Camtek Ltd Aktie

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 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 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 our 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.

Thanks, Kenny. Hello, everyone. I will open with a review of the quarterly financial results. First quarter revenue reached $121.7 million, slightly ahead of our guidance. The gross margin was 51% and operating income totaled $31 million. Approximately 50% of revenue was driven by AI-related products while an additional 20% came from other advanced packaging applications. The remaining revenue was generated across a broad range of applications with a mix similar to previous quarter.

We are excited to report that we have experienced an unprecedented start to the year in terms of incoming orders. This exceptional demand has significantly strengthened our confidence in the outlook of the remainder of 2026 and provides a strong foundation as we look ahead of 2027. To provide additional color, we have already received order and forecast from 2 HBM manufacturers for our 3D metrology and 2D inspection steps, representing expected revenue exceeding the amount of $260 million for 2026 and 2027.

On top of this opportunity, we continue to see significant incremental business from these 2 customers as well as from other HPC players later this year and into 2027, further reinforcing our growth outlook. We see a compelling opportunity in the OSAT domain which is currently undergoing a significant wave of investment in advanced packaging, particularly for AI-related capacity expansion. As the leading provider in this domain for both 2D inspection and 3D metrology, we expect to be a major beneficiary of this trend.

Based on our backlog and pipeline, our revenue guidance for the second quarter is between $129 million to $131 million. In accordance with our new incoming business I mentioned earlier, we can already say that we expect a surge in revenue in the second half of 2026 with over 25% higher revenues compared with the first half with a potential to see additional upside based on timing of orders and deliveries between Q4 2026 and early 2027.

Our goal has been and we have been highly successful in achieving it to maintain our leadership in market share in 3D metrology while continuing to gain additional share in the 2D inspection market. Our recent order wins clearly demonstrate the success of this objective and we are extremely proud of this achievement. Last year, we introduced 2 new systems, Eagle 5G (sic) [ G5 ] and Hawk, built on state-of-the-art technologies. These products are designed to support the industry's evolving road map in both inspection and metrology.

As the industry faces increasing complexity, tighter performance requirement, including sub-6 micro bump height metrology and inspection capability down to 100-nanometer along with growing demand for higher throughput, Camtek has continued to invest heavily in platform innovation, advanced AI-based algorithm and software capabilities. Market adoption of these 2 products has been especially strong. Together, they account for 30% of our revenue last year and we expect revenue from this platform to double in 2026.

Leveraging our dedicated AI expertise and strategic collaboration with Visual Layer, have developed cutting-edge capabilities in detection, metrology and classification. These 2 new capabilities are already delivering breakthrough performance, including significantly higher throughput, improved detection sensitivity, reduced false alarm and enhanced measurement accuracy, further strengthening our competitive edge. We have demonstrated these capabilities to strategic customers and received very enthusiastic feedback.

The innovation we have developed are expected to enable us to expand our 2D market share, win additional process steps across the manufacturing flow, including the front end. This is expected to significantly increase our total addressable market to over $2 billion in 2027. Over the coming months, we plan to complete integrating all this new AI feature into our system.

A few weeks ago, we announced the acquisition of Visual Layer. I am now happy to report that a couple of weeks ago, we have managed to close this transaction and have already started to fully integrate their technology and capabilities into Camtek products. I would like to provide additional color on the rationale behind this acquisition.

Over the past year, we collaborated with Visual Layer on an AI-focused project and integrated its technology into our products. The success of this partnership led us to acquire the company, enabling the full integration of its technology, AI research capabilities and engineering team into Camtek groundbreaking AI initiatives. Through Visual Layer, we plan to further expand our offering by developing a dedicated AI-based software product line.

To sum my script, in 2026 -- we entered 2026 with record order intake, significantly strengthening our confidence in strong outlook for both 2026 and 2027. Demand remained robust across AI, HBM and advanced packaging, while our continued investment in AI-based inspection and metrology is further reinforcing our technology leadership, expanding our market opportunity and positioning us as sustained growth.

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 appears in the table at the end of the press release issued earlier today.

First quarter revenues came in at $121.7 million, slightly above the first quarter of 2025. Gross profit for the quarter was $62 million. The gross margin for the quarter was 51%, similar to the previous quarter. I expect the gross margin to improve in the second half of the year, in line with our strong revenue forecast and the contribution of the Hawk and the Gen 5, which are expected to double in revenues versus last year.

Operating expenses in the quarter were $30.9 million compared to $24.4 million in the first quarter of last year and $28.7 million in the previous quarter. Operating profit in the quarter was $31.1 million compared to the $37.3 million reported in the first quarter of last year and $36.7 million in the fourth quarter. Operating expenses have been increasing mainly in the R&D and sales and marketing areas to support the expected strong growth in business volume. In addition, operating expenses went up due to the weaker U.S. dollar against the shekel. As a result, operating margin was 25.5% compared to 31.5% and 28.6%, respectively. We expect operating margin to return to around 30% level in the second half of the year.

Financial income for the quarter was $8.1 million compared to $5.4 million reported last year and $8.2 million in the previous quarter. Net income for the first quarter of 2026 was $35.3 million or $0.70 per diluted share. This is compared to a net income of $38.7 million or $0.79 per share in the first quarter of last year. Total diluted number of shares as of the end of the Q1 was $51.4 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 March 31, 2026, were $850 million at a similar level as of year-end. With respect to inventory, in the first -- in the last few months, we have been working to optimize the level of inventory to the point that it is now at $116.7 million. As we are heading into a strong growth period, we expect to see an increase from this level in the coming quarters.

Due to timing of collections, accounts receivables went up to $131.7 million compared with $90.8 million in the previous quarter, which resulted in a lower cash generation this quarter. As Rafi said before, we expect revenues of $129 million to $131 million in the second quarter.

And with that, Rafi, Ramy and I will be open to take your questions. Kenny?

[Operator Instructions] Our first question will be from Charles Shi of Needham.

Maybe the first one, I want to ask you about the Visual Layer acquisition. And when it comes to AI algorithm, there's obviously a decision between either make by yourself or buy it from somebody else. So the question is this, why the Camtek team decided to buy Visual Layer and why making this very specific acquisition now? I'm more asking about the timing of this. And I think you provided some color in the prepared remarks. I did hear that, but what unique capability does Visual Layer provide that previously Camtek in-house capability did not have. I want to ask you about this first.

So thank you for the question, Charles. So Visual Layer have been working with us, as Rafi noted in the prepared notes. And for over a year, we've been working with them. We know them actually longer. And they developed a very unique technology for annotation and acquisition -- and classification. And we started to work with them. We realized the technology is excellent and we started to implement it in our products.

In parallel, it's not only buy on the AI. We have a very large team here at Camtek that is working on the development of all the algorithm. So this is a know-how that we've been developing for the past few years. So really what you are seeing here is a combination of Visual Layer technology plus the capabilities that we have in-house. Together, I think this is a very good combination.

We have their guys, their researchers. They are building up our current team. So it's a win-win. It's technology, it's more researchers, more capabilities and the total ownership of their technology. This is the reason for the acquisition. And I think the -- moving forward, it will give us a lot of capabilities so we can really implement very fast our AI technology that we believe has a lot of advantages compared with our competitors.

I think you mentioned about maybe offering AI-based software to customers. I want to get some thoughts on what that means? And do you plan to offer software as a stand-alone product? Or it has to be attached to the Camtek inspection metrology hardware. Either way, when do you think software can start to generate some revenue stream that becomes reportable?

Okay. So first of all, I think what we mentioned, let me be very clear. We are going to introduce -- in the very next few months, we are going to introduce to our customers our AI capabilities in inspection and metrology. And as Rafi mentioned earlier, the capabilities of this technology is breakthrough, both in terms of throughput, in terms of accuracy, in terms of our ability to detect very small defects and achieve high level of measurements on our metrology side. These capabilities will be implemented in the very near future.

Our key customers have already been approached with and we have shown them the capabilities, and we received enthusiastic feedback from them. When shall we see this, it's too early to talk when we should see it as products and revenues. I do believe that we will see the contribution of revenues from these capabilities in the second half of this year.

I'm sorry, I would like to add a few sentence about it. As we mentioned in the script, in the notes, there are 2 stages. Number one, there are a lot of potential to add software package to customers that already use Camtek installed base. There are thousands of system installed base, many of them, we can give them a software package, including the AI capability, and it improves their performance. So this is what we can sell only software package to this customer. This is one income or additional income for software.

On top of that, on top of besides the Camtek software, this team Visual Layer have the experience for the industry. So giving some solution for the semiconductor industry. This will be the second phase. After, first of all, we complete the package for all the customers that use Camtek system.

