues only after installation, It impacted revenue recognition of a month of a number of missed systems, which were delivered, but installation was not completed during the first quarter. The geographic revenue split for the quarter was as follows: HR, 89% and the rest of the world, 11%. Gross profit for the quarter was $13,600,000. The gross margin for the quarter was 45.2 percent, versus 50.6% in the first quarter of last year due to the lower revenue and sales mix affecting the margin.
As Rafael mentioned already before. Operating expenses in the quarter were $10,000,000, This is compared with $9,900,000 in the first quarter of last year and to the $10,500,000 reported in the previous quarter. We expect our operating expenses in the second quarter to return to the Q4 2019 event and certain ROE projects expenses will be recorded then. Operating profit in the quarter was $3,700,000, compared to the 7 point $3,000,000 reported in the first quarter of last year. Operating margin was 12.2% compared to 21 21.5%, mainly as a result of the lower gross margin.
Overall, we significant improvement in our operating margin over the coming quarters. Net income for the first quarter of 2020 worth $3,600,000 or $0.09 per diluted share. This is compared to a net income of $700,000 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 $3,000,000.
Some of it has to do with the ship machines that were not recognized and are included in the inventory. And first is to support the increase in business volume, which we expect in the coming quarters. We generated $1,300,000 in cash from operations in the quarter. Account receivables increased from $31,400,000 to $37,100,000. This is due to timing of payments from customers.
During April, we already collected more than $50,000,000 and we expect a strong positive cash flow during the second quarter. Net cash and cash equivalents and short term deposits as of March 31, 2020, increased to $90,600,000 compared with $89,500,000 at the end of 20 19. As Rafael mentioned earlier, we have a record backlog We therefore expect revenues of $36,000,000 to $38,000,000 in the 2nd quarter with continued revenue growth and improved profitability in the third quarter. And with that, Ravi and myself, we'll be open to take your questions.
Thank Your question will be pulled in the order they are received. Please standby. Please hold for your questions. The first question is from Quinn Bolton of Needham And Company. Please go ahead.
Hey, guys.
Nice, nice results and good to see the strong gains for the 2nd quarter. I wanted to start on the profitability of the gross margins. You sort of went through the lower margins on the basic 2 d systems that you're shipping in the first half. You've talked about seeing the backlog supporting a higher gross margin into the 3rd quarter. And just wondering if you might be able to give us some sense Is that on the range of 50 to 100 basis points improvement into the third quarter?
Could it be higher? Just any sense you can give us on what the trend might be into this into the third quarter for gross margin?
Thank you, Keith. Yeah, basically, as you mentioned, our current backlog supports, higher our gross margins towards the first quarter. We believe that we can basically, go back to be kind of normal level that we reported throughout, 2019, probably closer to the second half of twenty eighteen.
Great. Thank you. And then on the I assume it's 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 third quarter for the 2 months of incense or portion of the business?
Well, hi, Colin, this is Randy. 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 sell at this stage We definitely see the same as image sensors strong in the 1st 3 quarters of this year.
And then the last question I had
was you've mentioned these 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 just wondering about the adoption of panel level packaging more broadly.
Thank you.
So the panel level machines are going to any sites. And if you know, you know, panels, you know, is related to the cost reduction of fan out applications. And it's a very important trend. And we see this trend a fan fan out increasing overall. And fan out was always on the road map of the OSATs and immediately starting to happen.
It's very hard to say today to what extent It will go, but definitely people believe in it and believe that this will provide a cost effective way for fan out applications. And as we said, we are shipping to a Tier 1 OSAT, which is shipped to a Tier 1 OSAT. In the first quarter, and we will shift to another Tier 1 OSAT on the second quarter. And by the
way, we see more, I would say that most of, not most, but power devices are probably matched very, very nice this concept and we see more and more power devices that, doors to the direction fan out on panels.
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 your, some of the the other people in the semi cap 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 and the outlook?
