Prepared remarks
Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtek's results Zoom webinar. My name is Kenny Green, and I'm part of the Investor Relations team at Camtek. Operator provided instructions on how to ask questions. 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 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. 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 is 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 applications, including 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 was generated by the new generation platforms, the Eagle G5 and the Hawk. We expect the contribution from these products to continue increasing over the coming quarters as customer adoption accelerates. 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 orders 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 configurations and application-specific modules that will enable us to address additional applications and markets where we have not previously competed. Examples include 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 existing and emerging process steps. 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 discussing these developments 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 unprecedented level of demand. We prepared well in advance by expanding our production capacity and strengthening our supply chain, enabling us to meet customer delivery schedules 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 levels. 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 systems installed at the world's leading customers, 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 product portfolio and proven execution, gives 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 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. 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 Gen5 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 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. 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 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 receivable 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 investors 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 roadmap. A formal invitation with additional details will follow, and we look forward to seeing many of you there. And with that, Rafi, Ramy and I will be open to take your questions.
Our first question will be from Brian Chin of Stifel.
Questions and answers
Great. Congratulations on the good results and outlook. Maybe first, just to clarify some statements you made. You said in the release that you expect 70% growth in Advanced Packaging in Q4 compared with Q1 of this year. If I run that math, do you expect Advanced Packaging could be about 75% of total revenue in Q4, similar to Q2? And can I use that to imply what your Q4 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 have 80% of our revenues going towards Advanced Packaging. And yes, you are correct, the Advanced Packaging revenues in the first quarter compared to the fourth quarter, we expect growth of 70%.
Okay. That's helpful. I can do the math based on that. More broadly, with a very steep 70% ramp through the year, from a supply chain and manufacturing standpoint, can you break down what's enabling the company to match and keep pace with the strong demand growth? Are you tapping into some of the manufacturing capacity you've mentioned in Europe? Finally, although it sounds like bookings from here on out may be more for 2027 versus 2026, do you think any customers will want delivery sooner than 2027, and could you fulfill any of that upside?
So first of all, let's talk about our capacity. We've done a lot of work, and like Rafi discussed in the opening statements, 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, it's really customer dependent. We are still seeing some orders for 2026, 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 2027.
And I think, 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 one last quick follow-up and then I'll drop off. You mentioned again that Hawk and likely Eagle Gen5 will be a much larger portion of the mix, at least 50% of revenue in the second half. Regarding that more than 30% sequential increase in the second half, how would you break that down in terms of ASP versus volume? Hawk clearly has a much higher ASP compared with 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.
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 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, really at 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 do we expect in 2027. But definitely, we're off to a good start. The fact that we see increased growth into 2027 is 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 couple of years. And in general, China is continuing to invest in semiconductors. We expect the business there to continue to be strong. Definitely, there are 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 orders. 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 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 names of 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 increase in OpEx you would expect?
Okay 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 OpEx will be on the R&D level with the acquisition of Visual Layer. This adds a few hundreds of thousands of dollars to R&D. And we plan to continue to invest in R&D, that's for sure.
Our next question will be from 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?
This is Ramy. So 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 in this specific market as we go on this year. So I think 2027 will be more than the 5% I just mentioned. When we talk about the applications, so basically, there are two, and Rafi spoke about it: there are basically two main segments when you talk about photonics. Obviously, silicon photonics. This is 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 compound semiconductor. When we talk actually about the diodes, there are all kinds of diodes that are being used for the transceivers and receivers. That's a different segment; the characterization of these applications is different. But those are the two main segments that we are seeing today in this specific market.
Understood. And for my second question, of the $600 million orders, could you provide any color on how this splits 2027 versus 2026? What I'm really trying to ask is, do you see revenue accelerate in the first half of 2027 versus the second half of 2026?
What we can see today, and it is really early in the game: we definitely see growth continuing into 2027, but really this is initial. We will need more time as we continue the year. It's definitely a strong start for 2027. As I said earlier, 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 build it into a full picture. This will take at least one more quarter to two quarters until we'll have the full picture of 2027.
Our next question is from Denis Pyatchanin 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 the non-AP business: first of all, I think photonics is a good signal of a new market that we're seeing. I would say the business is stable. I would even say there is small growth. But definitely, there are opportunities and we'll see how things go. We have some orders for CMOS image sensors that are significant. There are some signs there of some recovery in the consumer business, which is not very strong today. I would say it is stable, but there are good signs for 2027 that we'll see some growth in specific areas.
And then for 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 if possible?
So with respect to gross margin, we are exiting Q2 at 51.4%. We certainly hope that we will get anywhere between 52.5% to 53% exiting the year. And with respect to operating margin, we are looking into an operating margin of between 30% to 32% at the end of this year.
Our next question will be from Michael Mani from Bank of America.
Yes, I wanted to start on the OSAT business. If you look at the overall CapEx trends for the back-end market, I think they're growing something like 45% to 50% this year. Some of your customers in that segment are expanding CapEx even faster. So first, how should we compare your growth in the OSAT opportunity this year and even potentially the next year relative to those very strong CapEx trends we're seeing? And second, related to OSATs, it seems like a lot of your competitors have been more vocal about some of the progress that they're making there this year, especially as that market moves to more sophisticated architectures and capabilities. Could you talk about the competitive landscape and how you see that evolving as competition intensifies?
Michael, first of all, obviously, we are hearing what our competitors are saying. We are aware of where they are and the applications that they are doing. Let me start from the basics: we have a dominant position in the OSAT market, something that we've had for quite a few years, with very good relationships. When we talk about OSAT, this is the growth of 2.5D IC and 3D IC manufacturing and all the other applications we have been discussing. Definitely, this provides us with a very good opportunity for further growth. Fifty percent of our business goes to OSATs. This is also reflected in the $600 million orders that we have received so far. So we feel very comfortable that with the increase of CapEx by the OSATs, we will have very strong intake of orders, and we're actually in discussions with some of our customers for additional orders for 2027. So our position is strong and we are very competitive there.