Maybe a last question from me. Any updated thoughts on the China revenue growth this year? Previously, I believe you talked about it will be very strong in revenue dollars, but probably not going to repeat last year's very, very strong double-digit year-on-year growth this year. And the growth for the overall business this year seems to be more driven by the non-China market. Can you provide any updated thoughts there?

So Charles, in general, I agree with your comments. China continues to be in a positive trend and our business from there is healthy. But as you mentioned, the overall, the major contribution will come out of China and this is the situation. So I think your comment is correct.

Our next question is going to be from Brian Chin of Stifel.

Maybe firstly, on lead times with the amount of growth that you're seeing in the business and order pickup, where are they roughly for Eagle and for Hawk, respectively? And I guess, relative to that 25% half-on-half growth, and I think that would equate to something like 10% to 15% quarterly sequentials. Do you have a lot of flexibility to drive incremental growth in the current year? Or does some of that demand maybe have to shift into next year?

So thank you for the question. All in all, Brian, we have all the capabilities. And as we mentioned in the prepared notes, we have enough inventory and we are ramping the inventory in such a way that we will be able to respond to any number that comes. We talked about the forecast about the very important order of $260 million for '26 and '27 order and forecast. But definitely, this from supply chain capabilities, we have no issues. We feel very comfortable with our capabilities.

From lead times point of view, the Eagle, usually the lead times are around 3 months, and we've been doing it for quite a few years, and the system is built in such a way that we will be able to respond even if we get additional requirements from our customers. On the Hawk, our lead times are anywhere between 3 to 6 months. That's close enough. And again, there, we have enough flexibility to respond to any additional orders if they will come.

And of the $2 billion SAM that you discussed for 2027, for reference, what do you think your SAM was or will be this year? And can you maybe outline a few of the major new areas, applications or adjacencies you plan to address in '27?

So first of all, we said above $2 billion, and we think that the additional market available to us will be additional $0.5 billion. So if we're today anywhere between above $1.5 billion, $1.7 billion, we will go by about additional $0.5 billion. I think the main applications that we are seeing are primarily in inspection. Today, our inspection business is about 2/3 of our overall business. And no doubt, it's a market that we can still expand and we have targeted a number of applications starting from the back end line of the front end, compound semiconductors, CMOS image sensors, RF.

So there are quite a few applications where we can inspect at our current business. We've been doing it for a while, and we are very confident that in the next year, with the capabilities that we'll be introducing with our AI technology, definitely, we have an opportunity to leapfrog our capabilities in inspection, and that's the area that I believe we can grow our business.

Our next question will be from Michael Mani of Bank of America.

I was hoping you could talk more about the incremental 25% half-on-half growth you're seeing in the second half relative to 90 days ago or so. Where is that strength really coming from versus the HBM side, chiplet side or even on a product basis between Eagle or Hawk, like how is that kind of visibility and order strength change?

So thank you, Michael. Let me -- let me explain how I see the market. And in our experience, the segment of the advanced packaging, our segment tend to lag behind the front end by, I would say, 1 or 2 quarters. This you see to our experience both at the beginning of the cycle, at the end of the cycle. And I think what we are seeing today, we are seeing our market in general. Of course, the AI is the engine, is the fuel, what's fueling the entire industry and our business as well. So this -- if we were hesitant a quarter ago and a couple of quarters ago, exactly how '26 is going to look like, we are seeing and we talked about the order flow that is unprecedented to this time. And we definitely see the surge in the business in the second half and '27 beyond.

So yes, of course, the AI is in the middle of it, but we see our other businesses, our applications growing in parallel. It's a lot of 1s and 2s. It's the OSAT business, and it's across all the applications that we are seeing. So all in all, the market is starting to ramp. We are seeing it very clearly. We're seeing it in the different regions as well. It's not just for one specific region. So all in all, it's -- we are in a positive note. We are very excited about the growth that we will see in the second half. Actually, we'll start to see it already in the second quarter. And we expect that this growth will continue into '27.

Very clear. And for my follow-up, I just wanted to ask about the chiplet business. So your U.S. chiplet IDM customer seems to be on a better footing right now. And in particular, they're talking about strength in their advanced packaging franchise with potentially billions of sales in the pipeline, I think they mentioned. I know it was even just like a year or 1.5 years ago, the revenue from that particular customer was next to 0. But what is your visibility for that particular account look like over the next 2 years? And is your share position, which I know your chiplet business today is mainly your other customer in Taiwan, but is your share position there meaningfully different?

And if I could squeeze like one quick random related question. But are you seeing any strength from the photonics and optics trend we're seeing, right? Because I think there's some incremental hybrid bonding applications, too. Some of your peers have talked about an incremental inspection strength there. So if you could address that, too, that would be great.

Okay. So definitely, our position and the customer that you're referring, and I assume that I understand what you are talking about. So definitely there, our share is meaningful. And I think that definitely, we will start to see business towards the latter part of this year and into '27. We have a very good and close relationship there. So I think that our position there is strong. And I don't want to compare between different players. We have a strong position in both customers.

Regarding the photonics, definitely, we are involved there. There are opportunities in the photonics area. I think the magnitude of the business is smaller compared with the larger applications. If you refer to HBM chiplets, it's not in the size of this business. But definitely, we are getting applications and I think this will be a business. The magnitude is still early to talk about.

Our next question is going to be from Shane Brett with Morgan Stanley.

My first question is on China. So regarding the China business, just how should I think about the competitive environment and your ability to continue winning there? It would just be great to receive some color on how you see domestic and international competition there play out.

So I think in general, there are -- there is obviously the international competition that exists there, definitely some of the players, some of the bigger players. We see in parallel and I think it's across all the different, I would say, equipment manufacturers, we are seeing local players and there are many local players that are trying to compete with us. I think in general, the disadvantage of the local players that there are many of them and each of them are smaller. I would say there is only one meaningful player that really competes with us in China.

I assume that we will be pressured at the lower end of applications. But all in all, because we have been very successful from the beginning of the semiconductor industry growth in China, we have a very large installed base that really enable us to continue and expand the business there. So I think -- and there is a lot of OSAT buildup in China. That's where we extend. That's our market. They look at other places.

They see that we are very dominant in this market. And definitely, they would give us an opportunity. So yes, there is pressure, and I would say the main pressure is coming from the local players. However, there is also pressure from foreign players. But I think all in all, we have a very strong position. And I expect that we will see a positive trend in the foreseeable future in China.

Got it. And for my follow-up, so your process control peers as well as the more front-end edge tech companies all seem to be seeing advanced packaging growth of 50% or higher this year. I understand there can be differences in definition of advanced packaging. But if we just take your second half guidance, it does imply your HPC revenue should grow closer to 20% year-over-year. You guys did outperform in 2025. And throughout this call, the sense that I'm getting is you see a lot of strength into 2027. But just can you help me understand this discrepancy in the 2026 growth profiles between what you're seeing and maybe what the broader SPE peer set is seeing?

So thank you, Shane, for this question. So if the question suggests that we are losing market share, the answer is absolutely no. Our 2026 growth is, first of all, like you said, is measured against record revenues in 2025, which may not be true for other competitors. So first of all, we're not comparing exactly the same thing. And as noted in our prepared remarks, we plan to increase our market share, both in 2D inspection and 3D in the advanced packaging area. So I think here, we are not comparing the right numbers with the right numbers. But -- so -- and we talked about some of the lag in the business.

But if we look at the shift of the business and you take the business we will see in the second half and what we estimate into the second half of '27 -- the first half, thank you, Moshe, for the first half of '27, definitely, the growth will be very, very significant, closer to the numbers that you just mentioned. So I think this is the right way to compare us with our competitors.

Our next question will be from Edward Yang of Oppenheimer.

I guess first question would just be on the difficult situation in the Middle East. How are you managing through that? Have you seen any impact so far? And just a reminder of your manufacturing footprint, I believe most of it is in Northern Israel, but Germany is about 10% and expanding. So if you could expand on those issues would be great.

All right. Thank you, Edward. So first of all, and I think we said it in previous call and we've discussed it with investors and analysts all the time. Our facility is working as usual. I think we have a phenomenal team in Israel. The team is committed, understands the responsibility it has and the commitments to customers. We've not missed even one shipment throughout the entire few months and previously, this situation definitely is something that is difficult, but we are able to execute and operate both in the manufacturing area, but not less important also on the R&D side.

Most of the people are coming to work, very few work from home and that is also just a few days a week. Usually, it's 1 day a week. And from a capacity point of view, we are able to ramp and we really are seeing 100% performance as if the situation did not exist at all. And as you said, we are going to add capacity in Germany. This is something that is ongoing. But definitely, I think we've been able to overcome the situation and I'm sure that we'll continue to operate and execute the same way that we have done in the past months and years.