So, yeah, indeed, freight and shipping expenses went up pretty sharply. We see most of the impact actually, I think, in the second quarter, not so much in the first quarter as more of the first quarter, we still did not, suffer much from the coronavirus impact. But yes, you will see, and we are seeing an increase in shipping expenses in the next couple of quarters.
Got it. And then I guess kind of turning to OpEx, obviously, kicking 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 and D kind of projects in the pipeline that, you know, you'll have to increase OpEx for in maybe the third quarter or 4th quarter?
So in terms of R and D, I don't expect a much increase, over what I just mentioned in, in, before. So, it will be pretty linear. Moving from second quarter to the rest of the year. We do, it sounds like situation on sales and marketing or could be based on the way we approach, sales when we send direct, obviously, the level of, commissions to agents are lower. If we walk through, agents, there is an impact on the 7 marketing expenses.
Got it. Okay. That's helpful. And then I guess last one for 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, you know, any color there would be great.
I think, overall, our end markets are behaving so far in a very in the way we anticipated. Since each sensors, as I said, they are going to be strong, for the, for the 1st 3 quarters. We don't see any negative in the 4th quarter, but we don't see, we don't know enough about it. And advanced packaging is is the 2nd portion, and and it is it is healthy. There are many activities due, and we are shipping machines to compare to this market.
I think the memory portion of the advanced packaging, it's still not picking up. I expect this portion to pick up towards the latter part of this year or early next year as the Vira manufacturer start or continue to add capacity. What we are seeing is also an increase in our RF business. We mentioned it lastly mentioned it in summary, We have a nice order for multiple machines from one of the tier 1 players in this market. And this is, this is, again, related to the same end markets of the 5, primarily 5G.
And of course, there are only, you know, ones and twos and other 2 d applications that in general complement, diverse of the applications. But overall, the 3 main applications are the ones that I just highlighted.
Thank you.
The next question is from Gus Richard of Northland Securities. Please go ahead.
Can you talk a little bit about, winery shipments in the quarter and logistical issues, getting things installed? Yeah, obviously had there have been some problems and just wanna sort of know, what you guys are doing to address those.
Well, if I talk about linearity, I think the first quarter, the linearity of, you know, with Chinese New Year, the January And the 1st month of the quarter was pretty, I would say, was pretty low. But the second, and 3rd month of the first quarter, we're, we're strong both of them and they were the same model we have And I think overall, there isn't the irregularity. 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, fairly increase in the revenues, but 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, our own teams in each of regions in each of the territories. And then we'll be doing the installations, and there is very little support that they require from here, from our headquarters.
So from that point of view, I don't foresee any major issues with the installations. We think that they are alive. There are enough lights out to the victim of regions. We'll be able to ship all of the machines. And if we look at the situation to date, 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, but at this stage today, we do not foresee any issues in shipments and installation in the next couple of quarters.
Okay. And then, just a little bit of a further revenue breakdown. Roughly what percentage of revenue is China Q1 in the next couple of quarters? And also what's the mix these days between, front end macro defect inspection and back end?
Well, you know, we don't look at it. We look at it as front end, mid end and back end. So it's very hard for me just to to pick the numbers out of my sleeve here, but I will tell you, I think the main business is in the mid end. The smaller part is in the front end. And I would say the, the second in the middle is the back end.
Some of the applications in the back end, I would say these are number 2. So definitely, the mid end is the most dominant part in our business. Regarding China, we we don't give the accurate numbers, but definitely it is significant. And I think it is similar to other semiconductor companies. There's 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 left at this stage, in the second quarter, the U. S. And Europe are very heavily affected by the coronavirus outbreak. We will see more disease coming out of Asia. No doubt China is very important and it's very significant.
Thank you,
Please standby while we pull for more questions. There are no further questions at this time. Before I ask Mr. Ami to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available camtek's website, www.camtek.co.ilbeginningtomorrow. Mister Amit, would you like to make your concluding statement?
Yeah. I would like to 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 you long term support I look forward to talking with you again in the quarter. Thank you and goodbye.
Thank you. This concludes the CapEx First Quarter 2020 results conference call. Thank you for your participation. You may go ahead and disconnect.