Ladies and gentlemen, thank you for standing by. Welcome to Camtek's 1st 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 1-six 40six-six 80eight-three 1559. Viewed in the News section of the company's website at 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, and good day to
all of you. I'd like to
welcome all of you to contact first quarter 2018 results conference call. And I would also like to thank Camtek's management for hosting this call. We are from the line today are Mr. Rafael Ahmed, the Camtek CEO, Mr. Moshe Eisenberg, Camtek CFO and Mr.
Rami Langers, Camtek's COO. Rafi will provide the overview of contact results and discuss market trends in the first quarter of 2018. Moshe will then summarize the financial results for the first quarter. We will then open the call to take your questions. Before we begin, I'd like to remind all note 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 and past. Stations 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 the expectation or otherwise. Investor 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 timely development of new services and products and the adoption by the market. Increased competition in industry and price reduction as well as due to other risks identified in companies filing with the SEC.
Please note that the harvest statement. Today's press release also cover the contents of this conference call. In addition, during this call, certain non GAAP financial measures will be discussed. These are used by its management to make specific decisions, forecast future results and evaluate the company's current performance. Mention believes that the presentation of non GAAP financial measures is useful to investor understanding and assessment of the company's ongoing corporations and prospects for the future.
A full reconciliation of non GAAP to GAAP financial measures is included in today's earning release. And I would now like to hand over the call to Rafi CEO. Rafi, go ahead, please.
Excellent. Good afternoon, and thank you for joining us on our call today. We are very pleased with our performance in the first quarter of 2018. We presented our highest ever level of semiconductor revenue of $27,300,000 ahead of our guidance range. This represents growth of 29% over the first quarter of last year.
I am also very encouraged with the strong profitability we showed this quarter with our non GAAP operating margins and net margin at over 15%. And not less important, we see strong order momentum that has continued into the 2nd quarter, which makes us optimistic that we are adding into another strong year for Camtek. Our expectation for continued growth in reflected in our Q2 guidance of $29,000,000 to $30,000,000, which represent around 30% growth over Q2 of last year. We continue to generate strong level of cash. And in light of our cash position, the Board of Directors decided to distribute a dividend or $0.14 per share, which translates into approximately $5,000,000 to shareholders.
This is a reflection of our success and dedication in creating shareholders value. As you can see, the strategic decision we took last year to focus on the semiconductor business has resulted in substantial improvement in our profitability and our balance sheet Our end markets are showing strong growth in all the segments. Moreover, we have expanded into new areas related to front end, such as macro inspection and new customized to the application developed for customers, of which we plan to ship multiple systems to several customers through 2018. The Advanced Packaging market continues to be one of our major segment and we are seeing an adoption of this technology in the memory world. As we announced earlier this year, we have already received order for 17 tools of our next generation 3d metrology solutions.
Since then, we have received additional orders from several customers and In the line with our strategy to focus and penetrate the 2 key segments We have been commenting cementing our position in the 2 d inspection market with innovative solutions that provide contact with a significant competitive advantage. In the first quarter, more than half of our systems were shipped to support 2 diverse applications. In fact, a few weeks ago, we announced an order for multiple systems for front end to the maximum inspection from a major Chinese manufacturer. This order is a result of law firm relationships of trust with Chinese customers as well as testament to our strong 2 d detection capabilities combined with high productivity. As we move for 2018, and beyond, we believe that our excellent performance into the inspection will open many additional business opportunities for us in the future.
China itself has become a dominant part of our semiconductor business. We intend to leverage our long standing presence in the territory to benefit from the huge opportunity we see in the Chinese market. Earlier this week we announced the development of a dedicated solution for sidewall cricks detection in post dicing applications. Further to this announcement, we see a lot of interest in this unique solution and have already delivered systems equipped with this new development. Another achievement I am excited about is the selection of Camtek by Texas Instrument for the supplier excellence award.
Cartek is one of state companies selected from a more 1000 of suppliers. The annual award honors company whose dedication and commitment in supplying products and service meet TI high standards for excellence. This recognition reflects our responsiveness and best in class support. We provide our customers to improve their performance and meet their business goals. For more details, financial discussion of the financial results.
Moshe?
Thank you, Vasi. Unless I state otherwise, I will summarize the results on a non GAAP basis. The reconciliation between the GAAP results and the non GAAP results appeared in the table at the end of the press release issued earlier today. In addition, at the end of the first quarter of 2018, we exceeded our efforts to utilize the remaining inventory and equipment related to the city development and recorded a one time write off in the amount of $500,000,000, which is included in the GAAP results. By debt, we completed the shift of the business focus to Semiconductors.