Okay. And for my follow-up, I mean, could you expand more just on your competitive differentiation? It sounds like you're very confident about Hawk and Eagle G5. But other than technology, what is Camtek's advantage? I think in the past, you've talked about customization at scale. Is it pricing, service? Some color around that would be great.

So I think we mentioned it in the prepared notes. We -- in the first year of introducing our Eagle G5 and the Hawk, 30% of our revenues came from these new machines and we plan to at least double in revenues the sales of these 2 products. So I think from the acceptance and adoption of these 2 products, I think say something, the confidence on one side of our customers, but also the performance of the machines. I think in general, if we want to talk about a competitive just from, I would say, 30,000 feet, there are 2 things.

First of all, it's the mechanical capabilities that are state-of-the-art. We're using the most precise platform with all the capabilities from the optical and all the other hardware on the machine. But I think what we coupled with that, looking into the future is what we have discussed in the prepared notes and this is our AI capabilities, which are absolutely breakthrough coupled with the Visual Layer acquisition. So moving into the year, we will start to implement it and create another differentiation from our competitors. But I want to mention 2 things more. I think the OSATs and our customers in China require a lot of flexibility. And I think built into our machines and also built into our manufacturing capabilities, there is a lot of flexibility.

If it's from customization, if it's very quick deliveries, it's their abilities to respond to any new requirements the customer remote. We take this one step further and I think we have absolutely the best customer support organization. So I think this whole thing from the relationships to the customer down to our flexibility, ability and the quality of our products, I think altogether create what Camtek is today.

[Operator Instructions] Our next question is going to be from Vedvati Shrotre of Evercore.

The first one I had is we're seeing a lot of component pricing increases, at the same time, DRAM prices going up. Is that a potential headwind to gross margins? Are you seeing that impact your margins at all?

So obviously, there is some pressure from the supply chain. But from the same time, we are -- we continue to implement cost reduction in our machine. So I think all in all, what we are going to see in the second half of the year is an improvement to the gross margin.

Understood. And then on the orders that you talked about for HBM, how does that split into '26 and '27?

We've not included this in our prepared notes, and I don't want just to -- not to be very accurate. There is a significant number already for '26 shipments and the rest will come in 2027, but there is a big number coming this year.

So that will end our question-and-answer session. Within the coming few hours, we'll upload the recording of this call to the Camtek website. And with that, I'd like to hand the call back to Rafi for any concluding remarks. Rafi, 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 management team for their outstanding performance. To our investors, I appreciate your long-term support. I look forward to our next conversation in the upcoming quarter. Thank you, and goodbye.

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 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. Rafi has a cold and has lost his voice. So Ramy will be providing the opening remarks followed by Moshe, who will then summarize the financial results of the quarter. Following that, we will open the call for the question-and-answer session.

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. Ramy Langer, Camtek's COO. Ramy, please go ahead.

Thanks, Kenny. Hello, everyone. Camtek concluded the fourth quarter and full year with record results. Fourth quarter revenues reached a quarterly record of $128 million representing an increase of 9% year-over-year. Gross margin was 51% and operating margin was 29%. For the full year, I'm excited with our revenues, which totaled $496 million, reflecting 16% year-over-year growth. Gross margin was 51.6% and operating margin reached 30%. These results bring us to our milestone of $0.5 billion in revenues.

In terms of revenue mix for the full year, approximately 50% was driven by AI-related products, 20% came from the other advanced packaging applications. The remaining revenue was distributed across CMOS image sensors compound semiconductors, front end and general 2D applications.

Regarding our outlook for the first quarter of 2026. In our previous meeting, we indicated that we expect our revenues to be more second half weighted following a somewhat slower start to the year and that we expect 2026 to be a growth year compared to 2025. In line with this, our revenue guidance for the first quarter is to be around $120 million. At the same time, I am pleased to share that the months past since our previous guidance significantly reinforced our confidence in our forecast regarding the strength of the second half and in our ability to achieve a full year growth in 2026. Moreover, at this point of time, we expect 2026 to be another double-digit growth year for Camtek.

This confidence is derived from our pipeline of order and backlog as well as ongoing interaction with our customers. As you are aware, key customer of ours have made public announcements regarding their investment plans for the coming year, and are discussing with us about their plans for the latter part of the year in this respect. Customers have been verifying with us ability to ship and install a double-digit number of systems within a relatively short time frame.

Certain customers are finalizing development of their next-generation devices and want clarity on which of our system models best fit their requirements.

The primary growth engine of the semiconductor industry continues to be high-performance computing components designed for AI applications. As I said, the growth curve expected in 2026 is largely linked to the pace of which device manufacturers, particularly memory suppliers plan to expand their production capacity. As an example, last week, we announced a $25 million order received from an IDM customer for multiple Hawk systems. This order is in addition to previous orders placed in recent months by this customer, bringing the total to approximately $45 million.

The customer continues to expand its manufacturing capacity by building new fabs to meet growing demand for components produced for AI applications, and we expect additional orders from this customer. We expect additional major customers of ours to expand their production capacity after this year to meet rising demand for their products.

Another major factor supporting our outlook is the proven exceptional performance of our systems, particularly the Hawk and the Eagle Gen 5, both models were launched about a year ago, and we have already installed dozens of systems of each over the past year. Moreover, since this introduction, we have continued to invest efforts in our R&D and completed the development of new capabilities to meet the requirements of our customers' next-generation products. We have already demonstrated these new capabilities to several customers and received strong validation and interest.

The transition to HBM4 is already in process, and represents a major opportunity for us. We are the tool of reference for 3D metrology at all major players. We have a significant market share in 2D inspection, which we expect to expand in 2026. We therefore expect to not only maintain our market share in AI-related applications, but to increase it meaningfully. Moreover, as our products introduced to the market superior new capabilities, we expect them to enable us to penetrate additional production steps and expand our total available market.

To summarize, 2 major developments coincided during the last several months. We have experienced a significantly increased order flow and pipeline, thus improving our visibility. In parallel, we have completed the development of new capabilities to meet the requirements of our customers' next-generation products which we expect to enable us to increase our market share in our total available market. We are excited with what we can achieve in 2026.

And now Moshe will review the financial results.

Thank you, Ramy. Revenue for the fourth quarter came in at a record $128.1 million, an increase of 9% compared with the fourth quarter of 2024. For the full year, revenues came in at $496.9 million, an increase of 16% compared with 2024. The geographic revenue split for the quarter was as follows: Asia was 89%, and the rest of the world accounted for the remainder 11%.

Gross profit for the quarter was $65.4 million. The gross margin for the quarter was 51.1%, similar to the previous quarter and slightly better than the 50.6% reported in the fourth quarter of last year. Operating expenses in the quarter were $28.7 million compared to $23.1 million in the fourth quarter of last year and $27.2 million in the previous quarter. Operating profit in the quarter was $36.7 million compared to the $36.3 million reported in the fourth quarter of last year, and $37.6 million in the third quarter. Operating margin was 28.6% compared to 30.9% and 29.9%, respectively.

For the year, operating margin was 30%, similar to 2024. Financial income for the quarter was $8.2 million compared to $6.2 million reported last year and $6.5 million in the previous quarter. Within that, interest income increased due to the increased cash balance from the strong cash generation and the convertible notes issued towards the end of the third quarter.

Net income for the fourth quarter of 2025 was $40.7 million or $0.81 per diluted share. This is compared to a net income of $37.7 million or $0.77 per share in the fourth quarter of last year. Total diluted number of shares as of the end of the fourth quarter was 51.3 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 December 31, 2025, were $851.1 million. This compared with $794 million at the end of the third quarter. The fourth quarter was characterized by a very strong cash generation of $61.2 million from operations. This is a result of a strong collection and reduction in accounts receivables as well as optimization in our inventory levels.

Accounts receivables were down by $22 million to $90.8 million compared to $112.5 million in the previous quarter. Our days sales outstanding decreased to 65 days from 81 days last quarter. Inventory level is down by $50 million. Having increased our inventory level in the last few quarters to support the launch of the Hawk and the Eagle Gen 5, it is now back to the right level to support the expected revenues in the coming quarters.

As for guidance, as Ramy said before, we expect revenues of around $120 million in the first quarter, with growth expected in the second quarter and more significant growth in the second half of 2026. And with that, Ramy and I will be open to take your questions. Kenny?

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

Can you hear me? .

Yes.

Maybe firstly, just to reference the big accelerating increase in demand that you referenced. Where is that more prevalent? Is it more concentrated on HBM or on the chiplet logic side? And at this time, is the larger step-up occurring in Q3 or Q4?

Well, Brian, so first of all, I would say it's the -- what we call high-performance computing or the AI-related products that are all ramping up. And I would say that I can't go at this state to the resolution, whether it's Q3 or Q4, this is really customer-dependent. I can say that it's in the second half, you will -- we will see the step.

