Ladies and gentlemen, thank you for standing by. Welcome to Camtek's First Quarter 2019 Results Conference Call. All participants are 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 also now received the company's press release. If you have not received it, please contact CapEx 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.co.il. 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, operator. Good day to all of you. I would like to welcome all of you to Camtek's 1st quarter 2019 results conference call and I would like to thank Camtek's management for hosting this call. With us on the line today are Mr. Rafael Mehti, Camtek's CEO, Mr.
Moshe Eisenberg, complex scene for Mr. Mr. Rami Landers, Pentek COO. Puffy will provide you earlier context results and discuss market trends. Moshe will then summarize the financial results of the call.
We will then open the call to taking 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 statement contained whether as a result of new information, future events, changes in expectation or otherwise.
In that sort of reminder, the 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 timing of developing new services and products and their adoption by the market includes competition in the industry and price reductions and as well as due to other risks identified in the company's filing or 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 beer financial measures will be discussed. These are used by management to make strategic decisions focused future results and evaluate the company's current performance. Mentioned believes that the presentation of non GAAP financial measures is useful to invest in understanding and assessment of the company's ongoing cooperation and project 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 and TECF CEO. And thank
you for joining our call today. I am very proud of the performance we demonstrated in the first quarter. And this is especially in light of the unclear environment in the Semiconductor Industry. Furthermore, we expect to slightly better level of revenue in the second quarter. The company showed record revenue in the first quarter of $34,000,000, up 25% over Q1 of twenty 18.
We also demonstrated a significant improvement in our profitability parameters and reported over 50% gross margin $7,300,000 operating profit. CAFTech is primarily active in the mid end market and specifically in the Advanced Packaging segment. This market is characterized by adopting of new advanced packaging technologies such as 3DIC fan out 2.5D and 3D These new technologies improve the performance of the devices and the end user product. Inspection and metrology equipment is a key factor in adopting new technologies and achieving high yield and stability in production. Therefore, we believe that our Tier 1 customers we'll continue to increase our capacity for these new technologies.
There are several reasons for the continued growth We've recently received order from customers increasing their capacity in 2 d inspection and 3 d metrology. The transition of the DRAM to advanced packaging is ongoing. As we recently announced, we received 2 significant orders from a DRAM market leader, totaling approximately $15,000,000. The system will be used for 2 d inspection and for 3 d metrology of 3 d IC which requires high accuracy throughput. The Chinese market is continuing to increase capacity We recently received an order from a Tier 1 customer in China for multiple machines for 2 d applications.
These machines will be used for capacity expansion at this customer. We expect this region to continue growing the second half of twenty nineteen. Spection segment and have received orders from new customers. Some of our customers are adopting new technologies, one of our Tier 1 customer has adopted new fan out technology and place order for multiple machines for 2 d inspection and 3 d metrology. Most of these systems are expected to be in sold in the first half of this year.
Moving forward in our revenue guidance for Q2 2019, We expect even slightly better level of revenue in the second quarter over the revenue of the first quarter of 20 19. Regarding our view on the 2nd half of the 2019. We are aware of the general sentiment of uncertainty in the semiconductor environment, but we see also several positive indications in our specific market. To our knowledge, most of our customers have not changed their purchases plan for our products and intend to continue purchasing equipment in the second half of this year. As I mentioned earlier, we expect our Chinese customer will continue to increase capacity in the second half of twenty nineteen.
We expect a continued expansion in the CMOS image sensors segment. We see a beginning of the activities in the 5G market The order we received recently together with the positive indications I mentioned earlier give us a sense of optimism yet, we cannot ignore the atmosphere in the semiconductor market, so we are monitoring our activities very carefully. Regarding the agreement with Chroma, in February, we announced a definitive agreement with this leading Taiwanese company. The transaction is expected to close by the end of as well as approval by certain regulatory bodies. At this point, we are not ready to fulfill this closing conditions.