We do not expect any further assets related to fleet activity going forward. 1st quarter revenues came in at $27,300,000 which is a record for semiconductor revenue, up 29% year over year. The geographic revenue split for the quarter was as follows. Asia was the strongest region during the quarter, representing approximately 72% of overall revenues. U.
S. And Europe contributed 28%. This is higher than previous quarters, a result of our specific efforts in the EBIT territories. 1st quarter gross profit was $13,200,000, representing a gross margin of 48.5%. This is compared with a gross profit of $10,300,000, representing a margin of 48.7 percent in the first quarter of last year.
Our target is for gross margin to reach about 50%, which we expect in the coming quarter. Operating expenses in the quarter were $9,000,000. This is a similar level to those of Q1 last year, which amounted to $8,800,000. This is despite of our growth of 30% in revenues. This operating leverage allowed us to increase the operating profit in the quarter to $4,200,000 an increase of 174 percent over the $1,500,000 reported in the first quarter of last year.
Operating margin was 15.4%, a strong improvement versus 7.3% in the first quarter last year. Net income for the first quarter of 2019 was $4,200,000 or 12¢ per diluted share. This is compared to a net income of $1,500,000 or $0.04 per share in the first quarter of last year. Net cash and cash equivalents as of March 31, 2018, were $47,200,000, compared with $43,700,000 as of December 31, 2017. During the first quarter, we increased our cash position by 3,500,000.
Overall, I'm very pleased with the balance sheet parameters with DSO at 79 days. As Rafael mentioned, the board approved the dividend to shareholders amounting to $5,000,000 or 0 point 14 dollars per share, The dividend will be paid on May 29, 2018 to all shareholders of record, a close of the market on May 16, 2018. Guidance for the second quarter of 2018 is for revenues between $29,030,000,000 representing year over year growth of approximately 30%. We will now open the call for questions operator. Thank
session.
First question is from Craig Ellis of B. Riley FBR. Please go ahead.
Yes, thanks for taking the question and congratulations on the nice execution team and the record. Semi revenues. So the first question, Moshe, the second quarter guidance is very robust at $29,500,000. Can you just help us understand some of the underlying positives and negatives as you look at advanced packaging CMOS MEMS and other trends in the business. On a sequential basis?
Robbie, you want to take the question.
If you want to, when we, I think we also, Rafael mentioned it in his comments, we see strength in most of the segments. And I would look at it from 2 different aspects. 1st of all, geographically, all the territories and we see even the results coming from Europe and the U. S, are contributing very nicely to the business. So we are not here, pending on specific geography.
On the other side from the applications point of view. So the 3 d, the advanced packaging is strong, memory is converging to advanced packaging, primarily the DRAM and we see this trend and we are participating in it. This quarter, we're already seeing more than 50% of the machines we shake off to the application. And that's a very it's a different it's another positive trend in our business. And on the TD, We are seeing strength in all the segments that we are tracking.
It's the single image sensors. It's the MEMS it's the power, it's the RF and so forth. So from that point of view, looking forward, We are not depending on a specific application or geography. We are seeing the whole market moving there in a very healthy mode So that's, I would say, from us, is the positive outlook for Q2.
That's very helpful color. And then follow on question related to revenues, but extending the duration. There's always a lot of interest this time of year around company half on half views. And there was clearly a strong order environment in the first quarter. Can you help us understand the visibility that you have in the second half?
And I think historically, the company or at least a quarter ago, the company was looking for mid teens year on year growth. I think to mention on this call was double digit. The 2nd quarter guidance, I think, would have the business tracking above mid teens.
How do you look at
the 2nd half and, And is there from the backlog that you have potential that second quarter strength persists through the end of the year?
Martin, would you like to take
this? Okay. Yeah. Yeah. Yeah.
I'll take it. Let's say today we can feel comfortable as we say for the 2nd quarter. And based on the backlog, we also feel very comfortable for the 3rd quarter And it looks like we're doing the, I would say, very similar to the run rate as we see today. So this is very positive right now. Q4 is a little bit, you know, far away from us, and we don't have any strong indication definitely, the backlog that we experienced right now is the highest ever.
And with, you know, with this customer, We feel very positive environment in the market. So we believe that we can continue at this rate for the second half of the year.