Got it. Can you still hear me?

Yes.

Yes, yes.

Maybe for a follow-up, I think in the past, you've noted that you expected 50% plus of your system shipments this year to be either -- one of the newer platforms, Hawk or Eagle Gen 5. Is that still the case? Or is there an update to that? And this year, we'll have HBM4 sort of coexist alongside HBM3E. Can you maybe outline sort of that decision point that some of your customers are having either moving to Hawk or potentially sticking with the latest Eagle? And also, are you seeing any reuse of existing systems? Is that any factor why shipments are lower in first half?

So let me start to talk about the Eagle versus the Hawk. I think the Hawk is going primarily to people that want very high throughputs and long-term capability. The Hawk can reach accuracies, performance that is much higher than the Eagle, the G5. The G5 is a fantastic machine very high flexibility, very popular in the OSATs world. So therefore, there is room for both of them. But definitely, when you go to very high volumes, these customers will gradually move to the Hawk. Now the Hawk and the G5 accounted to about 30% of our revenues this year. We expect it to be at least 50% in 2026. Did I answer your question clear, Brian?

Yes. That was helpful. And is there any reuse that you're seeing as sort of HBM4 and 3E both coexist? Or just the fact that 3E is still pretty strong and prevalent limiting the amount of reuse your customers can have?

Okay. Well, it's very hard for us to really know the 3E versus the HBM4. But I think gradually, the industry will go to HBM4, and this will be the product that most people will be using. And definitely, the move to HBM4 is a very important opportunity for us.

As we discussed in previous calls, there is a lot more dense structures, the requirements there are much higher. It is more metrology and inspection intensive. So all in all, this move is very positive for us.

Our next question will be from Charles Shi of Needham.

Maybe the first one, on dig a little bit deeper into the Hawk versus G5, the question here, Eagle G5. I remember, Hawk was more positioned for high-end logic type of applications and Eagle G5. You also mentioned it's a high -- it's a good productivity, good cost of ownership. And I thought that you probably more positioned the G5 as maybe more for the memory for more high-bandwidth memory, but of course, for the OSAT market. Is some of that changing right now because I'm getting the sense maybe Hawk is seeing more of the adoption or maybe a faster adoption by your customers, maybe also including the memories?

No, no. This is not the case. What we are seeing, and this is -- the Hawk is targeted for those applications that are high-end applications. If you go to a very large number of banks, let's say, 150 million and more people and with low structures with the bumps comparatively shallow, these applications will definitely go to the Hawk. The accuracies that are required there and definitely the throughputs that are required, there are very high. So we will see these kind of applications go towards the Hawk.

The second applications that will go to Hawk in general will be to those application people that are looking to go to 100 nanometers. So when we look at applications that are more related to front end, related to hybrid volume, those people that will want down the road to use the machine for hybrid bonding, those people will naturally adapt the Hawk. And the G5, obviously, it is -- we've got thousands of machines in the market. So you would see some customers using the Eagle platform adopt the G5 because they know -- they feel more comfortable with it. But I think the strength of the G5 is very, very, I would say, high flexibility, very good accuracy, very good ROI. So all in all, it will continue to be a very popular machine. And -- but definitely, on the other hand, when you go to the high-bandwidth memory, the higher ones, the 4 and the 5, definitely, those customers will, to a certain extent, use the Hawk.

Okay. So is it fair to say for memory market, especially for HBM market, we still should consider G5 as the workhorse and Hawk is more deployed more selectively at this point?

The way you should look at it, we have hundreds of Eagles, many hundreds of Eagles already doing these applications. But I think some of the future capacity that will be built will be more tended towards the Hawk.

That was very clear. One that checking with you guys, what's the expectation for China this year, if there's any number you can give to us maybe a percentage of total revenue expected or year-on-year growth? What's the China expectation for this year?

First of all, the China expectation this year is all in all positive. We do not see any signs of weakness, and we expect to see the revenues in China, they are going to be, I would say, stable. And keep in mind that most of the sales to China are OSATs and -- which are engaged in a lot of applications. So it's a primarily stable market. I think there is growth in OSATs generally in China. So I don't see any changes compared to previous years.

Our next question will be from Jim Schneider of Goldman Sachs.

Relative to the double-digit growth outlook you talked about for the year and some of your competitors who have cited 15% to 20% WFE growth for 2026. Can you maybe frame for us where you expect your overall revenue to fall this year relative to some of those broader WFE forecast? Would you expect the inspection market to sort of undergrow the broader WFE envelope this year? And if not, would you expect this is more of a timing issue where you have a little bit weaker first half of the year and then you sort of catch up in terms of revenue growth in 2027?

So first of all, we said in the prepared notes, that we are going to achieve double digits this year in 2026. Now it's too early to quantify at this time, but looking at our results in the last few years, we always did better than the WFA because we are focused on the fastest-growing segments. But if I want to give you a little bit more color on what we are seeing this year. So compared to what we discussed here a quarter ago, we are seeing a much better visibility, and this is resulting from the new orders that we have received, a much better pipeline following our discussions with customers and understanding the forecast much better. We understand today the timing of the expected orders. So the full visibility and our confidence in 2026 and specifically in the second half is very high. .

And then can you maybe just talk about how we should expect your gross margin trajectory to go throughout the year? I think you've previously cited that the improving ASPs on Hawk, et cetera, would drive gross margin expansion. Is this something you can expect that the gross margins to continue to increase throughout the year as you build volume?

Yes, absolutely. We are looking into an improved gross margin throughout the year. And as we expect to grow the revenue in the second half of the year, we expect to improve the margins. We did take certain measures to improve the bill of material. We took other measures in terms of supply chain, and we believe that we are positioned well to benefit from this and improve the gross margin later in the year.

Our next question is from Shane Brett of Morgan Stanley.

I have a question on the competitive dynamics. Just has there been any change to the competitive dynamics for HBM sockets? Just how should we think about your share at these memory customers?

So thank you for the question. So I want to make it very clear. We have not lost any market share to competitors. We also estimate that we will be able to increase our market share this year. I talked in the prepared notes about our efforts in the R&D that yielded exceptional solutions and capabilities. And these capabilities will enable us to increase our market share by penetrating into more inspection and metrology steps. .

Great. That's very encouraging to hear. And for my follow-up, so some OSATs have mentioned pretty monstrous CapEx numbers throughout this earnings period. Just can you talk about your business with these customers? And just how a broadening of advanced packaging beyond the leading foundries benefits Camtek?

So definitely, we see what is called the OS technology, moving to OSAT. Some of it, call it Coas some of it call it technologies. All in all, I would say that the OSAT, this is our home ground. This is where we are very strong. We dominate this market. We have hundreds of machines in this area. It's about 50% of our business. So definitely, the move to these technologies are very important and the old subsidies will definitely benefit Camtek.

And I would say one more thing that, of course, the OSATs are very important to our business. But on the other side, we have a very strong position at all the big players. When we talk about the HBM, when we talk about the CoWoS, we talk about TSMC. All of these are our customers, and we are very -- and we have a very good market position, and we plan to continue and grow with them.

Our next question will be from Craig Ellis of B. Riley.

I wanted to start stitching together a couple of earlier answers and implications for the year's growth. So it sounds like what you're saying, guys, with the real strong uptake you're getting across OSATs, IDMs and foundry for Hawk and Eagle that this year, there should be real strong IDM growth since that's where you've got your HBM exposure, good growth in OSAT and I suspect good growth in foundry with 2.5D. Is that a fair characterization of how we should look at growth across your different customer classes?

I think it's an excellent view and I totally agree with your comment, this is how we see the market. As you said, they are the big customers, the HBM, the foundries that definitely are going to be very dominant this year, and we expect growth there. But the OSATs, which is give or take 50% of our business are continuing to invest on one side in advanced packaging applications but moreover, are starting to adapt the CoWoS of the AI technologies, and this is for real. I mean this is real.

I mean, I think they are talking about it openly, and they are also talking about significant growth this year, and we have really -- in this respect, we already have POs on hand, we have in the backlog. And definitely, the focus is very positive.

That's helpful. And then the follow-up is related to one of Jim's questions, but also tying in some further color on gross margin. So can you just identify, guys, if we were to see demand go from double-digit low end, 10% towards something that was more WFE by. Do you feel like you have the materials, the production capacity, the shift flexibility to meet that degree of upside through the year?

And then Moshe, are there any things we should be aware of on gross margin, if you were to be chasing demand that was near WFE like? And can you just clarify what we should expect with gross margin in the first quarter, given the decline in volume, are we going to stay at 51 plus? Or do we go down to 50? And then what about the OpEx contour through the year?