In summary, I am very pleased with what Camtek has achieved with ongoing growth in revenue. High margin in line with our long term model, strong profitability and cash flow. With what with that, I would like to hand over to Moshe for more details financial discussion of the financial results.
Contact shown impressive results in the first quarter, in line with our guidance. And as Rafi mentioned, we were able to deliver much of the incremental growth down to the bottom line with operating margin up 73% year over year. This growth in the quarter demonstrates the operating leverage inherent in our business model, meaning that we have the capacity to grow revenues without adding significantly to our operating expense footprint. In my financial summary ahead, I will provide the results on a non GAAP basis. The reconciliation between the GAAP results and non GAAP results appeared in the statement at the end of the press release issued earlier today.
1st quarter revenues came at $34,000,000 up 25% year over year. The results were driven by demand across all the segments and applications with 85% of sales from Asia. Gross margin for the quarter was 50.6% versus 48 0.5% in the first quarter of last year. The improvement in gross margin was maybe a function of the product and sales mix delivered as well as deliveries we have in our financial model. I note that this quarter gross margin was on the higher end of our range.
We see the margin remaining around the 50% level in the future quarters. Longer term, as we grow our revenues, we expected our margins to continue to show steady improvements. Operating expenses in the quarter were $9,900,000. This is compared with $9,000,000 in the first quarter of last year and similar to the $10,000,000 reported in the previous quarter. Operating profit in the quarter was $7,300,000, an increase of 174% over the $4,200,000 reported in the first quarter of last year.
Operating margin was 21.5%, a strong improvement versus 15.4 percent in the first quarter last year, mostly due to the higher gross margin. Net income for the first quarter of 2019 was $6,700,000 or $0.18 per diluted share. This is compared to a net income of $4,200,000 or $11 per share in the first quarter of last year. Turning to some high level balance sheet and cash flow metrics. Due to a strong connection in the quarter, we managed to reduce account receivables by over $6,000,000.
We generated $6,300,000 in cash from operations and ended the quarter with cash and cash equivalents of $61,000,000 compared with $54,900,000 at the end of 2018. 18. In terms of guidance, we expect 2nd quarter revenues to be slightly above of those in the first quarter. And with that, Rosie, Rami, and myself will be open to take your questions.
Thank you. Session. The first question is from Craig Ellis of B. Riley FBR. Please go ahead.
Yes. Thank you very much for taking the question and congratulations team on the very strong growth in the business and the improvement in profitability over the last year. The first question I had is a follow-up Rafi to some of your prepared remarks. You had commented on, having some visibility into 2nd half growth And I think you pointed to, China CMOS image sensors in 5G. Regarding those comments.
1, can you help us understand more specifically where you're engaged in 5G and And then a broader question with regard to second half visibility, where would you say it's the greatest and most significant and where might you have at the other end of the continuum? Any concerns about the second half?
I think we already mentioned in our script, all the positives indication, we see and we've seen all the last few weeks And as I mentioned, it's also supported by getting orders. But in general, as we mentioned, we seal it almost in the same application that we are involving. We still continue the DRAM 3 DIC in the memory. We get order from the CMOS image sensor. When we mentioned about the beginning of 5G, As I mentioned, it's the beginning.
We team can see some companies that are starting to look for machine. We get some discussion with them about the 5G and we believe that we start to see some order coming in the 5G in the second quarter. So actually all the area that CMOS, the memory the RAF are showing some positive signals. And we believe we will see order very soon.
That's helpful. And then the follow-up question regarding prepared remarks is on front end macro inspection. I think you indicated that you're engaged now with some new customers Can you talk a little bit more about how your customer diversification is panning out and what that means for future revenues in that part of the business?
Yes. It's very difficult to predict, but we as you know, we already announced on a major customer that we started penetration of, for this segment, And I think now we see other 2 customers that also are interested in the place order And definitely when we see, when we get such an order, we get more experience, we believe we continue to base our market. We cannot mention specific number at this point, but I think that it's a very positive trend for us.
