Ladies and gentlemen, thank you for standing by. Welcome to Camtek's Fourth Quarter and Full Year 2019 Results Conference Call. All participants are at present in 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 16466883559 or view it in the new 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. Mister Health, would you like to begin, please?
Yeah. Thank you, operator. Good day to all of you. I would like to welcome all of you to contact Fourth Quarter and full year 2019 results conference call, and I would like also to thank contact management for hosting this call. With us on the line today, Mr.
Raphael needs Camtek's CEO, Mr. Muche Eisenberg, Camtek's CFO, and Saramilanda, Camtek's COO. Lastly, we'll provide an overview of company results and discuss market trends in the fourth quarter of 2019. Motion will then summarize the financial results of the fourth quarter and the full year. We will then 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 may contain forward looking statements. These statements are only subject 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 a result of information, information, future events, changes expectation, or otherwise.
A result of mobile security control projected, including as a result of changing industry and market trends, this demand for services and products, tightening development of new services and products and the reduction in the market, increased competition in the industry and price reduction. As well as due to other risks identified in the company filing the SEC. Please note that the safe harbor statement 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 easy by management to make specific decisions forecast future results and evaluate the company's current performance.
Management believes that the presentation of non GAAP financial measures is useful to in of understanding and assessment of the company's ongoing cooperation and purpose for its future. A full reconciliation of non GAAP to GAAP financial measures is included in today's earning release. I would now like to hand off the call to Rafi Ahmed Camtek's CEO. Rafi, go ahead, please.
Okay. Good morning, and thank you for joining our call today. Cut to close 2019 with record revenue and profit. I'm very proud of our achievements considering the weakness of the semiconductor market in 2019. Q4 ended with sales of $33,200,000 and total sales in 2019 were $134,000,000, which represents 9% growth year over year while the semi market as a whole drove by over 10%.
We also demonstrated improvement in our profitability with $25,000,000 operating profit which account to 18.7 percent of our revenue versus 18% in 2018. As we discussed in our last call, market drivers reporting the month for our equipment has not changed. I would like to briefly summarize our our activities in the various segment we serve. The CMOS image sensor continues to be significant to our business. As recently announced, We received order for 34 machines for CMOS image sensors application.
Mostly from customers, outside of China. Our customers in this segment are expected to continue increasing their capacity due to the growing number of cameras in smartphone and especially in high end phones supporting 5 g. In addition, the higher resolution sensor and cameras result in non inspection time and more advanced capabilities, which require new and up to date inspection tools. Advanced interconnect packaging remains key to the expansion of many applications and continues to be a fast growing segment, especially in the Memory space, we expect the DRAM transition into advanced packaging to resume in the second half of twenty twenty, driven by the technical requirements for higher bandwidth and lower power consumption. In addition, the RF segment is expected to benefit from the introduction of 5G, and we expect to see growing demand in 2020.
In the front end space, we continue to expand our presence to new applications and additional customers in China and other territories. During the fourth quarter, we received and installed additional machines as an existing major customer. During 2019, we launched several new exciting products. The Eagle T plus for 2 d inspection and Eagle T plus AP for 3 d metrology. This new product significantly improved our competitive position in terms of support and detection capabilities.
The market trends I adjust this costs along with contact technology advantages and market position are the reason for color expectations to maintain our ongoing We started 2020 with a strong backlog for the first half of the year. As we announced a few weeks ago, we received order for 34 machines for the team of inexpensive market, an additional and multiple machine for other applications from 2 of the top 3 OSATs. More than 70% of the orders we have received for the first half of twenty twenty came from outside China. The Chinese market continues to be significant to our business and represent important growth driver. We continue to receive order from this territory and even in recent days, we received several orders for major Chinese customers.
