Ladies and gentlemen, thank you for standing by.
Welcome to Camtek's 4th quarter
and full year 2018 results conference call. All participants are at present in a listen only mode. Following management's formal presentation, instructions will be given to 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 Cheekay investor and public relations at 1 646-688-3559, or viewed in the new section of the company's website at www.camtek.com. I'm now at the end of this call to Mr. Kenny Green of GT Investor Relations. Mister Green, would you like to begin, please?
Thank you. Thank you, operator. Good day to all of you. So I'd like to welcome all of you to Camtek's fourth quarter full year 2018 results conference call. And I would also like to thank Camtek's management for hosting this call.
CEO, Mr. Moshe Eisenberg, Camtek's CFO, and Mr. Rami Langa, Camtek's COO. Lastly will provide you overview of Camtek's result and discuss market trends in the fourth quarter of 2018. Michelle will then summarize the financial results of the quarter.
We'll then open the call for the question and answer session. Before we begin, I'd like to remind all our listeners that certain information provided on this call, our internal company estimates unless otherwise specified. This call may also contain forward looking statements. These statements are in predictions and may change as time passes. Statements on this call are made as of today, and the company undertakes no obligations to update any of the forward looking statements contained, whether as a result of new information, future events changes in expectations or otherwise.
Investors are reminded that actual events or results may differ materially from those projected including as a result of changing industry market trends, reduced demand for services and products, the timely development of new services and products, and the reduction by the market, increased competition in the industry and price reductions as well
as due to other risks identified
in the company's filings 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 strategic decisions cause our future results and evaluate the company's current performance. Managing believe that the presentation of non GAAP financial measures are you taught to investors understanding and assessment of the company's ongoing core operations and prospects for the future?
A full reconciliation of non GAAP to GAAP financial measures are included in today's earnings release. And I would now like to hand the call over to Rafi Camtek see a graphic. Please go ahead. Good morning, and
thank you for joining our call today. Comcast delivers excellent results for the fourth quarter of 2018 and for the whole year 2018. The company showed strong revenue in the fourth quarter of $33,200,000, up 28% over Q4 of 2017. We ended the year with record revenue of $123,200,000 or $32 per cent increase over 2017,000,000. We achieved a significant improvement in profitability parameters, both in the in the quarter as well as in 2018, as a whole.
As demonstrated in Q4 results, we reported over 50% gross margin and over 20% operating margin. Our ultimate has remained positive The guidance for q 1, 2019 is a 33.5 to $44,500,000 which represents consecutive growth and yield on yield growth of 25%. Degenerative. We do not give guidance beyond 1 quarter already, and our lead time is 8 to take risks. However, we would like to share with you our current general observation of what we see in our end market.
At this stage, we see normal level of activity in our market segments. With the people now returning from the Chinese New Year holiday, we will be in a better position to evaluate our Q2 expectations in few weeks. We are aware of the temporary reasons weakness of the semiconductor industry, but the specific segment we are focusing on such as CIS, RS, names, and advanced packaging seemed relatively stable at this point. The gross engines of our relevant market are, 1st of all, the continued transition to advanced packaging solutions to improve the performance of electronic models. Specifically in the manual space, While the DRAM prices are undergoing some pressure, the transition into advanced packaging is nonetheless expected to continue.
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 5 g. The momentum in the CIS space is continuing at the similar pace as in the past year due to the increased number of cameras in many mobile phones and other applications. Other market segment and trends that represent growth driver for us are the expensive and growing use of IoT devices, AI related devices, as well as the transition to an automotive industry to improve use of electronic models. The market trend I just discussed along with Comtech Market Position is the reason for our expectations to remain our ongoing performance.
As testified by our strong 30% plus growth in 2018. It is clear that we are not only maintaining our legal position in food ecology, but we are also gaining market share in the 2 digit inspection sector. And expanding to new applications such as front end, back inspection, and compound semiconductor. Our agency system continues to gain market share. In 2018, we won a number of important add on evaluations against our major competitor into this action including metrology.
Demonstrating a superior performance and were selected as the supplier of the choice. Needless to say that our talented R and D team continues to develop capabilities that will ensure that we remain competitive. 2 days ago, we announced a definitive agreement with with Chroma, a leading Taiwanese company. Chroma is a leading provider of 1st and automation solution with annual revenue of over $500,000,000. Based on this agreement, Chroma, we acquired 20 percent of Camtek and enter into a technological license licensing and corporation agreement with us.
Approximate with 50% will be acquired from prior tech, a 5% new share issued by some theft, in a total cash deal of $74,000,000. The transaction is based on share price of $9.5, which represents a 29% premium over the closing price before the announcement. As part of our strategy, we have been using for a strategic partner in Asia to support the continued growth. Over 80% of our sales and installed base are in Asia. And with this important partnership, we can strengthen our position in the region, specifically Taiwan and China.
Moreover, strong relationship with customer will enable us to better understand our customers roadmap and develop new technological and solutions to meet their technological challenges. The technological operation is expected to be in several areas. For a company, Brian Krolma, a royalty bearing license to use its recent formulation technology for non semiconductor applications. This represents a new potential revenue stream for country. To contact with in the future, build inspection machines based on context technological technology, to address a market needs in which we do not anticipate editing.
