Welcome to Camtek's second 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, a GK investor in public relations, at 1646-688-3559, or view it in the news section of the company's website at www.camtek.com. I would now like to hand over the call to Mr. Ehud Helsk of GK Investor Relations. Mr.
Helft, would you like to begin?
Yeah. Thank you, and good day to all of you. Would like to welcome our view to Camtek's second quarter 2018 results conference call. And I would also like to thank Camtek's management for hosting this call. Yes.
On the line today, Mr. Raffi, I'm here to contact CEOs. Mr. Majer Eisenberg, contact CFO, and Mr. Roni Nager, the contact COO.
Rafael will provide you the overview of context results and discuss market trends in the second quarter of 2018. Marshall will then summarize the financial results of the second 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 in 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 the time passes. Statementing 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, changing expectations, or otherwise. Mr. I'll remind you that actual events or results may differ materially from those projected, including as a result of changing industry and market trends, reduced demands for services and products, The timing of development through service to products and the adoption barrier market, increased competition in industry and the price reduction, as well as due to other risks identified in the company's filing with the SEC. Please note that the Safe Harbor is stating today's press release to cover the contents of this conference call.
In addition, during this call, certain non GAAP financial measures we can discuss. These are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes suggest in Asia, Non GAAP Financial Measures is useful to investors understanding and assessing of the company's ongoing collaborations and prospects for the future. A fully written stage has not yet seen key financial measures is included in today's earnings release. I would now like to hand over the call to Rafi.
Come to see you. Rafi, do I agree?
Okay. Thanks, Ehud. Good afternoon, and thank you for joining us on our call today. Captics result for the second quarter of 2018 include record sales, operating margin and net profit in the last 10 years. The performance we have presented are the result of continuous efforts by our management and dedicated employees as well as direct continuation of the strategy we have adopted to focus on the semiconductor business in general and specifically on segments with high growth rate, such as Advanced Packaging Segment.
Where new and advanced production technology require advanced inspection and metrology solutions. Q2 revenue of $30,500,000 is up 34% year over year and ahead of our guidance range. Our operating income was 5,000,000 16.3%, which is well in line with our business model. While hearing rumors about some weakness in the semiconductor market in general, the specific end market segments on which we focus continue to show strong growth. Looking ahead, our Q3 guidance reflects over 30% year over year growth for the third quarter and for the 1st 9 months.
I'd like to spend a few moments discussing the business performance itself before handing over the discussion to Moshe Our metrology business is maintaining its leadership position. Our new metrology platform, the Econ TAP is performing in line with from our customers on the performance from 4 Tier 1 customers, including OSAT and memory manufacturers. We have started installing to these customer sites in the second quarter, and we will continue shipment and installation into the third quarter. Regarding our 2 d inspection, we continue to expand our market share. We have recently received orders from 3 new customers and have expanded our 2 d business in 3 existing Tier 1 accounts.
Our site world crack inspection technology for post dicing application, which we announced last quarter, is gaining momentum. Several customers have started to evaluate this innovative technology, and we have already secured order from 2 major customers. As previously discussed, we are moving into new 2 d market segment in the front end. We have already installed multiple systems for macro inspection in China as announced last quarter and shipped systems for inspection of compound semiconductor during this quarter. Our strategy is to continue focusing on semiconductor industry where new production and packaging technologies need advanced inspection tools.
We see many opportunities in our markets, and also in adjacent segments. These opportunities will expand our total addressable markets. This strategy has proven itself so far, and we believe it will continue to bear fruits in the future. I remain very optimistic and excited about the growth potential ahead of us And I wish to, again, thanks all our dedicated employees and management for the excellent job they are doing in capturing opportunities. Please end my summary, and I would like to hand over to Moshe for more details financial discussion of the financial results.
Moshe?
Thank you, Assi. Unless I date, otherwise, I will summarize the results of the continuing operations on a non GAAP basis. The reconciliation between the results and its non GAAP results appear in the table at the end of the press release issued earlier today. 2nd quarter revenues came in at $30,500,000, which is a record for Camtek, up 34% year over year. The geographic revenue split for the quarter was as follows.
Asia was the strongest region during the quarter, representing approximately 81% of our overall revenues. U. S. And Europe contributed 19%. 2nd quarter gross profit was $14,900,000, representing a gross margin of 49%.
