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 at GK Investor & Public Relations at 1-646-688-3559 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 Helft of GK Investor & Public Relations. Mr. Helft, would you like to begin?
Yeah, thank you. Good day to all of you. I would like to welcome all of you to Camtek's second quarter 2018 results conference call, and I would also like to thank Camtek's management for hosting this call. With us on the line today are Mr. Rafi Amit, Camtek's CEO, Mr. Moshe Eisenberg, Camtek's CFO, and Mr. Ramy Langer, the Camtek's COO. Rafi will provide the overview of Camtek's results and discuss market trends in the second quarter of 2018. Moshe 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 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 statements contained, whether as a result of new information, future events, changing expectations, or otherwise. Investors are reminded 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 and development of new services and products, and their adoption by the 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 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, forecast 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 financial measures is included in today's earnings release. I would now like to hand over the call to Rafi, Camtek's CEO. Rafi, go ahead, please.
Okay, thanks, Ehud. Good afternoon. Thank you for joining us on our call today. Camtek's results 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 gross rate, such as advanced packaging segment, where new and advanced production technology require advanced inspection and metrology solutions. Q2 revenue of $30.5 million is up 34% year-over-year and ahead of our guidance range. It is the first time we have had a quarter more than $30 million.
Our operating income was $5 million for the quarter, representing an operating margin of 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 first 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 Eagle-T AP, is performing in line with our expectations. We have been receiving very positive feedback from our customers on the performance of this new system. We receive repeat business for multiple Eagle-T AP systems from 4 tier 1 customers, including OSAT and memory manufacturers.
We have started installing tools at these customer sites in the second quarter. We will continue shipments and installation into the third quarter. Regarding our 2D inspection, we continue to expand our market share. We have recently received orders from 3 new customers and have expanded our 2D business in 3 existing tier 1 accounts. Our sidewall crack inspection technology for post-dicing application, which we announced last quarter, is gaining momentum. Several customers have started to evaluate this innovative technology. We have already secured orders from 2 major customers. As previously discussed, we are moving into new 2D market segment in the front-end. We have already installed multiple systems for macro inspection in China, as announced last quarter. We 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. We believe it will continue to bear fruits in the future. I remain very optimistic and excited about the growth potential ahead of us. I wish to again thank all our dedicated employees and management for the excellent job they are doing in capturing opportunities. This ends my summary. I would like to hand over to Moshe for more details, financial discussion of the financial result. Moshe?
Thank you, Rafi. Unless I state otherwise, I will summarize the results of the continuing operations 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. Second quarter revenues came in at $30.5 million, 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%. Second quarter gross profit was $14.9 million, representing a gross margin of 49%. This is compared with a gross profit of $11.2 million, representing margin of 49.2% in the Second quarter of last year.
Operating expenses in the quarter were $10 million, or 32.7% of revenues, compared with $9.1 million or 40% of revenues in the Second quarter of last year. The increase in the absolute amount was primarily due to increased commissions we paid on our higher level of revenues. Additionally, I would like to point out that our G&A expenses were reduced in both absolute terms from $2.2 million to $1.6 million, as well as in relative terms from 9.7% to 5.2% of revenues. We increased our operating profit in the quarter to $5 million, an increase of 139% over the $2.1 million 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 $4.6 million or $0.13 per diluted share.
This is compared to a net income of $2 million or $0.06 per share in the Second quarter of last year. Net cash and cash equivalents as of June 30, 2018, were $41.2 million, compared with $47.2 million at the end of the First quarter of 2018. During the Second quarter, we paid $5 million 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 first week of July, we have collected $8 million of open accounts receivables. Guidance for the Third quarter of 2018 is revenue of between $30 million-$31 million. As Rafi mentioned, it represents year-over-year growth of over 30%. We will now open the call for questions. Operator?
Thank you. Ladies and gentlemen, at this time, we'll 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 Edwin Mok of Needham & Company. Please go ahead.
Hey, guys. Congrats for a great quarter. Sorry about the background noise. First question I have is, I think you guys talk about very strong demand from advanced packaging. Just curious, what type of application are you seeing the big demand? Is it around fan-out or is it around memory that you guys talked about? Can you give some color around that?
Rafi, could you answer to that, please?
Yeah, I'll try and elaborate on it. Edwin, we see this across the board. It's not just one specific segment. Definitely, memory is an important part of the growth. We see it in all around applications, in IDMs, in OSATs. The overall market of the advanced packaging is strong, and we continue to see the annual growth. We are very positive about this market, and no, it's not specific to one specific application.