Finally, Korma and come quickly explore other areas of operation in the development of technological solutions for the semiconductor industry. We are confident that this strategic investment becomes the together with the cooperation agreement between the companies with significantly strengthened conflict position with major customers in Asia. In addition, Karma And Concepts Corporation in the development of few products and solutions for semiconductor industry can expand the portfolio of product line that comes to currencies and through debt accelerate company growth rate. Our cash position at the end of 2018 was close to $55,000,000. Which is a result of over 16,000,000 positive operating cash flows in the year.
The new investment will further strengthen our balance sheet, which will enable us to potentially improve our growth through acquisitions of companies in the market in which we operate. I would like to hand over to Moshe for a more detailed financial discussion of the financial results.
Thank you, Martin. Caltech showed very strong execution in the fourth quarter. We've revised exceeding the top end of our guidance range and this performance filtered down our financial metrics to the bottom line. Our gross operating net margins were always strong and at leverage, we were very happy with, showing the operating leverage inherent in our business model. In my in my financial summary, okay, I will provide the results on a non GAAP basis.
The reconciliation between the debt results and the non GAAP results appear in the table at the end of the press release issued earlier today. As you may recall, we sold our CTV inspection business in the third quarter of 2017. And this is considered discontinued operations. In my summary, the results of last year will include continued operations only. 4th quarter revenues came at $33.22, up 28% year over year.
SUND revenues were a record $123,200,000, up 32% year over year. The results were driven by strong demand across all our segments and applications. The geography revenue split for the quarter was as follows. Asia, 52% US, 10% or euro with 10%. Gross margin for the quarter was 50.6 percent versus 47.8 percent in the first quarter of last year.
Gross profit for the year was $61,200,000, representing a gross margin of 49.7 percent. This is compared with the gross margin of 48.7 percent last year. The improvement in gross margin was mainly a function of the product and savings been delivered as well as deliveries we have in our financial model. We see the margin remaining around the 60% level in future quarters. And over the term, as we grow our revenues, we expect that our margins will continue to show steady improvement.
Operating expenses in the quarter were $9,900,000 This is compared with $8,500,000 in the fourth quarter of last year, and similar to the $10,100,000 reported in the previous quarter. Operating profit in the quarter was $6,900,000, an increase of 179 percent over the $3,800,000 recorded in the fourth quarter of last year. Operating margins were 20.70%, a strong improvement versus 14.8% in the first quarter last year. Most operating profit for the year was $22,200,000 our 80 percent of revenues. We have more than doubled our operating profit of $10,400,000 in 2017.
Net income for the fourth quarter of 2018 was $6,400,000 or 17¢ per diluted share. This is compared to a net income of $3,500,000 or $0.10 per share in the fourth quarter of last year. Net income for the year was $20,900,000 or 57¢ per diluted share. It is compared to a net income of $9,600,000 or $0.27 per share in 2017. Turning to some higher balance sheet and cash flow metrics.
We generated $7,200,000 in cash from operation. Net cash and cash equivalents as of December 31 2018 increased to $64,900,000 converged with $48,300,000 at the end of the third quarter of 2018. During the last couple of quarters, we invested approximately $700,000 in our clean increasing its capacity to support the growing level of business mobile code. As Ralphie mentioned earlier, revenue guidance from the first of 2019 is between 33a half to 34 34a half in the dollars. And with that, Ralphie, Robin, and myself will be open to take your questions.
Thank you. Thank you, ladies
and gentlemen. At this time, we'll begin the question and answer session. If you wish to cancel your request, please press star 2. Your questions will be pulled and the work they are received. Please standby wait for your questions.
The first question is from Craig Ellis of B. Riley. Please go ahead. Yeah. Thank you for taking the question and, congratulations on the very strong financial performance as well as the diploma, strategic agreement.
My first question, Ruffy, is just some some of the end market color you provided. So it sounds like, the the different end markets that you serve are relatively stable, but I'm wondering If you could comment on 2 things, 1, as you look at, some of the risks that are out there, whether it be geographic or even in the end markets or applications, where do you have greater concerns? And and, unfortunately, it could issue the longer term perhaps out to 2019 and, admittedly, not asking for guidance here, but Can you comment on your confidence that we could see another year of growth, in, in 2019, fallen, plus a stellar year of growth last year?
Thank you.
Oh, 1st of all, in general, I would say that you see what you mentioned about the same level of activity, and we've seen all over the military, not only in in Asia, Asia, we see it in US and Europe, And I I always believe that there is more belonging to the segment we are focusing and not specifically because of the geographies. This is relating to what you asked the first question. Regarding the the long term, I cannot predict long term because there are a lot event that can, you know, influence on that, but we we can, you know, we are in in very close to customer. We are visiting them all the time. And we get on all the time information, and we can't see any negative signal from customers.
And and on top of the, you know, we all aware about the fact that too many technology are are on the way. And I can't believe that that, anyone has any intention for stopping. We believe that the, 5 generation definitely will start operating, automotive, electronic model, continue, CIS, all all our types of applications, continue and continue to support technology. So we believe that as long as our main business technology and not the you know, we feel comfortable right now.