And just for my follow-up, I wanted to ask on the progress you're seeing in some of your newer systems. So it seems like relative to maybe a couple of quarters ago, a higher mix of the business is going towards Hawk and some of these other newer systems this year. It seems like they're doing better than expected. So could you break down where that traction — incremental traction — is coming from, from like an applications perspective or customers or end markets versus the beginning of the year, where are you seeing more progress with these new tools than you expected?
Yes, we have invested a lot in R&D for our new products, the Hawk and the Eagle G5. Their performance is superior, and we are confident that we can continue to take market share and go to new process steps with this equipment. For the Hawk, it is targeted at high-volume applications. HBM is a very good example where we are selling more and more Hawks. It targets high-end applications that will be required in one or two years. When we talk about the Eagle G5, it's not only better profitability, but the performance of the machine in resolution and optics, throughput and cost of ownership is better. We're seeing many customers that have been buying Eagle systems wanting to stay with Eagle but switching to Gen5 for better cost of ownership and the ability to address future applications. So we are very confident with both products.
Our next question will be from Shane Brett of Morgan Stanley.
So if I assume HPC was 55% of your revenue in Q2, I think your guidance implies Advanced Packaging revenue grows 30% this year and HPC closer to 40%. Just within HPC, is there one end market that has been growing higher than the 40%? And do you have any early expectations on HBM versus other end markets next year?
Shane, let me try and give some insights. First, yes, over 50% of our business — 55% plus — goes to HPC or AI-related products and another roughly 20% goes to conventional Advanced Packaging. Advanced Packaging will grow by about 70% this year, and the HPC area will probably grow faster and reach closer to 60% by the end of the year.
Got it. So for the full year, total Advanced Packaging revenue should grow kind of, give or take, 30% of which HPC should be growing 40% for calendar 2026?
So if you're referring to 2025 to 2026, we're talking anywhere between 35% to 45% between the Advanced Packaging and within Advanced Packaging, the AI-related business. Bear in mind that last year was a record year for Camtek, so we are starting off from a high bar.
Got it. And my question was kind of just within the HPC portion, is it HBM or sort of 2.5D logic that's driving the growth?
There are two aspects: one is HBM and the other is CoWoS and CoWoS-like applications. These are the two main segments for AI-related products.
Is there any color as to which one is growing faster this year?
No, both are growing at a similar pace. It depends on which customer is adding capacity and which is not. Both are expanding very fast.
Got it. Understood. And just for my follow-up, there's been a few questions on China, but China was 49% of revenue for you last year. Could you help us ballpark where it could be this year?
I would say that we expect the level of revenue from China to be anywhere around 45% this year, given that we see nice growth also from other areas. And I just want to reiterate the point about Advanced Packaging: the reason we compare Q4 to Q1 is to emphasize that it took a couple of quarters of lag until the growth came into our market. Now we see the growth coming to the full degree, and in the fourth quarter we expect to see 80% of our business coming from Advanced Packaging.
Our next question will be from Ed Yang of Oppenheimer.
The 45% half-on-half growth in Advanced Packaging, can you just qualitatively characterize whether that's market growth, share gain or just higher process control intensity?
Edward, I think it's both. We're gaining share in certain areas, and there is a lot of capacity being added to the market. Growth is coming from different applications: HBM, CoWoS and CoWoS-like, fan-out and fan-in. Overall the Advanced Packaging market is very strong and continues to be strong.
And also, just going back to this question on the outlook for 2027 and understand that you're still fine-tuning your forecast, but rough cuts: do you think Camtek's growth should track overall WFE? Or do you think that your Advanced Packaging and share gain should allow you to outgrow WFE?
Historically, we've tended to do better than WFE. What is happening this year is that our business lags, which makes it difficult to compare directly. But if you look a bit longer term, say from Q2 of this year to Q2 of next year, I believe we will be doing similar to or better than WFE.
Our next question will be from Gus Richard of Northland.
Just real quick, your book-to-bill in the first half is quite strong. And I'm just wondering if you could give a little bit of color on the shape of that booking. So did that happen in Q2 mostly? And is that momentum carrying into Q3?
I think this order flow started in the first quarter, and it's been steady ever since. It sometimes shifts by a couple of weeks, but overall it has been growing steadily.
Got it. And then just on the product side, you've talked about the NanoProf. Could you talk about what that product is for and just some description of what metrology steps it might cover?
The NanoProf is a very important product because we believe it will significantly increase our footprint in the metrology area. If you recall, three years ago we bought a company in Germany called FRT. We have been working with that company, developing new applications. One of the key highlights was to take their product and come out with a brand-new product that is also based on technologies developed in Camtek: much more stable, much faster with new capabilities we didn't have before. We completed this product and started to install it in the first quarter of this year at selected customers. Based on this new platform, we believe we will significantly increase revenues, win new applications and process steps. This will help us increase our footprint in Advanced Packaging. As you recall, it also covers wafer shape, bow and other topography measurements. There are a lot of wafer topography applications, and there are a few new applications that it's still not time to discuss.
Our next question is from Tom O'Malley of Barclays. Tom, are you there? Tom, are you able to join? Tom, we don't hear you. Okay. I think that brings us to the end of our Q&A. Rafi, if you have any closing statements, please go ahead.
Okay. I want to express my gratitude to all of you for your ongoing interest in our business. A special thanks goes to our employees and the management team for their outstanding performance and to our investors. I appreciate your long-term support. I look forward to seeing you in October at SEMICON West in San Francisco. Thank you, and goodbye.