Based on orders in hand, we expected revenues of between 33 and $34,000,000 for the first quarter. However, despite the current demand for Camtek's product by Chinese customer, certain governmental restriction aiming to control the spread of the coronavirus may cause delays in installation in China and labor for impact contact revenue in the first quarter. At this stage, we assume that the situation is getting better and we will be close to meet our revenue target. Any delay in installation in Q1 will be shifted to Q2. We have good visibility into our 2nd quarter revenues, which are expected to be strong.
Assuming the coronavirus situation result, not too far into the second quarter, we expect the the first half of twenty twenty, we would recognize revenues at the record level of approximately $70,000,000. Regarding the supply chain for building our machines, At this stage, we don't expect delays in meeting the demands. However, we have no way to predict how the coronavirus situation will affect the supply chain in the loan bar. I would like to take the opportunity to thank Camtek's employees and management team for the contribution to the company record performance. Regarding our Chinese employees, all of them are aware our heart goes out to them and we hope the live return to normal soon.
I would like to end over to Moshe for a more detailed financial discussion of the financial results. Moshe?
We had good results in the 4th quarter with revenues within our guidance and improved profitability versus the previous quarter. 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 tables at the end of the press release issued earlier today. 4th quarter revenues came at $33,200,000, similar to those of the fourth quarter of 2018. Full year revenues were a record $134,000,000, up 9% year over year.
The results were driven by demand across all our segments and applications. The geographic revenue split for the quarter was as follows: AGR was 92% and rest of the world, 8%. Gross profit for the quarter was $15,900,000. The gross margin for the quarter was 48% versus 50.6% in the fourth quarter of last year, with product and sales mix affecting the margin. Gross profit for the year was $65,100,000, representing a gross margin of 48.6 percent.
This is compared with the gross margin of 49.7 percent last year. Operating expenses in the quarter were $10,500,000, which is compared with $9,900,000 in the 4th quarter of last year and to the $10,100,000 reported in the previous quarter. We know that while we had continued to strengthen the sales organization and increase our investment in R&D. We have kept the G and A at the same level. Operating profit in the quarter was $5,400,000 compared to $6,900,000 reported in the fourth quarter of last year.
Operating margin was 16.3% compared to 20.7%, mainly as a result of a lower gross margin. Operating profit for the year was $25,000,000 or 18.7 percent of revenues. This is compared to operating profit of $22,200,000 in 2018 or 18 percent of revenues. A few words about our profitability in general. Our gross margin depends on several parameters.
The main parameter being sales volume and product mix. Our gross margin is higher when we sell more machines to tier 1 customers, to form end customers, and to customers who need machines that combine 2b and 3d. In the first half of twenty twenty, we are strengthening our position, availability to the inspection supplier for the backend segments. A large portion of our new customers are those who order 2 d inspection machines for simple applications such as pod dicing, with relatively lower ASP and therefore slightly lower gross margin of about 46% to 48%. Our strategy is to expand our install base worldwide.
So in the future, the same new customers we purchased machines for more complex applications with higher ASP. Overall, We expect operating margin in the first half to be at the level of 16% to 18%. We are set our average selling price and gross margin to improve in the second half of twenty twenty. Of several developments we are conducting with major Tier 1 customers. Net income for the fourth quarter of 2019 was 5 point $1,000,000 or $0.14 per diluted share.
This is compared to a net income of $6,400,000 or $0.17 per share in the fourth quarter of last year. Net income for the year was $23,900,000 or 62¢ per diluted share. This is compared to a net income of $20,900,000 or $0.57 in 2018. Turning to some high ever balance sheet and cash flow metrics. We generated $7,500,000 cash from operations in the quarter, net cash and cash equivalents and short term deposits as of December 31,
2019, increased to $89,500,000
compared with $83,000,000 at the end of the first quarter of 2019. During 2019, we generated close to $25,000,000 in cash from operations. As Rafael mentioned earlier, we have very strong backlog for the first half of the year, and we record revenues of approximately $70,000,000 for this period. Given the situation in China, although we have ordered in hand, working period for $33,000,000 to $34,000,000. There may be a shifting in revenues in recognition between Q1 and Q2.