That's helpful. And then a follow-up question for you before one for Moshe. A follow-up, you mentioned that the promo deal there are a number of ways you can substantially, whether it be royalty model with some technology or Sam expansion. With new end market serve and and potentially new products. When could we expect to see the benefit of, some of those initiatives in your financial statements with the the second half of twenty nineteen or 2020 or 2021.
2020.
Hi, Craig. This is Moshe. It seems we
have just signed the agreement
a couple of days ago and the closing process is expected to take a few months, practically treating the technology transfer and all the work that we will have to do with Chroma, we started the second half of the year. So we are expecting, initial revenue stream, at early 2020.
Thanks for that. I appreciate it. I have the last one for you. Excellent margin execution in the quarter, 50.50% gross margin. 9% operating margin.
Are those sustainable margin levels as the business goes forward or for any decent new products or, or mix? Would we expect to see our gross margins depart from the forties and operating margins into the teams? Thank you.
No. I I I think that, gross margin is expected to stay at around 50% mark at least as evasive in the next couple of quarters. It's mainly dependent on sales mix or or product mix. So if it could vary, 11% here and there, But generally speaking, we see the the the gross margin trend going up as we increase the volume. Above the 50% it's and with this active operating, margin, because we don't have any major trends to increase significantly the operating expenses level.
And as a result, we believe that we will be able to maintain, the 20% operating margin. And, and, hopefully, as the year, progressing, and, hopefully, that things will will continue as they are, we will be able to improve the operating margin slightly.
That's helpful. Thank you very much. The next question is from Gus Richard of Northland Securities. Please go ahead.
Thanks for taking the question and, congratulations on the great results. On on Chroma, is that going
to have any impact on the P and
L, as you enter into that, agreement and start to work with them?
No. Hi, Gus. We are not expecting any impact, on the Pinera. Yeah. I truth that you are I believe that you are referring to the client level.
So the answer is no. We are not expecting any any major change or no no change in in the, the expense levers. The the other way, we are expecting to see some revenue stream. They said before starting from 2020 from royalty, which are basically, a 100% which are 100% to your margin. So there should be positive impacts on the bottom line.
Got it. Okay. And then, in terms of, advanced packaging, Any color on, what areas are strong right now? Is it, you know, fan out, shitless, I've been with Memory. Any color there?
Hi, Gus. This is Randi. No doubt the the DRAM transition to advanced packaging is a is a major part, and it's, it's going to continue, we believe, in the next a few years. The DRAM is going to transition from wire bond into advanced packaging, but this is definitely a major segment that we see. Send out, is continuing to grow, and we have a number of activities in the in the in the send out area.
I believe that these two areas are the major areas, although in general, in all of the redevelopments, if we are sending out the newborn we are seeing 40% and more components out of the bond are manufactured in advanced packaging. So there is a big increase in the volume of advanced packaging as a whole, but as I said, specifically, the DRAM transition and to advance packaging and send out our, I would say the major, flavors of the advanced packaging that you see now in the market.
And what, just out of curiosity, advanced packaging in the DRAM area, you know, what inning are we in, in that transition? And you know, what do you expect, you know, the less than the wire bonding to be over the next, you know, 5 years?
If you find out mistaken, the numbers, it's about 30% of the DRAM. It's already moved to, to advanced packaging. So there is another, right, I don't know if the whole 70% but most of the remaining 70% over the next 3 to 5 years we'll move gradually to a advanced packaging. And so this is the trend, the way, you know, it's very hard to say what is the exact rate, but definitely, you know, that's the trend, and it's it's there.
Got it. Very helpful. And then finally for me on the RF front, and you also mentioned 35. Can you talk a little bit about, what kind of inspections you're doing, the metrology you're doing for the you know, for for 5 g and 4 35 in the channel.
Right. You know, I would say primarily in this application is primarily inspection. There is some nephrology. Obviously, but it's 2 d nephrology, mostly 2 d nephrology. I think there is very, very little 3 d nephrology in these.
There are some applications but that's not the the major applications in in this area. And as you are aware, you know, the the number of filters for cell phones moving to 5 g will be significantly higher. So obviously, a very similar trend to what you see in the semis image sensors or a 7 instead of one camera or two cameras, you get 5 or 600 on a cell phone This is a very similar trend. So definitely, this is gonna be a segment that is gonna be that's going to show a very significant growth and starting, I would say, late 2019 onwards.
Got it. Thank you so much for your thank you so much, Travis. Congratulations.
Thank you. Thank you, guys.
If there
are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stay on highly. Pull for more questions. There are no further questions at this time.
Before I ask Mr. Amit to go ahead with his closing statements, I'd like to remind participants that a replay of this call will be available on the tech website at www.cancorp.combeginningtomorrow.
Mister Booth, would you like to make a concluding statement?
I would like to thank you all for your continued interest in our business. Again, I would like to state all our employees and the management team for the tremendous performance in 2018 so far, and we look forward to continuing it. So 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 Genpact 4th quarter 2018 results conference call. Thank you for your participation. You may go ahead and disconnect.