Camtek Ltd. (CAMT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtek's result Zoom webinar. My name is Kenny Green, and I'm part of the Investor Relations team at Camtek. [Operator Instructions] I would like to remind everyone that this conference call is being recorded and the recording will be available from the link in the earnings press release and on Camtek's website from tomorrow. You should have all received by now the company's press release. If not, please view it on the company's website. With me today on the call, we have Mr. Rafi Amit, CEO; Mr. Moshe Eisenberg, CFO; and Mr. Ramy Langer, COO. Before we begin, I'd like to remind you that the statements made by management on this call will contain forward-looking statements within the meaning of the federal securities laws. Those statements are subject to a range of changes, risks and uncertainties that can cause actual results to vary materially. For more information regarding the risk factors that may impact Camtek's results please review Camtek's earnings release and SEC filings and specifically the forward-looking statements and risk factors identified in the results press release issued earlier today and such other factors discussed in Camtek's most recent annual report on SEC Form 20F. Camtek does not undertake the obligation to update these forward-looking statements in light of new information or future events. Today's discussion of the financial results will be presented on a non-GAAP financial basis unless otherwise specified. As a reminder, a detailed reconciliation between GAAP and non-GAAP financial results can be found in today's earnings release. And now I'd like to hand the call over to Mr. Rafi Amit, Camtek's CEO. Rafi, please go ahead.

Hello, everyone. I am delighted with our second quarter results and even more excited about the exceptional momentum we are seeing across our business. More importantly, the expectation we shared with you on our previous call regarding the second half of 2026 and our leadership position in the advanced packaging market are now becoming a reality, as you will hear through today's call. But first things first, let's begin with our second quarter financial results. Second quarter revenue reached a record of $133 million, exceeding our guidance. Gross margin was 51.4% and operating income totaled $36 million. Approximately 75% of our revenue was generated from the Advanced Packaging segment, with the majority supporting AI-related applications. The remaining revenue was generated across a diverse range of 2D inspection application, including photonic and various 2D inspection applications. Now let me return to the point I made at the beginning of the call. Earlier this year, we communicated that we expected the second half of 2026 to be significantly stronger than the first half. That expectation has materialized. Since the beginning of the year, we have experienced a significant acceleration in order intake, bringing total orders received year-to-date to more than $600 million with deliveries scheduled through the remainder of 2026 and into 2027. This exceptional level of order intake has significantly improved our business visibility for the remainder of 2026 and well into 2027, giving us increased confidence in our outlook. Our leading position in the Advanced Packaging market is expected to drive approximately 45% growth in our Advanced Packaging business in the second half of 20 compared with the first half. Looking at the year from another perspective, we expect our advanced packaging revenue in the fourth quarter to be approximately 70% higher than the first quarter, reflecting the strong acceleration in demand. [indiscernible] second quarter, approximately 50% of our systems revenue were generated by the new generation platform, the Eagle G5 and the Hawk. We expect the contribution from these products to continue increasing over the coming quarters as customer adoption accelerated. Let me provide some additional color on the more than $600 million orders we have received since the beginning of the year. Approximately 80% of these orders are Advanced Packaging applications. The industry transition to HBM 4 together with continued capacity expansion has resulted in significant order from multiple leading HBM manufacturers. In parallel, the ongoing expansion of 2.5D and 3D IC packaging capacity is creating a substantial growth opportunity for Camtek, as reflected by the large multisystem orders we have already received from leading foundries, IDMs and OSATs. Notably, OSATs accounted for more than 50% of our total order intake. Another existing market emerging as a meaningful growth opportunity for Camtek is photonics, including silicon photonics and compound semiconductor. We have already received multisystem orders from several customers in this market, and we expect Photonics to become an incredibly important contributor to our growth in the coming years. This brings me to our outlook. We expect third quarter revenue to be in the range of $158 million to $160 million, representing an exceptional 20% sequential increase over the second quarter. Given our strong order momentum and record backlog, we expect to deliver more than 30% growth in H2 2026 versus H1 2026, followed by continued growth into 2027. It is also important to highlight that we are continuing to expand our core product portfolio with new platform configuration and application-specific module that will enable us to address additional applications and markets where we have not previously competed. Example, including a high-resolution backside inspection, module and fluorescence illumination technology for detecting organic residue. In the metrology space, we are also launching a new platform, NanoProf, which will significantly expand our metrology capabilities and enable us to address with existing and emerging process step. The Hawk, combined with its enhanced optical capabilities, and our breakthrough AI technology is further strengthening our competitive position and enabling us to penetrate additional process steps. -- including hybrid bonding as well as other fast-growing emerging applications. We look forward to discuss this development in greater detail at our investor breakfast in October at Semicon West. I'm also pleased to report that we are successfully managing the operational challenges created by this 100% level of demand. We prepare well in advance by expanding our production capacity and strengthening our supply chain, enabling us to meet customer delivery schedule while supporting our continued growth. At the same time, we are preparing the organization for the next stage of growth by further expanding our manufacturing capacity, system integration capabilities, sales organization and customer support infrastructure to support substantially higher annual revenue level. Let me conclude by summarizing our key messages. The AI revolution is driving unprecedented demand for data center, cut capacity and power infrastructure with AI adoption still in its early stage. We believe demand for AI compute infrastructure will continue to grow significantly, supporting sustained investment in AI data center and advanced semiconductor manufacturing. Camtek is exceptionally well positioned to benefit from the expected growth over the coming years. We have 100 of system installed at the world's leading customer, and we work closely with them to develop inspection and metrology solutions tailor to their evolving technology requirements. Our product development road map is closely aligned with the technology road maps of these industry leaders. This strong customer engagement combined with our expanding product portfolio and proven execution giving us great confidence in our ability to deliver sustained growth in the year ahead. And now Moshe will review the financial results. Moshe?