Great. Thanks for the call. Then on 2D inspection, looks like you guys have good momentum there. On the call, I think you mentioned you have some wins. Is there a way to quantify the revenue opportunities of those wins? Is there a way to talk about where your market share position right now and how these kind of things can progress?
Well, I wouldn't like to go over the market share in specifics because it's very hard to judge the market share. What 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 2D measurement, 2D inspection in general. We see people moving from sample to 100%. All of this together is creating a lot of demand. This means more machines. We are seeing this on a regular basis. We've seen this in the lab in the previous quarters. I think we mentioned it last quarter, and it's true this quarter. We are selling more machines to 2D applications than 3D applications. That's definitely a change in our business and a very positive one.
Just to clarify that, is it more number of inspection points along the semiconductor production, like from an unfinished wafer all the way to package, or is it just more longer inspection time, meaning because there's just to 100% inspection?
It's both. It's more steps during the inspection stages, during the processing stages. That's one aspect. Obviously, longer time and going to 100% from sampling. This is required in many of the automotive applications and the high reliability applications that we see throughout the market.
Now, on top of that, Edwin, if, for example, customer, because the demand, now he defined he would like to detect smaller defect, so probably need higher magnification. Higher magnification reduce this throughput. There are many reason for spending more time on inspection. Not only one reason. We cannot say that there are one rule for that.
Okay. Actually, that's very helpful call there. Last question I have. On operating expenses, there's some increase now because of higher sales level. Moshe, is there a way to think about OpEx? Is this the new level we should think about or maybe even more step up? Moshe, you can give us some color how we should expect OpEx for 3Q, 4Q?
Sure. First of all, I just misspoke in my financial section, I mentioned that the guidance is between 30-31, and I wanted to correct it. It's between 31-32, as we reported in our press release and as Rafi mentioned. Please fix it. Second, 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 revenue going up and as we use some of the channels that we use, agents and distributors, this may require higher level of commissions. We believe that this level of operating expenses will remain with us in the next couple of quarters.
Great. Thanks. That's all the calls that I have. Thanks. Bye.
The next question is from Craig Ellis of B. Riley. Please go ahead.
Thank you for taking the question. 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-over-year growth rate, can you highlight what some of the faster-growing businesses are around that average and what would be coming in below the 30% year-over-year growth rate? Just looking for a sense of what some of the relative performance is within the portfolio.
Rafi, you want to answer or I answer?
You can start answering. I will add something if you want.
I think what characterizes our business is a relatively high number of customers and a very high number of applications. 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 that are all contributing a business in a very good way, meaning we don't have a specific weak region. That's number 1. From applications point of view, definitely the 2D became larger than the 3D. As the 2D market in general is bigger than the 3D metrology, it's a big important addition. In parallel, we went into two new applications or segments.
One is the compound semi, or many people call it the VCSEL, and the other one is the front-end, the macro inspection. All of this together obviously builds a 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?
Yeah, you did, Ramy. That was very helpful. The follow-up question really goes along with the way you concluded that. It looks like there are a number of things that are driving growth that are fairly early innings for the company. Macro inspection, just getting started there on the front-end. VCSEL, a technology that seems to be in the early phases of adoption. As we look at 30% year-on-year growth and that level being achieved on a calendar 2018 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 2018 and then into 2019?
Okay. Maybe I will answer to you. I would say, Craig, that right now what we can see is through the eyes of our customer. We cannot really identify the whole segment in the semiconductor. We can see it with our over 80 customers. We mentioned before, there are few parameters that I would say this is today an evolution. Definitely, when the front-end moved 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 bump become more dense. Increasing density is one big parameter. Throughput, more wafer, second parameter. New technology, Fan-out, wafer-level package, compound semiconductor, flip-chip, stacked memory. You can see so many new technology that already adapted and moved to ramp-up and production.
All together, all these factors give us very good feeling. On top of that, there are a lot of talking about the fifth generation of the cellular that will bring a lot of order. The industry talk about the automotive that's increasing using electronic component and more chip in each car. On 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 all these together give us a 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. I don't want to ignore our CFO here. Moshe, just question for you. As we look at the performance of the business, you're seeing very good margin expansion as you get revenue growth. Can you just give us your view on the potential of the business to attain 50% gross margin and your visibility into the potential to get to high teens operating margin? Thanks, guys.
Thanks, Craig. Gross margin levels are more a factor or function of sales mix. 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. The second quarter results definitely reflects this leverage that we have in the model, reporting over 16% operating margin. We believe that as we grow the business towards the end of the year, this operating margin will improve and will get closer to 20%.
Thanks, guys.
Thank you.
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 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 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. Again, I would like to thank all our employees and my management team for their tremendous performance in the past two quarters. We look forward to continue it. To our investor, I thank you long-term support and 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.