Camtek Ltd 2026 Q2 Earnings Call

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 am part of the investor relations team at Camtek. All participants other than the presenters are currently muted. Following the formal presentation, I will provide some instructions for participating in the live question and answer session. 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 would 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 20-F. 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. Now I would 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 result and even more excited about the exceptional momentum we are seeing across our business. More importantly, the expectation we share 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 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 at $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 silicon photonics 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 2026 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. In the 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 HBM4, 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 multi-system 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 multi-system 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-$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. Examples 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, MicroProf, 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 am also pleased to report that we are successfully managing the operational challenges created by this unprecedented 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, compute 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 hundreds of system installed at the world's leading customer, and we work closely with them to develop inspection and metrology solutions tailored to their evolving technology requirements. Our product development roadmap is closely aligned with the technology roadmaps of these industry leaders. This strong customer engagement, combined with our expanding products portfolio and proven execution, giving us great confidence in our ability to deliver sustained growth in the year ahead. Moshe will review the financial result.

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 is 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. 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 previous quarter. The main reason was devaluation of certain balance sheet items due to the weakness of the US dollars 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. Turning 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 30th, 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.