Thanks, Rafi. 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 appear in the table at the end of the press release issued earlier today. Second quarter revenues came in at a record level of $133.2 million, an 8% increase year-on-year and 10% compared with the first quarter of 2026. The geographic revenue split for the quarter was as follows. Asia accounted for 92% and the rest of the world, 8%. Gross profit for the quarter was $68.5 million. The gross margin for the quarter was 51.4%, similar to the previous quarter. Operating expenses in the quarter were $32.5 million compared to $30.9 million in the previous quarter. The main area which has increased its R&D. This is around the investment in new technologies and additional resources from the visual layer acquisition in order to strengthen our AI offering. Our operating profit in the quarter was $36 million compared to $31.1 million in the first quarter. Operating margin was 27% compared to 25.5%. In line with our forecast for a strong second half the leverage we have in the model together with the improved product mix towards the Eagle Gen 5 and the Hawk is expected to result in a gradual improvement across all profitability metrics in the next few quarters. Financial income for the quarter was $7 million compared to $8.1 million in the first -- in the previous quarter. The main reason was devaluation of certain balance sheet items due to the weakness of the U.S. dollar versus the Israeli shekel. Net income for the second quarter of 2026 was $39.4 million or $0.78 per diluted share. This is compared to a net income of $35.5 million or $0.70 per share in the previous quarter. Total diluted number of shares as of the end of the second quarter was 51.5 million. To some high-level balance sheet and cash flow metrics. Cash and cash equivalents, including short- and long-term deposits and marketable securities as of June 30, 2026, were $815.8 million. We generated $12.2 million in cash from operations in the quarter. As a result of the increased business volume, accounts receivables increased to $153.9 million compared to $131.7 million in the previous quarter. DSO increased to 105 days. No change to the inventory level this quarter. However, we do expect it to grow in the coming quarters to support the forecasted strong growth in revenues. As Rafi said before, we expect revenues of $158 million to $160 million in the third quarter with sequential double-digit growth in Q4 and further growth into 2027. This represents over 30% second half 2026 growth versus the first half. Before we open the call for questions, I would like to announce that Camtek will be hosting an investor and analyst breakfast presentation at Semicon West. It will take place on Wednesday, October 14, 2026, at 7:00 a.m. Camtek's management will present our market outlook strategy and technology road map. A formal invitation with additional details will follow, and we look forward to seeing you many of you there. And with that, Rafi, Ramy and I will be open to take your questions. Kenny?

[Operator Instructions] Our first question will be from Brian Chin of Stifel.