Thanks, Rafi. Moshe, I don't want you to think I'm ignoring you, so I will ask you gross margin question. You mentioned that, that you'd expect, gross margin to close in on that 50% target. In the next few quarters. Can you just help us understand between the 100 and between the level just reported at 48.5 50 to 150 basis points.
How do we close that gap? Is it mix of product? Is it company specific initiatives what are the levers that you have in your toolkit to narrow that gap?
So first of all, we had an inherent operating leverage in the model. So as we grow the business, we will see improvements in the gross margin as well. In addition, we, obviously, we put a lot of tight controls over the cost structure of the company. And we believe that, this will also be an improvement, on all cost structure of the company, including gross margin. And, if
it's by the end of the day,
it's mainly a product mix at the the mix. Some quarters, you see a higher, more profitable deals and in others, a decent mix. But overall, we see we see a clear path to a 50% gross margin mark.
That's helpful. And then the last question for me, I'm sure investors will appreciate the nice special dividend, and it's the 2nd in the last few quarters. So the question is, as you look at the the potential to share cash generation with investors and the potential to either do a special dividend or maybe institute a regular quarterly dividend, can you help us understand what the criteria are that you're looking at that determine, whether you pay a special dividend and what would, what would it take to turn that special dividend into a recurring regular quarterly dividend.
Yes. Look, we don't have any official dividend policy right now. Because, you know, in our business, we do never know when we need, if you want to make any, if we consider any merging M and A, something, you may need cash for debt or whatever or something happened in the industry. So we when we feel comfortable when we see very positive market trend, so we feel that we can allocate some dividend for investors, share our success with investors. But we have to do it quarter to consider the situation, the market trend, opportunities and then we can decide.
So we don't have anything right now as a policy that we can share it because we don't have something like that.
All right. Thanks guys. Congratulations on the good quarter and outlook.
Thank you.
The next question is from Edwin Mach of Needham And Company. Please go ahead.
Hey guys, thanks for taking my question. First, Colin, I guess, on the guidance, just to clarify, Moshe, are you targeting 50% for the 2nd quarter for gross margins? Just wanted to be exactly correct.
So typically, we don't provide any specific guidance on gross margin levels. And we're not going to change it this time. We do have a good visibility into the 2nd quarter order mix and revenue, but not to the extent that we can get to the gross margin level. But I said before, we have a clear path we know what we have to do, in order to get to the 50% mark, the one thing is the business volume and the leverage that we have And the other one is really a product mix, and we believe that over the next course of the few quarters, we will get to the 50% mark. We are very, very close to it as we are.
Okay. And then just quickly on kind of the risk part of your business? Is that growing in line with your corporate growth? I mean, developing year over year, you're growing like 30% year over year, Is your service growing in the same way or it's actually more product growing faster in service?
Yes, it's more products related. It's growth rate. Services growing, if you look at the service level, versus the first quarter of last year, there was an increase, but most of the growth is coming from the product side of the house.
Okay, great. Thanks for clarifying that. Rafael, I heard on your prepared remarks that you guys are doing some work on the front end macro inspection market. Is that correct? And what do you guys stand on that?
As we mentioned, first of all, we believe that our capability I mean, from the performance of the capability, our machine definitely can serve the macro inspection market But as you know, we also have some process of qualification, penetration, and this takes time So we believe that after we get the nice order from 1b customers, We continue to see more penetration to this application. We have more dedicated application that we developed for the front hand. So I definitely feel very comfortable that we can see more and more market share in the front end as well.
Is this a unique tool or is it something that you guys can leverage or existing hardware and just make small change?
Look, in general, our tools meet the demand at the in the front end in the macro inspection. But definitely, the amount of special application we get from customer for us to develop many features could be some time only software, some mechanical and special optic together with algorithm and software. So, so I would say more than 50% of our system are actually as a result of patient development that our R and D make it in very short time. So right now, what we mentioned about the front end I would say valve is very standard application and the other is very unique application that we developed.
Okay, great. Thanks for clarifying that. And then, on your commentary of Bifan's package and go into DRAM, So our understanding is that still limited in the very low vol, relatively low volume, although you're correct that there's some going into the DRAM, just curious, is that the case or I would missing something? Are you seeing more branding in just general DRAM device or is it just more for measuring from specialty DRAM applications?
No, in general, obviously, it's a trend and it's starting and it's not all the DRAM wells, but definitely, There is a shift of some of the DRAM applications. I think it was initially started in the segment of gaming. It's moving to other applications and definitely this market in order to reduce the access time to the neurons themselves with the new wide IO interface and the reduction in the power consumption. This is a trend that is starting to be more significant. But obviously, it's a trend that will take some time.