Thanks for that. And then lastly, Moshe, just a housekeeping item. As you noted, operating expense was flattish in the quarter, but that was still about $400,000 better than what we had expected. Were there any timing or other benefits in the quarter, or is that just, good OpEx control by the team? Thank you.
No, Craig, this is just a good control of OpEx levels. We don't expect a major change in the following quarter. And it's, as I mentioned before, it's very, very similar to what we have reported last quarter. So I think we are happy with the current level of operating expenses that supported the growth and on the same time, enable us to show better profitability. Thank you.
The next question is from Gus Richard of Northland Securities. Please go ahead.
In terms of the capacity expansion you're seeing in memory, is that a function of more high bandwidth memory or Is there more capacity needed when you transition from high bandwidth memory, 1 to high bandwidth memory 2?
Rami, maybe you'll give the problem. Yes.
I can look, the you know, if you look at the DRAM, In general, and if you look at the numbers, there is some growth in capacity that people are still building new fabs and There is this this is ongoing. They are not stopping. On the other side, a lot of the capacity that is being built today is built for advanced packaging. So obviously, the use of the high bandwidth at the HBM memory is trying to consume a lot of this capacity. It's the VGA card of becoming more and more popular with this memory.
And I'm seeing more and more applications that you're using advanced packaging. So as we see a different all the major manufacturers at DRAM are starting to adopt advanced packaging. And I think this will continue as we move along. Got it. And then in terms of your
initial 5G engagements with customers, is that for fan out packaging for, fan out packaging?
I would, Gus, I want to
be very careful with customer information. What I can tell you, is that our engagement is with customers that are doing devices for 5G. I would like to end my comment at this.
Oh, okay. But no, it is for advanced packaging or is it for, front end wafer inspection. Can you give just a little bit more color on
I can say that there are applications of advanced packaging. In the ROA, I would say general RF applications.
Okay, got it. All right. And then finally on CMOS image sensors, that demand, do you see more capacity coming online in the second half to support, new programs. And that's one of the strengths in 2H.
We are definitely seeing we've seen it in the first quarter, in the first half, and we expect it to certain level to continue in the second half there is definitely growth in the single image sensors segment. And this is due to the fact that all the new cell phones are are coming with more and more cameras. So you are seeing today phones with up to 5 cameras, definitely the Even without this, the cell phone numbers increasing, definitely there is a phenomenal growth in the single signature sensors. Now not only that, there are more combos going into cars and other applications. So overall, this segment continues to be healthy.
Got it.
Okay. Thank you so much.
The next question is from Quinn Bolton of Needham And Company. Please go ahead.
Hi, Ralphie. Congratulations on the nice operating margin expansion wanted to check them back a clarification on the China business. I believe you said that was a 3 d IC driven and just wanted to confirm that that's for an international, rather than a domestic memory supplier?
Robbie, could you comment on this?
In general, the China business is not limited to just loan applications. The China business is based on very many quite a few customers. And across all the different applications. We see metrology applications, and there is some expansion of DRAM, obviously, as you mentioned, which is well known, but there are many new customers, many startup companies that are building a business, buying 1 or 2 machines, and definitely these kinds of customers are the basis for future growth. So China is diversified from location point of view and from applications point of view.
And definitely as we look forward there is going to be a lot of growth in this region.
Great. And then a second follow-up question for Moshe just, as you look into the second half, it sounds like you're expecting continued strength in CMOS image sensor and watching the memory side of business pretty closely. Are there any mix shifts, that we should be aware of as we're thinking about the second half that that could impact gross margin either up or down as various parts of the business grow faster than others?
At this point, we don't see any major deviations, and the current mix. So I expect altogether gross margin to stay at around the 50% could go, 50 basis points up or down, but I don't see any major, significant change on that.
Great. 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 us including statements?
Okay, tremendous performance in 2018 so far and we look forward to continue it. To our investor. I thank you long term support. I look forward to talking with you again next quarter. Thank you and goodbye.
Thank you. This concludes the Cantex First Quarter 2019 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.