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Ladies and gentlemen, thank you for standing by. Welcome to Camtek's First Quarter 2019 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 [Operator Instructions]. As a reminder, this conference is being recorded.
You should have all by now received 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 news section of the company's website www.camtek.co.in.
I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin?
Thank you, Operator. Good day to all of you. I'd like to welcome all of you to Camtek's first quarter 2019 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, Camtek's COO. Rafi will provide an overview of Camtek's results and discuss market trends. Moshe will then summarize the financial results for the quarter. We will then open the call to take your questions.
Before we begin, I would 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, changes in expectation or otherwise.
Investors are reminded that the 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 the industry and price reductions, 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 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, 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 core operations and prospects for the future. A full reconciliation of non-GAAP to 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. Good morning. And thank you for joining our call today. I am very proud of the performance we demonstrated in the first quarter. And this is especially in light of the unclear environment in the semiconductor industry. Furthermore, we expect to a slightly better level of revenue in the second quarter. The company showed record revenue in the first quarter of $34 million, up 25% over Q1 of 2018. We also demonstrated significant improvement in our profitability parameters and reported over 50% gross margin and $7.3 million operating profit.
Camtek is primarily active in the mid-end market and specifically in the advanced packaging segment. This market is characterized by adopting of new advanced packaging technologies such as 3D IC, Fan-Out 2.5D and 3D. These new technologies improve the performance of the devices and the end user products. Inspection and metrology equipment is a key factor in adopting new technologies and achieving high yield and stability in production. Therefore, we believe that our Tier 1 customers will continue to increase their capacity for these new technologies.
There are several reasons for the continued growth in our business. Some of our customers continue to increase their capacity. We recently received order from customers increasing their capacity in 2D inspection and 3D metrology. The transition of the DRAM to advanced packaging is ongoing. As we recently announced, we received two significant orders from a DRAM market leader, totaling approximately $15 million. The system will be used for 2D inspection and for 3D metrology of 3D IC, which requires high accuracy and throughput. The Chinese market is continuing to increase capacity. We recently received an order from a tier one customer in China for multiple machines for 2D applications. These machines will be used for capacity expansion at this customer. We expect this region to continue growing in the second half of 2019.
We continue to expand our position in the front-end macro inspection segment and have received orders from new customers.
Some of our customers are adopting new technologies. One of our tier one customers has adopted new Fan-Out technology and placed order for multiple machines for 2D inspection and 3D metrology. Most of these systems are expected to be installed in the first half of this year. Moving forward, in our revenue guidance for Q2 2019, we expect even a slightly better level of revenue in the second quarter over the revenue of the first quarter of 2019.
Regarding our view on the 2D on the second half of the 2019, we are aware of the general sentiment of uncertainty in the semiconductor environment but we see also several positive indications in our specific market. To our knowledge, most of our customers have not changed their purchases plan for our products and intend to continue purchasing equipment in the second half of this year. As I mentioned earlier, we expect our Chinese customer will continue to increase capacity in the second half of 2019. We expect a continued expansion in the CMOS Image Sensors segment. We see beginning of the activities in the 5G market. The order we received recently together with the positive indication I mentioned earlier, give us a sense of optimism. Yet, we cannot ignore the atmosphere in the semiconductor market so we are monitoring our activities very carefully.
Regarding the agreement with Chroma. In February, we announced a definitive agreement with this leading Taiwanese company, the transaction is expected to close by the end of the second quarter of 2019, subject to the approval of the Camtek shareholder, as well as approval by certain regulatory bodies. At this point, we are on track to fulfill these closing conditions. In summary, I am very pleased with what Camteck has achieved with ongoing growth in revenue, high margin in line with our long-term model, strong profitability and cash flow.
With that, I would like to hand over to Moshe for more detailed financial discussion of the financial results. Moshe?
Thanks, Rafi. Camtek showed impressive results in the first quarter, in line with our guidance. And as Rafi mentioned, we were able to deliver much of the incremental growth down to the bottom line with operating margin up 73% year-over-year. This growth in the quarter demonstrates the operating leverage inherent in our business model, meaning that we have the capacity to grow revenues without adding significantly to our operating expense footprint. In my financial summary ahead, I will provide the results on a non-GAAP basis. The reconciliation between the GAAP results and non-GAAP results appear in the table at the end of the press release issued earlier today.
First quarter revenues came at $34 million, up to 25% year-over-year. The results were driven by demand across all segments and application with 85% of sales from Asia. Gross margin for the quarter was 50.6% versus 48.5% in the first quarter of last year. The improvement in gross margin was mainly a function of the product and sales mix delivered, as well as the leverage we have in our financial model. I note that this quarter gross margin was on the higher end of our range. We see the margin remaining around the 50% level in future quarters. Longer term, as we grow our revenues, we expect that our margins would continue to show steady improvement.
Operating expenses in the quarter were $9.9 million, which is compared with $9 million in the first quarter of last year and similar to the $10 million reported in the previous quarter. Operating profit in the quarter was $7.3 million, an increase of 174% over the $4.2 million reported in the first quarter of last year. Operating margin was 21.5%, a strong improvement versus 15.4% in the first quarter last year, mostly due to the higher gross margins. Net income for the first quarter of 2019 was $6.7 million, or $0.18 per diluted share. This is compared to a net income of $4.2 million or $0.11 per share in the first quarter of last year.
Turning to some high level balance sheet and cash flow metrics. Due to a strong collection in the quarter, we managed to have used account receivable by over $6 million. We generated $6.3 million in cash from operations, and ended the quarter with cash and cash equivalents of $61 million compared with $54.9 million at the end of 2018. In terms of guidance, we expect second quarter revenues to be slightly above of those in the first quarter.