This is compared with a gross profit of $11,200,000, representing margin of 49.2 percent in the second quarter of last year. Operating expenses in the quarter were $10,000,000 or 32.7 percent of revenues compared with $9,100,000 or 40 percent of revenues in the second quarter of last year. The increase in the absolute amount was primarily due to increased commissions repaid on our higher level of revenues. Additionally, I would like to point out that our G and A expenses were reduced in both absolute terms from $2,200,000 to one $600,000 as well as in relative terms from 9.7 percent to 5.2 percent of revenues. We increased our operating profit in the quarter to $5,000,000, an increase of 139 percent over the $2,100,000 reported in the second quarter of last year.
Operating margin was 16.3% versus 9.2 in the second quarter of last year. Net income for the second quarter of 2018 more than doubled over those of last year and was $4,600,000 or $0.13 per diluted share. This is compared to a net income of $2,000,000 or $0.06 per share in the second quarter of last year. Net cash and cash equivalents as of June 30, 2018, were $41,200,000 compared with $47,200,000 the end of the lap of the first quarter of 2018. During the second quarter, we paid $5,000,000 in dividends and used approximately $750,000 in operating cash, which was primarily to support working capital requirements in order to meet the strong level of demand we are seeing in our end markets.
In addition, I would like to point out that during the 1st week of July, We have collected $8,000,000 of open accounts receivables. Guidance for the third quarter of 2018 is revenue of between $30,000,000 to $31,000,000. As Rafael mentioned, it represents year over year growth of over 30%. We will now open
Ladies and gentlemen, at this time, we'll begin the question and answer session. Your questions will be pulled in the order they are received. The first question is from Edwin Mach of Needham And Company. Please go ahead.
Hey, guys. Congrats for a great quarter. Sorry about your background noise. First question I have is, I think you guys talk about very strong demand from advanced packaging. Just curious, which what type of application did you see in the fixed, you know, a big demand?
Is it around fan out or is it around memory that you guys talked about? Can you give some color on that?
Robbie, could you answer to that, please?
I'll try and elaborate on it. Anyway, this is that we see this across the board. It's not just one specific segment. Definitely memories an important part of the growth, but we see it in all around applications in IDNs, in OSATs. So the overall market of the Advanced Packaging in Straw and we continue to see the annual growth.
So we're very positive about this market and no, it's not specific to one specific application.
Great. That's great. Thanks for the color. And then on to the inspection, it looks like you guys have good momentum there. And on the COI, I think I mentioned
you have
some wins. Is there a way to quantify the revenue options of of those wins? And is that we should talk about where your market share position right now and how do you kind of think you need to press? Well, you know, I
I wouldn't like to go over the market share in specifics because it's very hard to judge the market share. That we are seeing today because of the requirements in the market, the densities, the resolutions, and all the different technical requirements, they are driving an increase in the 2 d measurements to the inspection in general. So we see people moving from SANCO to 100%. All of this together is creating a lot of demand. And this means no machines, we are still being on a regular basis.
We've seen this in the last and the previous quarters. I think we mentioned it last quarter and it's true this quarter, we selling more machines to be between the applications than through the applications. And that's definitely a change in our business and a very positive one.
Just to clarify then, is it more number of inspection points along the semiconductor production, like, from an ID and finish wafer all the way to package, or is it just more, longer inspection time, meaning, because they're supposed to do a 100% inspection. So
It's both. It's more steps during the inspection stages, during the processing stages. That's one aspect. And obviously move the time and going to 100% from Samsung. And this is required in many of the automotive that we came change in the high vulnerability applications that we see throughout the market.
On top of that, Edwin, if, for example, the customer because the demand now a defined, would like to detect smaller defect So probably you need higher magnification, higher magnification reduce the throughput. So there are many, many reason for spending more time on inspection. Not only one reason. So we cannot say that there are one rule for that.
Okay. Actually, that's very helpful, color there. Last question I have, on operating expenses, there's, some increase now because of, you know, higher sales level. Which is the way to think about OpEx is just the new level you think about or, and even more step up and we even give up some color on how we shaped the topics of 3240.