Before you answer, so I just want to answer regarding the operational aspects. So we are ready to respond to any demand that will come from the market. So whether it will be very high teens or mid teens or whatever the number will end up from the operational point of view, we are ready.

Yes. I mean we do have just to complete. We do have the capacity, we have the inventory and all the supply chain ready for the growth. So from an operational perspective, we are all aligned. In terms of gross margin, as I said, we do expect an improvement in the second half of the year. The first half of the year will still be around the same level between 50.5% to 51.5%. That's the current level of gross margin in the business. .

With respect to OpEx, we do expect to see some increase in the first half of the year as a result of R&D investments. We see a lot of opportunities ahead of us. I think we've made it very clear that we are expecting a strong second half. And as a result, we plan to invest in R&D in the first half of the year in order to capture these opportunities, and we will see some increase in operating expenses as a result of that.

Our next question will be from Edward Yang of Oppenheimer.

Ramy, you talked about maintaining market share and expanding it. Are you watching any specific time frames or decision points? Do you have any systems in the qualification? Just wondering if there are any specific catalysts you have in mind.

So in general, I cannot disclose exactly the time frame and the decision times. What I can tell you that there are several steps, different customers that we already confirmed and we're already shipping machines to those steps or will ship as we move into the year. .

We are in a very good position at other places to capture additional steps and these are based on work that has been done already and being confirmed by the customer. And we are more going into the validation process. So definitely, we are very confident that not only we will maintain our market share, we will be able to increase it and go to additional steps in 2026 as the year progresses.

Got it. And just for my follow-up, you also mentioned you do -- you always do better than WFE. We've heard some diverging views on WFE growth for 2026. A couple of larger debt and edge players are pointing to above 20% growth. One of your process control peers are looking for something more like low double-digits growth. Just curious what do you mean?

I said before in one of the previous questions that from our point of view, it's so early to quantify the number. We will start with the year, and we'll see how things progress, and then we will meet every quarter. And I think we will be far more knowledgeable as we go ahead. But definitely, it's too early to quantify. .

Our next question will be from Gus Richard of Northland.

When I look at test and probe those companies expect to be up sequentially in Q1. You're down sequentially in Q1. I know they're different applications. I know they're different things, but they tend to move together. And could you sort of help explain why there is this divergence in the current quarter?

Gus, the slow start of 2026 is primarily driven by the timing of the orders of our customers. And big part of their capacity expansion and especially the big ones, is planned for the second half. And this is the reason for the slow start.

Okay. Sort of looking at KLA's results, they talked about their packaging-related revenue being up 70% in last year. And I'm wondering, are they -- and I don't believe your packaging revenue in advanced packaging was that strong. Are they addressing different markets? What's the disconnect between their growth rate and yours?

So first of all, I don't know for which baseline they're accounting. So I don't want to make a mistake here. But I suspect that we are not talking here apples to apples, but we are comparing here some different steps in some areas that we do not play in with. From our point of view and what we see in the segments and what we, in our markets, in our applications and the customers, and we serve everybody, we have not lost any market share on the contrary.

We expect to gain and we expect even to increase our total available market. So from that point of view, we feel comfortable. I think we discussed in previous calls how we see the competition with KLA. We understand the strength of KLA, but definitely we have a lot of advantages in the fact that we are well entrenched in the market that we're playing in. We have an inherent advantage by offering on our tools, the 3D metrology and the 2D inspection, which is very important to the advanced packaging. And I think in general, the unique combination of technology, scale and flexibility is a key reason why we are performing so well in this market, and I don't expect this to change.

Our next question will be from Michael Mani of Bank of America.

I wanted to ask on the chiplet business. So first off, and I know you don't really segment this out anymore, but just in general, for last year, how much of the growth, especially in AI came from the chiplet side of the house? And then as you look out to this year, especially as it pertains to your lead customer in the chiplet business, how do you feel about your share position there?

I think you said you felt good about your position, but if you could just elaborate on that, like what applications are you potentially getting share in, especially on the 2D side of the business. Could that -- is that part of the reason you're seeing more strength in the second half? Just any kind of clarity there would be great.

So Michael, so first of all, we did not, in the past, and I cannot break down whether it's cheapest on HBM, we refer to the business as a high-performance computing, which is about 50% of the business. But -- of course, you know and I think it is well known, and I think TSMC made a note -- made a comment in one of the previous announcements that Camtek is a significant vendor to them. So the secret, yes, we are there. We have the share of the chiplet business. We are doing a few steps there. And this is where further on, obviously, I cannot comment on exactly which of the steps but it's not only one step, it's multiple steps.

I expect this business is a healthy business. And as I said in my comments before and also in the prepared notes, we did not lose any market share. We expect to gain market share. And this is the case also related to chiplets, we don't see it differently. And so we are very optimistic about, obviously, the HBM market, but the chiplet or the high-performance computing as a whole.

And for my follow-up, I was hoping you could provide a finer point on your capacity. I know you talked about this in response to a previous question. But in the past, you've talked about, I think, up to $650 million in capacity potential from a revenue perspective. As you look out over the next couple of years, what is definitely a materially significantly stronger demand environment it seems. Do you feel like that's still the right size of a footprint to address all that demand? .

And if you were in a position where you needed to add capacity, how quickly from a lead time perspective, would you be able to build that out? Or given your strong cash position, would you seek to acquire that from some other...

Yes. So Michael, let me answer your question. So first of all, at this stage, we don't have limitation on our current capacity. We've made some changes internally. We changed the process. We are -- as we go on and we are becoming far more efficient from year-to-year, we are doing things better and more efficiently. So we've increased the capacity that we have on hand today. I think it is well over $700 million in capacity. So I don't foresee any issue.

In parallel, we started already to expand our capacity. I cannot give comments at this stage, but we will have additional capacity in Europe. I believe it will happen late in we will start to be able to use this capacity. So all in all, we are in a good position from the capacity and the only, I would say, operational organization, it is well organized the performance is very well. We have enough buffers in place in case that the business will be even better than we think. So from that point of view, I feel very comfortable.

Our next question will be from Vedvati Shrotre of Evercore.

So I kind of wanted to understand how far your visibility is going now. We all understand itself strong demand environment. Your backlog is growing. You're seeing the orders come in. So do you have visibility going beyond like 4Q '26 now?

Vedvati, so thank you for the question. So I alluded more in my discussion previously to '26. But I think we're starting to see also signs of '27. I would say it's obviously not a backlog, but it's definitely customers are talking to us about shipping machines in the first and second quarter of '27. So yes, the industry is ramping up, and it's starting to think not just '26, '27. And -- so I would say I haven't gone into the numbers very thoroughly. But definitely, we are seeing signs of '27, people thinking about '27 and putting some numbers -- some initial numbers. And so it's a positive answer.

Understood. And for my follow-up, so I know this was asked a couple of times on the call back -- on the call, and so I'll try it again. But the advanced packaging growth by some of the definite players is in the 40% levels. And then if you listen to your bigger peer on process control, they think it's like high teens kind of level. So there's a big disparity on how the advanced packaging market would look. And since you guys, I think, have the highest exposure -- like could you give us a sense of where that lands for you and what you're seeing?

So I think the main applications today, when you talk about advanced packaging, I think the leading applications is Fan-Out. There is a lot of Fan-Out. And there are many variations on it. From high-resolution Fan-Out, regular Fan-Out. But definitely, this is a big market. And of course, what's called the regular bump inspection in the OSATs everything today is advanced packaging. And the growth of this market, it's definitely double digits. .

How far in the double digits? It's -- I can't pull this number from my sleeve now. But -- and it's too soon to quantify how it will be in '26, but definitely, it's a good growth number.

So that will ends the Q&A session. Before I hand over to Rafi for his closing statements, in the coming hours, we will upload the recording of the conference call to the IR section of Camtek's website at www.camtek.com. I'd also like to thank everybody for joining this call. And Ramy, please go ahead with the closing statement.

I want to express my gratitude to all our investors for your ongoing interest and supporting our business. Special thanks goes to our employees all over the world and management teams for their outstanding performance. I want to mention the Chinese New Year that's celebrated by many of our customers and many of our employees around the world. I would like to extend our best wishes for them and for a successful and prosperous year of the Fire horse. I look forward to our next conversation in the upcoming quarter. Thank you, and goodbye.

[Audio Gap]

[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; Mr. Ramy Langer, COO. Rafi will open by providing an overview of Camtek's results and discuss recent market trends. Moshe will then summarize the financial results of the quarter. Following that, Rafi, Moshe and Rami will be available to take your questions.

Before we begin, I'd like to remind everyone 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 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 recent press release issued earlier today and such other risk 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 Rafi, the Camtek's CEO. Rafi, please go ahead.