Congratulations on the good results and outlook. Maybe first, just to clarify some statements you made. Like you said that and also in the release that -- you'll see 70% -- do you expect 70% growth in AP, Advanced Packaging, over Q4 this year over Q1 this year. And so if I kind of run that math, do you expect AP, or Advanced Packaging, could be, again, kind of 75% of total revenue in Q4, similar to how it was in Q2? And then can I use that to sort of imply what your 4Q revenue will be?

So let me try and clarify the question. So first of all, yes, we do see a gradual increase of our Advanced Packaging business compared to other businesses that we have. So we expect that at the end of this year, we will probably 80% of our revenues will go towards Advanced Packaging. And yes, you are correct. When the revenues, the Advanced Packaging revenues in the first quarter compared to the fourth quarter, we expect growth of 70%.

Okay. That's helpful. I can place the math based on that. And then just kind of more broadly, obviously, 70% very steep ramp going through the year. So from a supply chain and manufacturing standpoint, can you maybe break down what's enabling the company to match and keep pace with the strong demand growth. Are you tapping into some of that manufacturing capacity that you've spoken about in Europe? And also kind of lastly, do you think any customers, even though all the bookings from here on out, it sounds like they might be more '27 versus '26. Do you think any customers will want delivery sooner than '27? And do you think you could fulfill any of that upside?

So first of all, let's talk about our capacity. So we've done a lot of work, and I've roughly discussed it in the opening statements and we are well ready to ramp the business, we have all the subcontractors and supply chain in place, and we are very confident about our ability to ship the machines on time and we don't see any issues or obstacles when we discuss capacity. Regarding the order inflows, then it's really customer dependent. We are still seeing some orders from '26, yes, but there are very few. Most of the orders that we are getting today and will be getting in the second half of the year will be for '27.

Thinking of -- Brian, maybe one point from my end, it's important to mention that with respect to 2027, we are building a nice backlog already. And obviously, the visibility has significantly improved in the last few months.

Great. Maybe just one last kind of taking back off, and I'll hop off. But -- you alluded again reiterated that Hawk and probably Eagle Gen 5, both will be significantly higher in the mix, at least 50% of revenue now into the second half. In terms of that 30% plus second half sequential, how much -- how would you break that down in terms of ASP? Because how Hawk obviously has a much higher ASP versus volume.

It's very hard. We didn't do the math before the meeting. So it's hard to give you an accurate answer. But definitely, there is going to be an improvement in ASPs as we go along.

Our next question will be from Matt Prisco of Cantor.

Yes. I guess to start looking into 2027, you're talking about this increasing visibility, obviously, very strong orders. So how do we think about that visibility today? Where can you actually see into? And how do you think about growth into 2027? I think you're going to exit the year at a quarterly plus 35%, 40% year-over-year growth. So is something like that's sustainable into and through next year?

Well, first of all, I think it's a very good sign that at this stage of the year, in the -- really in the beginning of the second quarter, we already have visibility into 2027. All in all, we're talking to customers. Our customers are planning increased capacity in 2027. They are very optimistic about 2027. It's too early in the game to say today what will be the forecast, what we expect in '27. But definitely, we're into a good start. The fact if we see increased growth into 2027, that's definitely a good sign at the time that we are talking about it.

That's helpful. And then maybe updated thoughts on China dynamics and how to think about revenue trajectory there, growth potential through this year, maybe set up into next year. And thoughts on the competitive environment.

Look, our China business has been, I would say, stable over the last few couple of years. And in general, China is continuing to invest in semiconductors. We expect the business there to continue to be strong. Definitely, it's good opportunities there. And I think this is more or less what I can comment at this stage.

Our next question is from Jim Schneider of Goldman Sachs.

I was wondering if you could maybe comment on the DRAM and HBM exposure you see specifically heading into the back half of this year and into 2027 as you mentioned, there's many of your customers who are expanding capacity. Can you maybe talk about the profile of that relative to the rest of your Advanced Packaging business and specifically comment on your exposure to some of the China-based players in the market, such as CXMT?

