Ladies and gentlemen, thank you for standing by. Welcome to Cantech's 3rd Quarter 2018 Results Conference Call. All participants are at present 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 at www.comcamtek.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, and good day to all of you. I would like to welcome all of you to Camtek's third quarter 2018 results conference call, and I'd also like to cut 10 Camtek's management for hosting this call. With us on the line today are Mr. Raffi Ahmed Camtek CEO, Mr. Moshe Eisenberg, Camtek CFO, and Mr.
Rammelander, Camtek COO. Aoffee will provide the overview of complex results to discuss market trends in the third quarter of 2018. Moshe will then summarize the financial results of the third 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 in time passes. Speaking 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. Investor are reminded that the actual events or results may differ materially from those projected, including as a result of changing industry and market trends, reducements for services and products, the timing and development of new services and products and the reduction by the market, increased competition in industry and price reductions, as well as due to other risks identified in companies 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, sir, the non GAAP financial measures will be discussed. These are used by measures to take to make strategic decisions focused future results and evaluate the company's current performance. Mention
believes that
the percentage of non GAAP financial measures is different to invest on the under sending an assessment of the company's ongoing cooperation and prospects 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 Russell, Camtek's CEO, Rasheed. Go ahead please.
Thank you all for joining our call today. Come to deliver excellent results for the third quarter. The company shows strong revenue of $32,300,000, up 35% over Q3 of last year and exceeded the top end of our guidance of $31,000,000 to $32,000,000. We also demonstrated significant improvement in all the profitability metrics, with EPS of 6.16 In addition, our outlook ahead remains obviously. Let us look at the specific market trends as far as this relates to context.
Our planted market growth is driven both by introduction of new technology and by capacity expansion. The number of tools required for inspection and metrology depends on the number of wafers. The growing demand is for 1% inspection and nephrology instead of ethylene demand for much higher accuracies and smaller geometric results in significantly more machine time. This obviously translates to more tools acquired for production. Our market segment is characterized by unique requirements driven by the end users which results in new inspection and metrology steps.
This is another factor in higher growth rates in our market compared with the general semiconductor market. Good example for such requirement is the inner crack detection, which we introduced earlier this year. Our main market segment is advanced packaging. This technology is increasingly being adopted instead of wirebonding, specifically in the memory states while the do not prices are undergoing some pressure. The transition into advanced packaging is nonetheless expected to continue driven by technical requirements for higher value and lower power consumption.
Other segment, which we focus on such as CMOS image sensor, men's and RS are enjoying growth. Let me give you an example. The new smart form, which we are currently being introduced include 5 high resolution cover ups. This means that even without any increase in the number of fonts our business we grow as our customer will have more sensor with higher resolution to scanning, which require more inspection tools. As testified that our strong 30 percent plus growth in 2018, it is clear that we are not only maintaining our leader position is through the metrology, but we are also gaining market share in the 2 d inspection sector and expanding to new applications such as front end macro inspection and compounds and conductors.
Looking ahead, based on order, enhanced and discussion with customers, we see revenues continue to grow, reaching between $32,500,000 to $33,500,000 in the 4th quarter. We expect this to continue into the first quarter of 2019. A more specific Q1 guidance will be provided in the first quarter of next year following the release of our Q4 results. We will continue with the same strategy, which has been very successful in 2018. Focusing on the fastest growing segments of the semiconductor industry where new production and packaging technologies need advanced inspection tools.
I would like to take this opportunity to thank the management and employees who have shown exceptional detection to the company and greatly contributed to this success. I would like to hand over to Moshe for more detailed financial discussion of the financial results. Moshe, Thanks, Rafi. Camtek showed very strong execution in the third quarter, ahead of our expectations, with results exceeding the top end of our guidance range and this performance filtered down our financial metrics to the bottom line. Our gross operating and net margins were all strong and at level, we were very happy with showing the operating leverage inherent in our business model.
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 appears in the table at the end of the press release issued earlier today. As you may recall, we sold our PCB inspection business in the first quarter of 2017 and are considered discontinued operation. In light salaries, this was the results of the first quarter of last year, we did not include this. Please note that starting from this quarter, we will upload to our website, a presentation with Q3 Financial Highlights.