And indeed, Rafi, Ravi and myself, we'll be open to take your questions.
Thank Your questions will be pulled in the order they are received. The first question is from Quinn Bolton of Needham And Company. Please go ahead. Hi, guys.
Congratulations on the nice fourth quarter results and strong backlog for the first half. I understand that the coronavirus is making near term visibility and the split between First And Second Quarter are a little bit difficult, but was hoping you might be able to help us size what the risk is. First, I wanted to confirm. You said in your backlog, 70% or more of the orders, are for deliveries outside of China. Is that correct?
Yes. We said that, you know, 70% of our all of the orders we have received are from customers outside of China.
So can I assume that roughly 30 ish percent of orders would be scheduled for customers in China in the first quarter? So you've got roughly about $10,000,000 or so of revenue that is scheduled to be delivered in China and that amount of revenue is going to be subject to travel disruptions and and potentially, you know, some portion of that shifts from Q1 to Q2?
No. I don't think so. I don't think so. Because first of all, part of the new already installed. And, the situation in China now getting better, I would say the the only issue right now is relate to, engineer that's our engineer that are supposed to install machine.
Today, the new instruction that hit the hit our engineer needs to install machine, it should go to to this city where the machine should be installed a week prior to the installation before we enter the new site. So this is right now the, I would say, the main issue how to manage it and how to control it. Assuming things going better, we can manage it. So this is why we believe that that we are very close to meet this target, but, you know, that's what we know today. We see that about 1 a half month and many things connected could be more positive, could be the other way we don't know yet.
Okay. Understood. And then, wanted to sort of ask, your margin, commentary suggests that margins strengthen in the second half of the year. I think you said because of activity with Tier 1 customers, wondering if there's also a volume component to the better margins in the second half. So I guess as you look at the business, Do you have any comments you can make about first half, second half seasonality?
Do you see sort of a flat first half, second half, do you think second half revenue, you know, could actually grow based on that Tier 1 activity in, sorry, yeah, in the second half.
1st of all, I think it is much too early at this stage. To talk about the second half from the focus point of view. So what we can talk at this stage, and I think Moshe covered it, is the mix of the product that we are expecting in the second half. And whether it will be better, I think it is too early at this stage, to talk about the volume level of the revenues of the second half.
Great. And then last one for me. You mentioned the Eagle T Plus platform with better, throughput and detection capabilities. Wondering if you could just compare that to the existing Eagle key platforms? Is it a 10%, 20% better throughput or any metrics you could share with us on the improved performance?
Thanks.
It depends on the application that it varies from 20% to 30% up to 50% faster.
The next question is from Craig Ellis of B. Riley FBR. Please go ahead.
Hi. This is actually Peter Peng calling in for Craig Ellis, and thanks for taking our questions. First off is just on the March quarter. If you can just kind of talk about some of the end market dynamics, is it kind of flattish across the end segments or do you see, you know, some stronger than the other?
When we talk about the segments, and I think roughly discussed it in, in details, first of all, if you look at the CMOS image sensors, no doubt that this Pacific segment is growing and growing very fast. We thought, already last year, we had a pretty good year from this segment this year is going to be much bigger. And then we talked about the, the orders that we already have on hand. So this is one specific segment. The segment segment is advanced packaging that continues to grow We see the heterogeneous integration and several other application, and we also believe that the DRAM transiction to advanced packaging will start with resuming the second half of this year.
No doubt packaging is going to be significant in the second half of this year. And last but not least, of course, is the 5G. And the 5G is driving other businesses like the Alice. For example, the number of filters in a mobile phone that contains 5G component will be 2 to 3 times compared with 4G. Obviously, this is driving a lot of capacity and also the inspection time for the new filters is a much higher.
It requires a lot of those filters require much more inspection and smaller dimensions. So I would say these are the 3 major segments or the major application that we see at this stage that are going to dominate 2020.