Thanks, Kenny. Hello, everyone. I'm to conclude the third quarter with record performance. Q3 revenues reached a record $126 million reflecting over 12% growth year-over-year.

We also maintained solid gross margin of 51.5%, contributing to a record operating income over $37.6 million. Our strong cash position of approximately $800 million, including the additional cash generated by our successful $500 million convertible note offering in Q3, provide us with the financial flexibility to drive growth organically as well as to explore potential opportunities for inorganic growth across our market.

Revenue distribution remained in the line with our expectations and closely match last quarter result. High-performance computing applications contributed approximately 45% of total revenue, while other advanced packaging applications accounted for about 25%. The balance came from CMOS Image Sensors, compound semiconductor front-end applications and other general applications. We continue to see a shift of CoWoS-like production toward OSAT, a trend that is favorable for our business given our strong position within this segment. We received significant orders for installation this year from Tier 1 OSATs for CoWoS and [indiscernible] applications. We have also received significant orders from several OSATs for fan-out application.

Regarding the HBA market, we maintain our leadership position with all the manufacturer. Our tools are not only qualified but actually are the tools of reference or 3D metrology steps for HBM at all the HBM players. We have installed pool for HBM this quarter and through the entire year for both 3D and 2D steps and have orders on hand for HBM shipment for the next quarter.

Regarding our guidance for Q4, based on our current order, our sales pipeline and ongoing customer engagement we expect Q4 2025 revenue to be around $125 million, representing annual revenue of $495 million, a record year for Camtek with a strong growth of 15% over 2024.

Let me share some of our recent technological development and business highlights. We continue to enhance our technological capabilities and strengthen our competitive edge. The next generation of devices that will power the future of HPC will require cutting-edge inspection and advanced 3D metrology solutions area in which Camtek is strongly positioned and continues to innovate. Our new product, Eagle G5 were designed to meet the most demanding new requirements and at the same time, perform at very high throughput. These models have been very well received by the market and are expected to contribute approximately 30% of our revenue in 2025 with an even larger share expected next year. The Eagle G5 has been recently selected for 2D applications over our main competitor at major IDM and we have received multiple orders for installation this year and in 2026. We have also won significant business at 2 Tier 1 OSATs after an evaluation of multiple vendors, including our main competitors.

Regarding the OQC, we have already received repeat orders our major Tier 1 player for shipment in 2026 and 2027 after multiple AC systems were used flawlessly in production for several months. The provide the most advanced 3D performance in terms of throughput and security. This is our ninth generation of wide-light regulation that provides superior coverage for different bump type and process steps compared with last regulation technology used by our competitors. We are planning to introduce an enhanced version of the OQC early next year featuring significant improvement in throughput and overall performance across both 3D metrology and 2D inspection.

This advancement will further strengthen the AX position as the most advanced tool in the second. Regarding to the inspection domain, we have made significant investments over the past year to expand our capabilities of both the Hawk and GG5 in the 2D infection applications. We have implemented breaking through HI driving algorithms into our detection technologies. We are currently evaluating these innovations with key customers, and we are confident that this new cutting-edge inspection solutions will enable to further grow our market share in this segment.

I will now like to share some insight regarding the HPC market. With the accelerated adoption of AI and the recent announcement of major data center investment by leading industry players, it is clear that the industry is heading towards a significant expansion of manufacturing capacity. Only the HBM portion is expected to more than double itself in the next 3 years. That said, we expect a natural time lag between those investment announcement and the actual purchase of equipment to support this new capacity. Turning to our preliminary outlook for 2026. This industry development, which points to sustained growth and continued investment in wafer fab equipment, strengthen our expectation that 2026 will be another year of growth for Camtek.

At this stage, we expect our 2026 revenue to be weighted toward the second half of the year with a somewhat slower start as the market continues to observe existing capacity before the next wave of expansion begins. In summary, the massive investment in data centers and the accelerating adoption of AI-driven applications are expected to translate into increasing demand for advanced semiconductor manufacturing equipment.

With Camtek's strong market position and the cutting-edge capabilities we have recently added we are well positioned to capitalize on this trend and deliver significant growth while further expanding our market share in the coming years.

And now Moshe will review the financial results. Moshe?

Thank you, Rafi. In my financial summary ahead, I will provide 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. Third quarter revenues came in at a record $126 million, an increase of 12% compared with the second quarter of -- third quarter of 2024.

The geographic revenue split for the quarter was as follows: Asia was 93%, and the rest of the world accounted for 7%. Gross profit for the quarter was $65 million. The gross margin for the quarter was simply 1.5%, similar to the previous quarter and an improvement from the third quarter of last year. Operating expenses in the quarter were $27.2 million compared to $22.9 million in the third quarter of last year and $26.6 million in the previous quarter. The increase over last year is mainly a result of increased R&D expenses. Operating profit in the quarter was $37.6 million compared to $34.2 million recorded in the third quarter of last year and $37.4 million in the second quarter.

The improvement of last year is due to the increase in gross profit, partially offset by the increase in operating expenses. Operating margin was 30%, similar to the level last year and last quarter. Financial income for the quarter was $6.5 million compared to $6.4 million reported last year and $4.9 million in the previous quarter. Within that interest income increased slightly due to the increased cash balance from profit, cash from operations as well as from the convertible notes issued towards the end of the quarter.

Net income for the third quarter of 2025 was $40.9 million or $0.82 per diluted share. This is compared to a net income of $30 million or $0.75 per share in the third quarter of last year. Total diluted number of shares as of the end of the third quarter was $50.3 million. In the next quarter, the number of shares will increase as the effect of the convertible notes will apply to the full quarter and it is expected to be around 51 million shares.

Turning to some [indiscernible] balance sheet and cash flow metrics. Cash and cash equivalents, including short- and long-term deposits and marketable securities as of September 30, 225 were $794 million. This is compared with $543.9 million at the end of the second quarter. We generated $34.3 million in cash from operations in the quarter.

In the quarter, we successfully completed a $500 million new converted notes offering. At the same time, we repurchased for $267 million existing convertible notes with a balance sheet value of $167 million, less expensive. As a result of the tax asset -- as a result, a tax asset was created in the amount of $12.3 million, which led to a onetime GAAP loss of $89 million net. The positive net cash flow from this activity was [ $119 ] million. Inventory levels decreased to $142 million from $149 million as we have been able to introduce planning efficiencies. Accounts receivables remained stable at $112 million, representing 81 days outstanding.

As Rafi said before, we expect revenues of around $127 million in the fourth quarter. And with that, Rafi, Ramy and I will be open to take your questions. Kenny

Thank you, Moshe. [Operator Instructions] And our first question will be from Charles Shi from Needham.

Maybe the first one, Rafi, you mentioned about the timing lag between announcement and implementation. Just kind of wonder if there is another timing lag, let's say, between DRAM, front-end equipment investment versus packing. And how should it about when you mentioned about the second half weighted next year, a lot of that probably attributes to that timing lag, but how how should we think about the level of, let's say, a little bit of moderation in the first half? It seems like that's what you alluded to. And what's the based on the order, based on your customer engagement, how big second half next year could be?

Okay. In general, we are also in the period of preparing the budget for next year. So when we collect all the information, all the discussion with customers or we call the pipeline in order, all of these show us that we can feel very comfortable more for the second half.

And the first half because delivery time of us is about 3, 4 months [indiscernible], so it's a little bit not easy for us to predict more than this period. So when I collect all the information, this is -- based on this, we feel more comfortable on the second half to say what we can see and what we can feel. But maybe Rami can contribute to more details about this.

Charles, we feel very comfortable that 2026 is going to be a growth year. we feel comfortable. But speaking with customers and seeing all the announcements, there is no doubt that it's going to be growth. We have the pipelines. And we feel very comfortable about next year. I think at this stage, we cannot anticipate exactly the numbers, and we don't usually give any indications about 1 quarter after the next one. So at this stage, we cannot provide a solid guidance about the first quarter. So we are very, very comfortable about 2026. It will be a growth year. We feel that this can have will be better than the first half, although the numbers and exactly how will be the details, it's too early to come to this stage.

Got it. Yes, Moshe, maybe a question for you. The OpEx looks like Q3, there's a good amount of R&D expense increased may be offset by a [indiscernible]. I think based on all the commentary you talked about Eagle G5 Hawk, it's probably not a surprise, R&D expense come up a little bit. But still would like to see if you can provide any more color on the R&D expense and let's say, going forward, do you expect that this level of R&D will continue? And how should we think about a little bit in Q4 and beyond Q4, how you plan for OpEx?