First quarter revenues were $32,300,000 ahead of the guidance and up 35% year over year. The results were driven by strong demand across all segments and applications. Each area continues to be our strongest region and during the quarter accounted for 84 percent of overall revenues. The remainder of revenues from the U. S.
And Europe contributed 16%. Gross margin for the quarter was 50.4 versus 49.4% in the first quarter of last year. While gross margin this quarter was slightly higher than our typical level, as you know, The gross margin is a function of several factors, including volumes and product mix sold. So there is always some variability between auto. In general, we expect the gross margin to vary around the business.
Operating expenses in the quarter were $10,100,000 or 31.2 percent of revenues compared with $8,800,000 or 36.9 percent of revenues in the third quarter of last year. The increase in the absolute amount was mainly due to increased SG and A expenses, specifically commissions repaid on our higher level of revenues. R and D spending accounted for just over a third of our operating expenses levels, Given the many opportunities we've seen in our markets, we aim to slightly increase our investments in R&D in the coming year, so we can capture these opportunities, which will enable further growth ahead. Our strong growth in revenue combined with a slightly improved gross margin as well as fairly stable expenses and enable us to more than double our in profit in the quarter versus last year. We reported $6,200,000 of operating income versus the $900,000 reported in the third quarter of last year.
This translates to an operating margin of 19 point percent versus 12.3% in the first quarter of last year. Net income for the first quarter of 2018 was $5,700,000, up 100 percent versus $2,800,000 in the first quarter of last year. I note that we recorded $500,000 of tax expenses. Later resulted from the intimidation of carried forward losses which is a non cash item. In terms of earnings per share, we reported $0.16 per diluted share in Q3, versus $0.11 per diluted share in Q3 of last year and $0.13 last quarter.
Turning to some high level balances and cash flow metrics. Net cash and cash equivalents as of September 30, 2018, increased to $48,300,000 compared with $41,200,000 at the end of the 2nd quarter of 2018. We generated $7,100,000 in cash from operations due to TORM's collection. As Rafael mentioned earlier, revenue guidance for the fourth quarter of 2018 is between $32,500,000 to to $33,500,000. As you can see, this will lead to full year 2018 revenues of a approximately $113,000,000 or around 33% year over year growth well in excess of the 18% year over year growth we demonstrated in 2017 versus 2016.
Representing Camtek's best year in its history. Beyond this, the steps we have taken in the past few years to streamline and focus our business has enabled us to demonstrate the operating leverage in our business model. Much of our revenue growth in 2017 has been captured on the bottom line and our operating margin expanded from 11% in 2017 to 19% results in the quarter we just reported. Given the And with that, lastly, Rami and myself, we'll be open to take your questions.
Ladies and gentlemen, at this time, we'll begin the question and answer session. If you're using speaker equipment, kindly lift a handset before pressing the numbers. Your questions will be pulled in the order they are received. Please standby. We pull for your questions.
The first question is from Craig Ellis of B. Riley. Please go ahead.
And thank you for taking the question and congratulations on the very strong growth and margin execution and a 50% margin level, I think, for the first time. So good job guys. The first question is just on the on the commentary for the 4th quarter revenue outlook and then continued growth in the first quarter. I'm hoping, Rockey, that you can just provide some incremental color on some of the specific things that are driving that growth. And and as we think about, late this year and early next year, are there any headwinds that you're encountering given some of the crosscurrents we've seen with, with some of the macro US China trade issues and and some of the other signs of inventory correction?
I I've in general, I think I I just discussed about this, and I would say that in all our sectors, if you talk about Q4, we see the growth in all our sectors. It's not the it doesn't come from 1 specific one. It's come from all of them. And we still see Sandira. We see it from Simosumecento.
We see it from other applications. We see some from macro inspection. So I would say that in general, we see all over. And regarding the next year, we don't know yet, but we believe that also Q1 is about the same. So we're not depending on one customer or one segment of, application.
We continue to see equal applications to growth.
That's helpful. And then, a longer term question, and, it relates to 2019. It's not intended to seek guidance. But it is intended to see more qualitative color just on what you see. This year, clearly a stellar year for your 2 d product ramp and yet you're still maintaining good momentum with, with 3 d and you've talked about macro inspection.