Sure. So first of all, I would like I I just need to spoke in my financial section, and I mentioned that the guidance is between 30 to 31 And I wanted to correct it. It's between 31 to 32 as we reported in our press release And as Rafael mentioned, so, did succeed. 2nd regarding your question about the operating expenses level, Yes, I believe that we will see some increase in our operating expenses level in the next couple of quarters. As we see revenues going up and as we use, some of the channels that we use, agents and distributors, this may require higher level of commissions.
And we believe that This level of operating expenses will remain with us in the next couple of quarters.
Great. Thanks for the color. That's all I have. Thanks.
The next question is from Craig Ellis of B. Riley. Please go ahead.
Thank you for taking the question and congratulations on the very strong execution in the business. The first question that I wanted to focus on with the business performing at a very strong 30% year on year growth rate. Can you highlight what some of the faster growing businesses are around that average and and and what would be, what would be coming in below the 30% year on year growth rate. Just looking for a sense of what some of the the relative, performance is within the portfolio.
You can start answering. I will add something.
So I think what characterizes our business is, is a relatively high number of customers. And the very high number of applications. So from that sense, it is very hard to pinpoint a specific application. I think what characterizes this quarter and the previous one as we move forward this year is first of all, we see business from all of the geographies. From all the different regions, they're all contributing a a business in in in in very good way.
We don't have a specific week region. That's number 1. From applications point of view, definitely, the 2 d became larger than the 3 d, And as the 2 d market in general is bigger than the 3 d strategy, that is, a big important, it's it's a It's a bit important addition. In Powerlane, we went into 2 new applications or segments. Why is the compound semi or many people call it with a victory?
And the other one is the front end, the macro inspection. So all of this together, obviously, builds much better, I would say, application portfolio for Camtek as we move on into the year, as we see contribution from all the different applications. Did I answer your question, Craig?
Yes, you did. That was very helpful. And the follow-up question really goes along with the way you concluded that. So it looks like there are a number of things that are driving growth that are that are fairly early innings for the company. Macro inspection, just getting started there on the front end, pixel, a technology that seems to be in the early phases of adoption.
As we look at 30% year on year growth and and that level being achieved, on a on a calendar 18 year to date basis, how would you characterize the business's ability to sustain that growth as you look out over, the second half of twenty eighteen and then into 2019.
Okay. Maybe maybe I will answer to you. I would say to it that right now, what we can see, it's through the eyes of our customer. We cannot, we cannot really identify the all, you know, segment in the semiconductor. We can see it with our over 80 customers.
And and and we mentioned before there are a few parameters that the that it's it's I would say this is today an evolution definitely, when when the front end move from 20 to 10 to 7 nano, the densities of wafer become much more dense. More density is more inspection time. If you talk about even bump, the density of bar become more dense. So so increasing density is one department. Throughput more wafer, 2nd parameter.
New technology fan out wafer level package, compound semiconductor, clip cheap memory stack stack memory, you can see so many new technology that already adopted and moved to ramp up in and production altogether, all these factors give us very good feeling. On top of that, there are a lot of, you know, talking about the 5th generation of the seller that will bring a lot of, older. The industry talk about the automotive that's increasing using electronic component and more, more, cheaper each car. So so in one hand, we see a lot of applications, new application on the other end. We can see a lot of new technology, reducing density, and and all these together give us a very, very confident that we can continue maintaining such growth.
That's very helpful, Rafi. The final question I have before going back into the queue, and I don't want to ignore our CFO here. So, Moshe, just question for you. As we look at the performance of the business, you're seeing very good margin expansion as we get revenue growth. Can you just give us your view on on the potential of the business to attain 50 percent gross margin and your visibility into the potential to get to high teens operating margin.
Thanks guys.
So Gross margin levels are more a factor or function of where sales mix And, I'm sure that within the next, few quarters, we will reach this level of 50% With respect to operating margin, we have spoken a few times in the past about our operating leverage that we have in our business model. And the 2nd quarter results definitely reflects this leverage that we have in the model. Reporting over 16% of operating margin. And we believe that as we grow the business towards the end of the year, this operating margin will improve and get closer to 20%. Thank
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 Comtech's website 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 continuing interest in our business. Again, I would like to thank all our employees and my management team for their tremendous performance in the past 2 quarters, and we look forward to continue it. 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 Camtek Second Quarter 2018 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.