Definitely, Charles, so definitely the 1 area within the OpEx that we continue to increase more resources on is the R&D. We see that as an investment for our future growth. We are continuously adding capabilities as you heard from Rafi in his prepared remarks. So we do not expect any major decline in R&D, but it could vary from quarter-to-quarter based on certain activities, but it will remain at this level and should increase as a percentage of revenue as we grow the revenue story.

Our next question will be from Brian Chin of Stifel.

Ask a few questions. Maybe, firstly, China has clearly been a very strong geography for Camtek this year. Can you comment on what has driven the strength and of a strong 2025, do you expect China up in 26 and also more second half weighted?

We feel comfortable with what's happening in China. We see continued investments. As you know, a lot of the business in China is more OSAT related. And there is a lot of room to continue and invest in this space. We are seeing also investments, by the way, from other assets in the world. So all in all, I think the all such segment is pretty healthy. I think Rafi mentioned in his prepared remarks that we have won business in a couple of OSATs, significant orders. So we definitely expect China to continue and be healthy in 2026.

Okay. Great. reflecting again also on your commentary about a slower start to next year. It sounds like the preliminary outlook might be for Q1 revenue to decline relative to Q4 levels. Is this more tied to HPC or China. And we do expect 1Q revenue to still improve on a year-over-year basis.

[indiscernible] Think at this stage, we've said that it's too early for us to comment on accurate numbers, we're not in a position to state them. And I think Rafi mentioned it, and we talked about in the prepared remarks. I think what is important is we see 2026 as a growth year. There are a lot of opportunities definitely the HPC continues to be very strong.

If you take the HBM, the HBM business is growing at over 30% a year. It's going to double in the next 3 years. And we see a lot of investments there. Our market position, as we mentioned, is very strong at all the HBM manufacturers, we have the tool of reference for the HBM for each of these locations. So we feel comfortable, and I think in 3 months, we'll be in a much better position to comment on the [indiscernible]

[indiscernible] a follow-up just based on that. When you say tool of record at ag, are you talking about 3D and also -- can you also comment on [indiscernible]

I will elaborate in 1 minute. But I just want to mention one thing that there is no weakness in [indiscernible] . And now let's talk about the tour of record. So first of all, we are a tool of record for all the 3D metrology for HBM 4 at all the HBM manufacturers. We are also tool of record for several 2D inspection steps at different steps at different manufacturers.

Our next question will be from Matt Prisco of Cantor Fitzgerald Generals.

Matt, please go ahead. First, just maybe a little more detail on the first half versus second half weighting. Any areas your business or end markets that have seen this dynamic more pronounced? And then what's giving you that confidence in the second half balance? Is that actual orders on the books today? Or is that more just generally what you're seeing in terms of those industry trends and customer conversations?

So the way we work with our customers, we hold a lot of discussions with them. We built a very detailed what we call a pipeline that spare customer per the requirements that he's doing. And then we correlate it with what we see on the market. So all in all, and I think you have seen from previous years that we were able to understand the market and more or less be on target with the discussion that we had with us.

So I think that from those discussions, understanding the market, understanding the HPC market is a market that is going to grow, but I think that what you see from the things that we are seeing around there as we said, there is a certain time lag, and we don't think it's going to be very long. It's probably going to be pretty short. And therefore, we are very confident with the second half with the first half, we will be able to comment in 3 months.

Helpful. And then on that HPC front, maybe can you walk us through the contribution expectations for next year? Are you thinking that, that grows as a percentage of revenues versus today? And are there any expected difference in that revenue contribution from HPC first half versus second half?

We -- if you go back, we have grown the business in '24, in '25. And definitely, we expect to do the same in '26. Our what we call the high-performance computing was roughly 50% of our business. And definitely, when you look ahead, this business will continue to grow. The HBM is going to grow. The Corus contribution is going to grow. We see the applications growing you are seeing also when you talk about the applications today, the NVIDIA applications with the servers, you are going to see end of '26, '27, also a big growth in the density of the HBM memory that is going to use per the applications.

So what we are seeing, looking on, we are seeing 2 things. On 1 hand, you are seeing a lot of growth in the capacity that will come as this application, the current application is going to require more density of memory and also we will see new applications. On the other hand, the move to HBM4 is going to be what we call inspection and metrology intensive because the bumps are getting tighter. They're going to be more but the density grow they will need to do more inspection and metrology. So if you couple all of these things together, definitely, we will continue to see growth. And I believe that part of the business is going to be maintained in general over the longer period.

So yes, we are very optimistic about the business and the market. And we're listening to all the announcements that are being mentioned every time the amount just of the data centers that are going to be set in the next few years is huge. You're seeing it -- it's hundreds of billions of dollars that are going to be invested and definitely, the fabs that will support it will gradually come online.

Our next question will be from Greg Ellis of B. Riley. Craig.

I appreciate all the color so far, team. I wanted to start, Rami, with for you that just goes a little bit deeper into some of the things that have come up so far. So as we think about second half weighted calendar '26 growth. Can you help us understand how Camtek's positioned for that from a manufacturing capacity standpoint, currently, do you have what you need? Do you need to add. And when will you need to start bringing in working capital? Because I think everything we all see suggest this will be one of the bigger capacity ramps we've seen in a long time. And then send shipping costs have been an issue at times in the past, in the middle of the income statement, how will we manage shipping costs for a potentially significant surge in shipments in the back half of the year.

So for general phone manufacturing capacity, and I think we discussed in previous meetings, we already about a year ago, added a significant portion of capacity. We are also going to add some capacity in Europe, as we discussed, in order to have another buffer just in case that we need more capacity. So from a capacity point of view, we have enough clean room space.

We had enough employees. And therefore, from that point of view, we feel very comfortable. Currently, we are running the 2 shifts. We can always extend it to a third set. But from that point of view, we feel very comfortable. And from a material point of view, we're running, as Moshe mentioned, we're more efficient about the material flow.

As a result, we were able to reduce the inventory. But all in all, we have enough material on hand to start around we have excellent relationship with our subcontractors and other suppliers if we need to expedite material incurring. Regarding the shipping cost, yes, we had a surge in the shipping cost in the past year. I think we overcame all of these issues and shipping costs are back to normal. And hopefully, we will not see any issues regarding that. Did I answer your question, Craig?

Yes, you did, Rami. And then I'll ask the follow-up to Rafi. Rafi, you have significantly strengthened your balance sheet with the convert. And you mentioned that one of the things that can do is enhance inorganic growth options. Can you talk about areas of the business where you feel like there's potential to add capability? Where do you see opportunity to augment the current portfolio with something that would strengthen and add further to the growth down the road?

Okay. We -- our today, Chairman, the [indiscernible], we hire him to spend 1% of its time only for M&A activities. And now we had another person for this purpose. So they work like a group, and they do a great job, the first map in the industry.

And we divided it to, I would say, to inspection, to metrology, to software to many type of area that could be integrated and interest Camtek. So I think right now, we have about maybe 40 potential customers or companies that we said, look, this -- about this amount of company could be very interested for us. And on a weekly basis, we do some discussion with them, even we pay a visit to see them, to talk to them. So I feel very confident that maybe this year in 2026, we can see much better results for that.

I just add a little bit, maybe misunderstood. So or Dean, our Executive Chairman is 100% Motor is time goes to just the M&A activities. And I think we are very comfortable with the progress that we are making, and there are quite a few opportunities, but that's something that we will speak in future calls once we have more material information and we can share it.

Our next question is going to be from Tom O'Malley from Barclays.

This is Matthew Pan on for Telia. Just 1 follow-up on the supply chain in terms of AI announcements. Any more detail you could share on those conversations with the supply chain and if there's any broadening out in sort of in terms of conversations with the leading-edge players? I know you mentioned a lot more conversation with OSATs.

Obviously, Tom, there are a lot of conversations with all irrelevant manufacturers and customers that are related to the high-performance computing. It's very hard to try and quantify it in very short time. And this is -- at least this is the reason that we feel very comfortable that 2026 is going to be a growth year because everybody is positive about the future and what's going to happen.

It is really a question of timing, how fast the brand is going to be. So all in all, I think the activities are there I think Rafi in his prepared comments, talked about the advancement and the process improvements that everybody is making. So all in all, I think this industry is moving in the right direction.

But as we said, to turn all of these announcements into something that we need to start to manufacture tomorrow. Obviously, there is a slight time delay. And I think we will be able to discuss it more in details in about [indiscernible].

Got it. And just 1 follow-up. We've been asking a couple of companies this. Curious if you've looked into sort of what you think WFE spend as a percentage of total AI compute investments would be. So we've heard a couple of companies saying high single digits, maybe closer to double digits percentage, but I'm not sure if you've taken a look into that.

Obviously, we see these comments. And I think it's too early today to say the numbers. I see numbers from high single digits to low double digits I think it's a little premature now to really comment on the WFE in 2026.