But as we look at some of the the drivers to 2019, just qualitatively, can you speak to them and And are and are we at a point yet or or when do we get to the point where the law of large numbers starts to catch up with the growth in the the 2 d ramp that you've been seeing?
Yes. The expanding the 2 d applications, you know, we go from to customer. Each customer has its own requirement and sometime we have to work together with customer and be for him, the special solutions. And this is the way how we take more and more 2 d market, working together with customer, customer work on Camtek. We pull our capabilities and this goes step by step.
So the 2 d definitely has a great potential for continuous growing, but, you know, takes time, and I think we do it properly. Regarding in general, in 2019, And most of our customer preparing their budget in, you know, November, December. So I believe that we will know more in the next 2 months and feel more comfortable about the budget. But in general, when we discuss this customer, we definitely can hear positive signal. We don't listen we don't hear any, any, I would say, anything that shows negative signal.
That's helpful. And then, Moshe, not to leave you out of the Q and A here. Stellar gross margins in the quarter from here having achieved 50.4%. What are the what are the tailwinds and and headwinds to any further margin expansion as we go through, the the end of 2018 and and look at the first half of twenty nineteen.
So, generally speaking, I think the trends is to continue to improve the gross margin. We do have some so so the positive is that we have some fixed expenses within the, gross level, and this will enable us to improve, gross margin. On the same time, product mix has a lot of, impacts on the gross margin levels So I I I think that the gross margin in the next few quarters will really vary around the 50%. We hope obviously we hope to exceed the 50%. But we could expect in some quarters to come in any of the child if this is a percent mark.
The next question is from Gus Richard of Northland Securities. Please go ahead.
Yes. Thanks for taking my question. Could you talk a little bit about the penetration of your crack inspection? I know that's a relatively new product for you guys and was wondering how that was going.
Hi, guys. This is Rodney. And in general, it's going on track. We are working with a number of customers that some have already purchased this capability. Some are in process of qualifying it.
Definitely, the results are very positive, and it's an ongoing effort, as Wafi said before, it takes time for people to adapt this new technology. That's definitely a on track for the NII. I think as we custic and elacinate.
Got it. And then could you there's a number of positive things going on in your end markets. So high bandwidth memory CMOS image sensor capacity expansions, your new products, macro defects, expect, etcetera. Could you give us a ranking of which ones you think are the most potent in terms of driving revenue growth over the next 12 months?
I think what is very interesting in our business is that all of these segments are growing in parallel. And it could be that one quarter, you see a certain segment then stronger than the other. But if I look at it on an annual basis, I think the product mix is similar. The only, in respect to the only area in 2d, where we are seeing the business growing over what we used to have 50%, 50% metrology versus inspection. In the last few quarters, you can see that we are selling more to 2d than than three d metrology.
But going back to the segments, specific segments, I cannot say that one segment is dominant and the other is meaningless. Now they are all very strong. And we see the strength also across regions. Most of the regions are strong, and we see healthy growth. Basically in in all segments, in all regions.
Got it. And then in the Just reported quarter, gross margins were above what I was expecting. And, obviously, it's volume and mix. Could you handicap, which was which was more, which drove the the upside? Was it, volume or mix?
Actually, this quarter, it's a combination of volume and mix. It's a combination. I I I don't think that there is, you know, one parameter that's, dominate over the other.
Okay. Alright. Thanks so much.
We have a follow-up question from Craig Ellis. Please go ahead.
And thanks for taking the follow-up. Gentlemen, can you, given the strong financial performance in the quarter and and the healthy outlook, through the first quarter, Can you talk about, cash deployment and and how you're currently thinking about, the alternatives between, some of the the recent trends with special dividends versus saving for inorganic growth? Thank you.
I think we, consider dividends from time to time. We don't have any immediate specific needs, for cash, but at the same time, we do look, all in certain an organic opportunities. So we are reviewing, be more careful if only another step up with the dividend. So we'll see, at this point, we're not announcing any dividends.
There are no further questions at this time. Before I ask Mister Amit to go ahead for this closing statement, I would like to remind participants that a replay of this call will be available on Camtek's website at www.camtek.com. 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. I look forward to talking with you again next quarter. Thank you and goodbye.
Thank you. This concludes the Camtek Third Quarter 2018 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.