So all in all, we spoke about $600 million in order. So let me try to draw some color there, and then we can talk about the HBM business. So we said 80% for Advanced Packaging. I think this indicates the strength of our business in the Advanced Packaging space. And with that, OSAT is a very strong business. Over 50% of the business goes to OSAT. A lot of them are doing Advanced Packaging. As we talk about the HBM, we spoke about the strength of our business already in the previous call when we discussed the $260 million of POs and forecast that we had. Out of the $600 million, over 20% is from HBM players. And we do have additional strong forecasts into 2027 in this segment. Now of course, we cannot talk about main customers. This is something that we are not allowed to speak about.

That's helpful. And then could you maybe talk a little bit about the OpEx trend you expect over the coming quarters? You clearly had the visual layer acquisition impacting things. So maybe talk about given -- if you see, for example, strong sales growth into 2027 at X percent, what fraction of that sales growth would fall through to the bottom line or what fracture or what increase in OpEx you would expect?

Jim, this is Moshe. We definitely plan to see some increase in our OpEx level, but not to the extent that it will exceed the revenue growth. So the leverage that we have in the model will play a major role in the improved profitability in the next few quarters ahead, and we definitely plan to improve both the gross margin, but even more the operating margin levels. Now maybe just to give you some color, most of the growth that we are going to see in the OpEx will be on the R&D level with the acquisition of visuals edge a few hundreds of thousands of dollars to the R&D. And we plan to continue to invest in R&D, that's for sure.

Our next question will be from the Vedvati Shrotre from Evercore.

The first one I have is on the silicon photonics business and opportunity, could you talk about how big of a revenue opportunity this could be? And what kind of applications are you getting involved in with silicon photonics?

So we -- if you look at the $600 million orders that we talked about, 5% is photonics. So it's a nice number to start. And this is really a market that's just taking off now. So definitely, there is a potential there. And I think we will get more orders to this specific market as we go on this year. So I think '27 will be more than the 5% I just mentioned. When we talk about the applications, so basically, there are 2, and Rafi spoke about it, there are basically 2, I would say, main segments when you talk about photonics. Obviously, the silicon photonics. And this is, I would say, it's an area that we already sold quite a few machines into and we are selling, and this is part of the 5% we discussed. And then there is the compound semi. When we talked actually about the diodes, the -- there are all kind of diodes that are being used for the transceivers and receivers or at a different segment -- in, I would say, the characterization of these applications are different. But that's, I would say, the main 2 segments that we are seeing today in this specific market.

Understood. And also for my second question, of the $600 million orders, could you provide any color on how this splits '27 versus '26. And what I'm really trying to ask, do you see revenue accelerate in second half -- sorry, the first half 2017 versus second half?

What we can see today, and it is really early in the game. We definitely see growth into -- business continuing to grow into 2027, but really this is really initial we will need more time as we continue the year. It's definitely a strong start for '27. And as I said, for one of my previous questions is we are talking to customers. We are all talking about increasing capacity in 2027. So the signal is very positive from the market. We still need time to really digest this information and really build it into a full picture. This will take at least one more quarter to 2 quarters until we'll have the full picture of '27.

Our next question is from Dennis Pichana from Needham.

Maybe we can start on your non-advanced packaging business. Could you give us an update on what you're seeing into the end of 2026 and maybe into early 2027?

On what -- on the non-AP?

Yes, not non-AP.

So the non-AP, I think, first of all, I think the Photonics is a good signal of the new market that we're seeing. I would say the business is stable. I would say even I can say with certain, I would say, small growth. But definitely, there are opportunities. There -- and we'll need to -- we'll see as things go by. We have some orders for CMOS image sense orders that are significant. There are some signs there of some recovery, I would say, in the stable business, the consumer business that is not really very strong today. You're seeing there, I would say, it is stable, but there are good signs for '27 that will see some growth on specific areas.

And then my follow-up, maybe we can talk about the profitability metrics you discussed. So I think you said that they would be improving in the next few quarters. Could you provide some more details on how these will be achieved and perhaps quantify them as possible?

So with respect to the gross margin, we are exiting Q2 with 51.4%. We certainly hope that we will get anywhere between 55% to 53% exiting the year. And with respect to the operating margin, we are looking into an operating margin of between 30% to 32% at the end of this year.