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 +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, please?
Thank you, operator. Good day to all of you. I would like to welcome all of you to Camtek's fourth quarter and full year 2019 results conference call. I would like also to thank Camtek management for hosting this call. With us on the line today are Mr. Rafi Amit, Camtek CEO; Mr. Moshe Eisenberg, Camtek CFO; and Mr. Ramy Langer, Camtek COO. Rafi will provide an overview of Camtek results and discuss market trends in the fourth quarter of 2019. Moshe 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 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. In addition, actual events or results may differ materially from those projected, including as a result of changing industry and market trends, reduced demand 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, focus future results, and evaluate the company's current performance. Management believes that the presentation of non-GAAP financial measures is useful to investors' understanding and assessment of the company's ongoing operations 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 off the call to Rafi Amit, Camtek's CEO. Rafi, go ahead, please.
Okay. Good morning, and thank you for joining our call today. Camtek closed 2019 with record revenue and profit. I am very proud of our achievements considering the weakness of the semiconductor market in 2019. Q4 ended with sales of $33.2 million, and total sales in 2019 were $134 million, which represent 9% growth year-over-year, while the semi market as a whole dropped by over 10%. We also demonstrated improvement in our profitability with $25 million operating profit, which account to 18.7% of our revenue versus 18% in 2018. As we discussed in our last call, market drivers supporting demand for our equipment have not changed. I would like to briefly summarize our activities in the various segments we serve. The CMOS image sensor continues to be significant to our business.
As recently announced, we received orders for 34 machines for CMOS image sensor 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 smartphones and especially in high-end phones supporting 5G. The higher-resolution sensor and cameras result in longer 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 2020, driven by the technical requirements for higher bandwidth and lower power consumption. 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 at an existing major customer. During 2019, we launched several new exciting products, the Eagle-T+ for 2D inspection, and Eagle-AP for 3D metrology. This new product significantly improved our competitive position in terms of support and detection capabilities. The market trends I just discussed, along with Camtek's technology advantages and market position, are the reason for our expectations to maintain our ongoing growth and performance. We started 2020 with a strong backlog for the first half of the year. As we announced few weeks ago, we received order for 34 machines for the CMOS image sensor market, and additionally, multiple machines for other applications from 2 of the top 3 OSATs.
More than 70% of the orders we have received for the first half of 2020 came from outside China. The Chinese market continues to be significant to our business and represents important growth driver. We continue to receive order from this territory, and even in recent days, we received several orders from major Chinese customers. Based on orders in hand, we expected revenues of between $33 million and $34 million for the first quarter. However, despite the current demand for Camtek's products by Chinese customer, certain governmental restrictions aiming to control the spread of the coronavirus may cause delays in installation in China and may therefore impact Camtek 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 targets. Any delay in installation in Q1 will be shifted to Q2.
We have good visibility into our second quarter revenues, which are expected to be strong. Assuming the coronavirus situation resolved not too far into the second quarter, we expect that the first half of 2020, we would recognize revenues at the record level of approximately $70 million. Regarding the supply chain for building our machines, at this stage, we don't expect delays in meeting the demand. However, we have no way to predict how the coronavirus situation will affect the supply chain in the long run. 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 well. Our heart goes out to them, and we hope their life return to normal soon. I would like to hand over to Moshe for a more detailed financial discussion of the financial results.
Moshe?
Thanks, Rafi. We had good results in the fourth 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 table at the end of the press release issued earlier today. Fourth quarter revenues came at $33.2 million, similar to those of the fourth quarter of 2018. Full-year revenues were a record $134 million, 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: Asia was 92% and rest of the world, 8%. Gross profit for the quarter was $15.9 million.
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 $65.1 million, representing a gross margin of 48.6%. This is compared with a gross margin of 49.7% last year. Operating expenses in the quarter were $10.5 million, which is compared with $9.9 million in the fourth quarter of last year and to the $10.1 million reported in the previous quarter. We know that while we have continued to strengthen the sales organization and increase our investment in R&D, we have kept the G&A at the same level. Operating profit in the quarter was $5.4 million, compared to $6.9 million 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 million, or 18.7% of revenues. This is compared to operating profit of $22.2 million in 2018, or 18% 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 front-end customers, and to customers who need machines that combine 2D and 3D. In the first half of 2020, we are strengthening our position as a leading 2D inspection supplier for the back-end segments. A large portion of our new customers are those who order 2D inspection machines for simple applications such as post dicing, with relatively lower ASP and therefore slightly lower gross margin of about 46%-48%.
Our strategy is to expand our install base worldwide, so in the future, the same new customers will purchase machines for more complex applications with higher ASP. Overall, we expect operating margin in the first half to be at the level of 16%-18%. We expect our average selling price and gross margin to improve in the second half of 2020 as a result of several developments we are conducting with major tier 1 customers. Net income for the fourth quarter of 2019 was $5.4 million or $0.14 per diluted share. This is compared to a net income of $6.4 million or $0.17 per share in the fourth quarter of last year. Net income for the year was $23.9 million or $0.62 per diluted share. This is compared to a net income of $20.9 million or $0.57 in 2018.
Turning to some high-level balance sheet and cash flow metrics, we generated $7.5 million in cash from operations in the quarter. Net cash and cash equivalents and short-term deposits as of December 31st, 2019 increased to $89.5 million compared with $83 million at the end of the third quarter of 2019. During 2019, we generated close to $25 million in cash from operations. As Rafi mentioned earlier, we have very strong backlog for the first half of the year. We expect record revenues of approximately $70 million for this period. Given the situation in China, although we have orders in hand and working plan for $33 million-$34 million, there may be a shifting in revenues in recognition between Q1 and Q2. With that, Rafi, Ramy, and myself will be open to take your questions.