Okay, great. Last question I have on the Functional Inkjet, are you guys complete out of that business now or are you still maybe looking to sell that? Oh, we are. I want to be out of this. Okay, great.
That's all I have. Thank
There are no further questions at this time. Hold on one moment. We have a further question. The next question is from David Krause. Please go ahead.
Hi. How are you doing, Raffy? It's a terrific quarter you had. Congratulations. Thanks.
I wanna ask you a few of the things I got here. You expect to get any more multiyear contracts in the year of 2018?
Doing multiple system contracts?
I mean, I mean, like, like, multi countries, like, 3, 4, whatever you call them. Like, you got in the 1st quarter of 2019?
Yes, we'll get, I would say, definitely we continue to see it for the second quarter. Some order coming as a multiple system order.
Are you expecting something in the second quarter?
2nd quarter, that's what we see, yes.
Oh, you see something in the 2nd quarter for your multiple systems. On what of what you do.
Yes. I said.
Okay. I'm
sorry. Yes. I said it. We see. We saw it.
We have it.
Are you are you seeing it in the second order coming in other words?
Robin, could you?
Yes, definitely. Very good. The answer is yes, In general, we've announced the multiple equipment orders that we have received, we announced We are definitely expecting more multiples throughout the year, as we've seen throughout the quarters. And it's not something that is And we do get some of the business is in multiples. So this is not something that is very rare.
I see. In other way, throughout the rest of 2018, in other words, right?
Definitely. Definitely.
All right. That's a good answer, Rafi. Now also, do you expect to get any more farming business? And from where? Like, which countries do you get it from?
Let's say predominantly from where you can multi your business, some foreign companies, foreign countries.
So in general, I think we mentioned it It was 72% of our business is coming from Asia. And then the rest is coming from the U. S. And Europe, And in general, we see a very even distribution throughout the different regions. So it's not that we are depending just one region for our business.
So I would say that this is the current status.
And actually all of Asia, so you could say China, Malaysia, Singapore and stuff like that, the rest of it.
Absolutely. All of the different countries we sell to.
I said 72. That's a big percentage of 72%. That's very big. And what we get, Asia is a growing market, especially China, China is booming, China. Where do you?
Oh, I see. Okay. So how's, you know, how's the general outlook? Let's say for the rest of 2018?
Yes, we said it's very positive right now. We have a nice backlog also for Q3. So right now, it's not that we can continue very similar to the, our run rate right now. But let me, you know, I would say promising Q4 is a little bit far to say, but we feel comfortable with it.
In other way, 2 and 3, feeling, which I'm pretty comfortable in the 2nd, 3rd quarters. Is that what you mean, Raffy? The second and third quarter? Yep. Okay.
That's good. Now, you don't get too much business from your own country in Israel. I see most of us went forward. No. From what I think about that.
Too many issues. We wasn't any more any packaging in Israel, okay?
Packaging in Israel?
There, you have fault and power. That's it. It's not the packaging industry. So our main target market is mainly, I would say, the packaging, packaging or everything related to packaging. And there are no packaging industry in Israel.
Oh, there's no type. I mean, it actually actually the only ones in Israel at this point. They actually had no competition in the packaging part of it. Okay. I see.
You mentioned the cash. I wasn't too sure. Was that $47,000,000 a in cash was $43,000,000, a little mixed up on the cash that you have right now?
Moshe, yes Moshe will answer to you exactly.
Okay. Thank you, Ravi.
We have $47,200,000 a loss of cash as of the end of the first quarter.
Yes. And last year to that same quarter you had last year for the first quarter. Your satellites for Finjan Maershe?
I don't recall the number,
the exact number that had, in the first quarter, but at the end of the year, we had $43,700,000 worth of cash.
Information. Okay.
So in the first quarter, we actually generated $3,500,000 worth of cash.
That's the way it's the reason why you're giving the special dividend because you have more cash in your in your figuring you if you need what you collect to run the business in other words.
Yes.
That makes a lot of sense. I see. Okay. Thank you very much for answering my questions and keep up the good
There are no further questions at this time. Before I ask Mr. Amit to go ahead with his closing statement, would like to remind participants that a replay of this call will be available on Camtek's website at www.camtek.co.il beginning tomorrow. Mr. Amit, would you like to make your concluding statement?
Yes, I would like to thank you for your continued interest in our business. I look forward to talking with you again next
This concludes the Camtek First Quarter 2018 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.