And with that, Rafi, Ramy and myself will be open to take your questions. Operator?
Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session [Operator Instructions]. The first question is from Craig Ellis of B. Riley FBR. Please go ahead.
Yes, thank you very much for taking the question. And congratulations team on the very strong growth in the business and the improvement in profitability over the last year. The first question I had is a follow up, Rafi, to some of your prepared remarks. You had commented on having some visibility into second half growth, and I think you pointed to China CMOS image sensors in 5G. Regarding those comments, one, can you help us understand more specifically where you're engaged in 5G? And then a broader question with regard to second half visibility. Where would you say it's the greatest and most significant and where might you have at the other end of the continuum any concerns about the second half?
I think we already mentioned in our script all the positive indication we see and we've seen all the last few weeks. And as I mentioned, it's also supported by the continued orders. But in general, as we mentioned, we feel almost in the same application that we are involved in with still continue the DRAM 3D IC in the memory. We get order form the CMOS image sensor. And when we mentioned about the beginning of 5G, as I mentioned, it's the beginning. And we think and see some companies that are starting to look for machine we have some discussions with them about the 5G. And we believe that we start to see some order coming in the 5G in the second quarter. So actually all of the area that CMOS, the memory, the RF, are showing some positive signals and we believe we will see other very soon.
And then the follow-up question regarding prepared remarks is on front end macro inspection. I think you indicated that you are engaged now with some new customers. Can you talk a little bit more about how your customer diversification is panning out? And what that means for future revenues in that part of the business?
I think, it's very difficult to predict but as you know, we already announced on a major customer that we started penetration for this segment. And I think now we see other two customers that also are interested that they placed order. And definitely, when we get such an order we get more experience. We believe we continue to expand our market. We cannot mention specific number at this point but I think that it's a very positive trend for us.
And then lastly, Moshe, just a housekeeping item. As you noted, operating expense was flattish in the quarter, but that was still about 400,000 better than what we had expected. Were there any timing or other benefits in the quarter, or is that just good OpEx control by the team? Thank you.
No, Craig. This is just a good control of OpEx levels. We don't expect a major change in the following quarter. I think as I mentioned before, it's very, very similar to what we have reported last quarter. So I think we are happy with the current level of operating expenses that supported the growth and at the same time, enable us to show better profitability.
The next question is from Gus Richard of Northland Securities. Please go ahead.
In terms of the capacity expansion you're seeing in memory. Is that a function of more high bandwidth memory, or is there more capacity needed when you transition from high bandwidth memory one to high bandwidth memory two?
If you look at the DRAM, in general and if you look at the numbers, there is some growth in capacity that people are still building new fabs. And there is -- this is ongoing, they're not stopping. On the other side, a lot of the capacity that is being built today is built for advanced packaging. So obviously, the use of the high bandwidth -- HBM memory is trying to consume a lot of this capacity, it's the VGA card that are becoming more and more popular with this memory. And I'm seeing more and more applications that you're using advanced packaging. So as we see a trend all the major manufacturers of DRAM are starting to adopt advanced package. And I think this will continue as we move along.
And then in terms of your initial 5G engagements with customers, is that for Fan-Out packaging or general packaging?
Gus, I want to be very careful with customer information. What I can tell you is that our engagement is with customers that are doing devices for 5G. I would like to end my comment at this.
But now it is for advanced packaging, or is it for front end wafer inspection. Can you give just a little bit more color on…
I can say that there are applications of advanced packaging and there are, I would say general RF applications.
And then finally on CMOS Image Sensors that demand. Do you see more capacity coming online in the second half to support new programs? And that that's one of the strengths in 2H?
We're definitely seeing. We've seen it in the first half and we expect it to certain level to continue in the second half. There is definitely growth in the CMOS Image Sensors segment. And this is due to the fact that all the new cell phones are coming with more and more cameras. So you're seeing today phones with up to five cameras. Definitely even without the cell phone numbers increasing, definitely there is a phenomenal growth in the CMOS image sensors. Now not only that, there are more cameras going into cars and other applications. So overall, this segment continues to be healthy.
The next question is from Quinn Bolton, Needham & Company. Please go ahead.
Rafi and Moshe, congratulations on the nice operating margin expansion, I wanted to check on back clarification on the China business. I believe you said that was 3D IC driven. And just wanted to confirm that that's for an international rather than a domestic memory supplier?
In general, the China business is not a limited to just one application. The China business is based on very many -- quite a few customers and across all the different applications. We see in metrology applications and there is some expansion of DRAM, obviously, as you mentioned, which is well known. But there are many new customers, many startup companies that are building the business, buying one or two machines and definitely these customers are the basis for future growth. So China is diversified from location point of view and from applications point of view. And definitely as we look forward, there is going to be a lot of growth in this region.
And then a second follow-up question for, Moshe. As you look into the second half, it sounds like you're expecting continued strength in CMOS Image Sensor, watching the memory side of the business pretty closely. Are there any mix shifts that we should be aware of as we're thinking about the second half that that could impact gross margin, either up or down as various parts of the business grow faster than others?
At this point, we don't see any major deviations from the current mix. So I expect altogether gross margin to stay at around 50%, could go 50 basis points up or down. But I don't see any major or significant change on that.
[Operator Instructions] 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, www.camtek.co.il beginning tomorrow. Mr. Amit, would like to make your concluding statements?
Okay, tremendous performance in 2018 so far and we look forward to continuing. To 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 Camtek's first quarter 2019 results conference call. Thank you for your participation. You may go ahead and disconnect.