Thank you. Ladies and gentlemen, at this time, we will 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 the handset before pressing the 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.
Hi, guys. Congratulations on the nice fourth quarter results and a strong backlog for the first half. I understand that the coronavirus is making near-term visibility and the split between first and second quarter a little bit difficult, but I 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?
Yeah. We said that 70% of the orders we have received are from customers outside of China.
Can I assume that roughly 30%-ish of orders would be scheduled for customers in China in the first quarter, so you've got roughly about $10 million 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 potentially 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 them we already installed, and the situation in China now getting better. I would say the only issue right now is related to our engineer that are supposed to install machine. Today, the new instruction that if our engineer needs to install machine, he should go to this city where the machine should be installed a week prior to the installation before we enter the new site. This is right now, I would say, the main issue, how to manage it and how to control it.
Assuming things going better, we can manage it. This is why we believe that we are very close to meet this target, but that's what we know today. We still have about 1.5 months, many things will happen. Could be more positive, could be the other way, we don't know yet.
Okay. Understood. 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. 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 could actually grow based on that tier 1 activity, yeah, in the second half?
I'll say. First of all, I think it is much too early at this stage to talk about the second half from the focus point of view. 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. 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. Last one from me, you mentioned the Eagle-T+ platform with better throughput and detection capabilities. Wondering if you could just compare that to the existing EagleT 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, but it varies from 20%-30%, up to 50% faster.
Great. Thank you.
Thank you.
The next question is from Craig Ellis of B. Riley FBR. Please go ahead.
Hi, this is actually Peter Pang 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 some stronger than the other?
When we talk about the segments, I think Rafi discussed it in detail. First of all, if you look at the CMOS image sensors, no doubt that this specific segment is growing and growing very fast. We thought already last year we had a pretty good year from this segment. This year it is going much bigger. We've talked about the orders that we already have on hand. This is one specific segment. The second segment is advanced packaging that continues to grow. We see the heterogeneous integration and several other applications. We also believe that the DRAM transition to advanced packaging will resume in the second half of this year. No doubt advanced packaging is going to be significant in the second half of this year. Last but not least, of course, is the 5G.
The 5G is driving other businesses like the RF. For example, the number of filters in a mobile phone that contains 5G component will be two to 3x compared with Q4. Obviously, this is driving a lot of capacity, and also the inspection time for the new filters is much higher. A lot of those filters require much more inspection and smaller dimensions. I would say these are the three major segments or the major application that we see at this stage that are going to dominate 2020.
Got it. Thanks. For just the second quarter, the implicit Q1Q dollar growth is about $3 million, just based on the order strength from CMOS image sensors. Could we kind of assume that's what's driving the incremental $3 million Q1Q?
Any comment on it, Moshe?
Not necessarily. Indeed, if you take the Q1 and the overall first half, there is some $3 million- $4 million increase in the second quarter. I can't really say that it's the incremental piece is related only to the CMOS, but to other applications as well. I would like to add one more comment on that. You have to realize, at this point, all our customers, including China, insist of installation on time. They need the machine. They push us to install the machine. We do not see any delay or any request to delay. This is the current situation right now.
Got it. Then, can you provide, I guess, the 2D versus 3D mix?
I don't think that we can really go here into the details. What I can say that the 2D is larger than the 3D. I mean, the market size of the 2D 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 3D, and we expect it to continue this way.
Got it. One final question for me, just on the operating margins, you mentioned 16%-18% in the first half. Should we just think about OpEx being flattish from the Q4 levels and then margin potentially a slight increase? How should we think about that profile, the 16%-18% operating margins?
What we have said earlier is that the gross margin in the first half of the year will vary between 46%-48%, slightly lower than our normal rates of 48%-50% from last year. Operating expenses in the first half are actually expected to be slightly lower than the current level. Although later in the year, we plan to increase the OpEx level, mainly on the R&D front.
Great. Thanks for the color.
Thank you for this, Peter.
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 North America, or Taiwan?
Well, this comes from all over. I mean, it comes from Europe, it comes from Asia, there is also the U.S. 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. You may not know the answer to this one. Is this more sub-6 gigahertz applications, or is it millimeter wave?
If you look at it, the sub-6, the number of capacitors will be about double. When you talk full 5G, it's close to 3x . It's close. It's also moving to different filters. It's basically some are SAW, some are BAW. It's a little bit more complex. Overall, you can take the numbers that are multiply, if you double in the sub-6 gigahertz, and full 5G it's about 3x .
Okay, I understand. 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 the 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. I think we've been very successful in this area, and this is, I would say, the bulk of the business in the front end.
Okay, thank you. Thanks for that clarification. That's it for me. Thanks a quarter, guys.
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 pull for more questions. There is a follow-up question from Quinn Bolton of Needham. Please go ahead.
Great. Thanks. Just a quick follow-up for Moshe. Moshe, maybe I missed it, but it doesn't look like you gave a share count in the press release for the fourth quarter and the full year. Do you have that number for Q4 in 2019?
I don't have the exact share count in front of me. I can send it over right after the call, if you don't mind.
Okay, thank you.
Thank you.
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?
Okay. 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 the tremendous performance in 2019 so far, and we look forward to continuing. To our investors, I thank your long-term support. I look forward to looking with you again next quarter. Thank you and goodbye.
Thank you. This concludes the Camtek fourth quarter and full year 2019 results conference call. Thank you for your participation.