Got it. Thanks. And then for just the 2nd quarter, the implicit 2 line $2 growth is about $3,000,000, just based on the order shrink from CMOS and the sensors, could we kind of assume that this is, you know, that's what's driving the incremental $3,000,000.
You're calling about insurance?
Not necessarily. I mean, there is, indeed, you know, if you, if you you know, the in Q1 and then the overall in the first half, there is some, 3 performing dollars, increase, in in the second quarter. But it, you know, I can't really say that it's implemented. This is related only to the sims, but, you know, to other
applications as well.
Yes, I would like to add one more comment on that here to realize at this point, all our customers here in China insist of installation of time, they need a machine the postal store installed the machine, you do not see any delay or any request to delay. This is the current situation right now.
Got it. And then, can you provide, I guess, the 2 d versus 3 d mix.
And, you know, It's, it's, I don't think that we can really go here into the details. What I can say that we are the, the 2 d is larger than the 3 d. Mean, the market size of the 2 ds is significantly larger. And therefore, our business today, after gaining a lot of market share in the last few years Obviously, it is bigger than the 3 d, and we expect it to continue this one.
Got it. And one final question for me. On the operating margins mentioned 16 to 18%, in the first half, So should we kind of just think about OpEx kind of being flat from the 4Q levels and then margin potentially a slight increase? How should we kind of think about that profile 16% to 18% operating margin?
Yes. So, what we have said earlier is that, the gross margin in the first half of the year, we vary between 46 to 48, slightly lower than our normal rate of 48 to 50 percent, from last year. Operating expenses in the first half are actually expected to be slightly lower than the current level. Although later in the, we plan to increase, the OpEx level mainly on the R and D, folks.
Great. Thanks for the color.
The
next question is from Gus Richard of Northland Securities. Please go ahead.
Yes, thanks for taking the question. In terms of the RF demand Can you give us a little color on what region that's coming from? Is it China, Japan or, or, North America or Taiwan?
What is canceled all over? I mean, it comes from Europe, It comes from Asia. There is also, the U. S. So I think it is global.
I can't limit it to one specific region. It's less in China though. It's more Asia, U. S. And Europe.
Okay, got it. And this is a you may not know the answer to this one. Is this more sub 6 gigahertz applications, or is it, no middleweight.
So if you look at it, the sub-six, the number of the capacitors will be a nice double. And when you talk to the full 5G, then it's close to three times. It's it's closed. It's a, and so, but it's also moving to different tech. It's different cultures.
It's basically summer saw some already above. So it's a little bit more complex. But overall, you can take the numbers that are multicly, if you could double is the sub giga 6 gigahertz and full 5 gs about 3 times.
Okay. I understand. And then I think you talked a little bit about, new front end applications and new applications in general. Is there any
more color you can provide?
I don't think we talked about new application. In general, I think what we said in this script, and this is what we're doing, we are doing in the front end. I would say the Primary application is macro inspection, which is the back end of the line, the plate will be very escalate its area, and this is, I would say, the bulk of the business in DuPont date.
Okay. Thank you. Thanks for that clarification.
There is a follow-up question from Quinn Bolton of Needham. Please go ahead.
Thanks. Just a quick follow-up for Moshe. Moshe, it looks like maybe I missed it, but it doesn't look like you gave a share count in the press release for the fourth quarter. In the full year. So do you have that number, for Q4 in 2019?
I don't have the exact account in front of me. I can, send it over right after the claim.
There are no further questions at this time. Before I ask Mr. Amit to go ahead with his closing statements, I would like to remind participants that a replay of this call will be available on Camtek's website www.camtex.co.ilbeginningtomorrow. Mr. Amit, would you like to make your concluding statement?
Okay. I would like to thank you all for your continued interest in our business. Again, I would like to thank all of you all our and my management team for the tremendous performance in 2019 so far as we look forward to continuing. To our investors, I I think in long term support, I look forward to working with you again this quarter. Thank you, and goodbye.
Thank you. This concludes the Camtek's Fourth Quarter and Full Year 2019 Results Conference Call. Thank you for your participation.