Next question will be from Blayne Curtis of Jefferies.

[indiscernible] for Glenn. First one would be in Q3, the guide for Q4 and I guess into the weakness in the beginning of next year, can you talk a little bit about the moving pieces between Coos and HVM, what's strong, what's weak there?

We bundle it all together as we call it, high-performance computing because the reason is basically what is at the coast, there is the chip let. And the chiplet is surrounded by stacks of HBM. So it really is 1 business, and the orders can shift by quarter here and there per the different vendor.

And today, it's a little bit more complex because you get the offsets and the are also participating in the cohort and course like business. And therefore, it's a little bit harder to tell you what is stronger versus the [indiscernible] because we sometimes don't know what the offsets are doing. So it -- so again, what I can tell you is that the business, the HPC continues to be strong. It will be strong also in the fourth quarter. It also will be strong in the range of 50% in 2026. We don't see any change in the pattern.

Got it. And then second question would be you talked about an improvement in the Hawk for early next year. Can you talk about what that means for the applications you can address in pricing?

So I want to be very careful because, of course, in more detail, the information is confidential. What I can tell you, what we said in our prepared remarks, and as after a year since the introduction of the Hawk, we have identified potential in order to improve their performance and to create even a bigger gap in the market. So we are going to improve the throughput in general, for both the 3D metrology and the inspection. We're going to make these changes very soon. .

We're speaking with our customers, obviously, very closely and they understand what is going to come. What I think the -- what I want to say that what is important and the message and I want to say across that we hook will be the best equipment we have in its segment. And we are very proud and it's performing very well. It's been well accepted by our customers. It's already in production at multiple places very successful. So we believe that with the improved version, our market position will be even stronger once we implement those improvements, and they are going to happen very soon.

Our next question will be from Michael Mani of Bank of America. .

Start, Could you talk about the utilization of your tools across your main customers, maybe particularly focusing on some of the HBM customers. Is there anywhere where you might be seeing a little more idle capacity given the amount of shipments over the last couple of years? And is that a headwind in the near term and partially explaining maybe the softer first half of the outlook?

First of all, we don't really know the utilization of our machines with our customers. we sometimes see pressure on us to fix the machines, but we don't really know these numbers. They keep them very close to their chest. So this is something that, unfortunately, I cannot comment on. What I can tell you that all the machines that we are shipping are being installed and are being taken into production. .

I don't see any machines that are held that don't require immediate installation or not use. From that point of view, I think the industry is healthy. People are using their equipment and people want service and people are pushing us to do things and deliver our commitments as fast as possible. So from that point of view, I don't see any slowdown in the industry.

Great. And my follow-up, if you could just give us an idea about how to think about gross margins for next year. It sounds like maybe the first half is at the lower end of the sort of 51% to 52% range that you've kind of trended along the last couple of quarters and maybe there's an uptick in the second half, especially as some of these higher ASP tools kick in. But any kind of high-level trajectory in terms of gross margin to think about for next year would be very helpful.

Michael, this is Moshe speaking. Yes, gross margin should gradually improve over the next a few quarters as we ship more and more products from our new tools, the Hawk and the Gen 5, which have a higher gross margin. Obviously, if there is a slower quarter, this may have an impact on the overall gross margin. But again, in general, the gross margin should improve over the current levels.

Our next question is from Edward Yang of Oppenheimer. .

Can we come back to the -- just the competitive environment and market share dynamics. It sounds like you had some -- [ want ] some share in competitor talked about 3D? Is it just fair to say the backdrop is relatively stable with some give and take?

So first of all, we have not lost any market share to our competitors. We believe that with our new technologies and the new capabilities we're going to implement will probably enable us to win more -- to increase our market share. And I want to make it -- as we gain in the 3D and you sort of hinted maybe something -- you get in the 2D, you may have lost something in the filing, that's on the case. Our position in the 3D is very strong where the reference tool for all the 3D metrology steps at all the HBM vendors and basically across the industry in the OSAT there are very, very few places where we are not. So definitely, we're in a very strong position.

I think the technology that we are implementing today the new technologies, the new products that we've introduced a year ago are starting to be very meaningful to our revenues. We are gaining a lot of market share. We are gaining in new applications. We are able to do things that we couldn't do a year ago. I think with the new capabilities, we'll do even more applications.

And my expectations is that we will win more steps at the ATM level at the CoAs and all the different applications. And then definitely, we -- our target is to increase the market share in the 3D and in 2D.

Okay. And just for my follow-up, can you talk about the outlook for non-HPC advanced packaging that actually outperformed HBC in 2025. Would that still be the case for 2026? And what's driving that? Is that mobile? Or what are the end markets that's driving that outperformance?

I'll tell you -- if I look at the advanced packaging in general, advanced packaging for us is around 70%, 50% [indiscernible] and another 20% is what we call the conventional advanced packaging. I think the main application today is fan out. And you see out in some of it goes to mobile, but I think it's more -- it has a variety of applications.

And so I would say it's hard for me to tell you which are the end products. But definitely, the application that we see is fan-out, and it's taking more and more, I would say, space. you see today in advanced packaging I expect this to be similar in '26.

We have a follow-on question from Craig Ellis from B. Riley.

There's been a lot of and very helpful color understandably on HBM and CoAs. But my understanding is that the company is positioned quite well for hybrid bonding. And we do expect that to be very important as leading-edge calendry moves to backside power delivery. Can you talk about specific product traction breadth of exposure there? And how should -- how we should think about hybrid branding contributing calendar '26 year on your growth.

So look, in general, hybrid building, and we see it as an additional opportunity. I think in '26 from a revenues point of view, it's still going to be moderate. What we are seeing is more, I would say, the volumes are still. We have a few machines at customer sites, major customer sites that are being used for the hybrid bonding, I would say, for the pilot lines or for the initial preproduction that they are doing in -- so definitely, there is a very nice opportunity there on the 2D inspection side.

We see a lot of potential also on the metrology side. And then -- and this is something that we've been working on developing capabilities, and I believe this will contribute also in the long run. I think the volumes from hybrid bonding will come more into [ '20 ], we'll start to see them '27. I think in '26, it's not going to be so significant.

Thanks, Craig. So that ends our question-and-answer session. Before I hand over back to Rafi for his closing statements in the coming hours, we'll upload a recording of this call to the IR section of Camtek's website I'd like to thank everybody for joining this call and hand back to Rafi for your closing statement. Rafi, please?

Okay. I would like to sincerely thanks all of you for your continued interest now in Camtek. Special note of application goes to our dedicated employees and exceptional management team for their outstanding performance and commitment to our investors. I am very grateful for your trust and long-term support. I look forward updating you on our continued progress in the next quarter. Thank you very much. Goodbye. .

Thanks, everyone. You may go ahead and disconnect.

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 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 review it on the company's website. With me today on the call, we have Mr. Rafi Amit, Camtek's CEO. Mr. Moshe Eisenberg, Camtek's CFO; and Mr. Ramy Langer, Camtek's COO.

Rafi will open by providing an overview of Camtek's results and discuss recent market trends Moshe will then summarize the financial results of the quarter. Following that, Rafi Moshe and Rami will be available to take your questions.

Before we begin, I'd like to remind everyone 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 may cause actual results to differ and vary materially. But 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 other risk factors as discussed in Camtek's most recent annual report on SEC Form 20 year.

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 results can be found in today's earnings release.

And now I'd like to hand the call over to Mr. Rafi Amit, Camtek CEO. Rafi, please go ahead.

Thanks, Kenny. Hello, everyone. Carter concluded the second quarter with a record performance. Q2 revenues reached $123.3 million, reflecting over 20% growth year-over-year. We also maintained our gross margin at around contributing a record operating income of over $37 million. Revenue distribution remained in line with our expectations and closely match last quarter results. High-performance computing applications contributed approximately qualify to 50% of total revenue, while other advanced packaging applications accounted for about 20%.

The balance came from CMOS image sensor, compound semiconductor frontend applications and other general applications. We continue to observe a shift in corks like production towards OSAT, a trend that plays to our advantages given Camtek's strong market position in this segment.

We continue to see strong momentum heading into the third quarter. Based on the current orders, our sales pipeline and ongoing customer engagement we expect Q3 2025 revenue to be approximately $125 million, representing an annualized run rate of $0.5 billion a significant milestone for the company.

In addition, we have healthy orders flow and pipeline into the fourth quarter. The Advanced Packaging segment is rapidly evolving with technological changes to support the fast pace evolution of high-performance computers for AI applications. Based on analyst research on the semiconductor industry the advanced packaging market that support AI-related application is expected to grow at an exceptionally rapid rate over the next few years. This growth is being driven by the adoption of new packaging technologies such as hybrid bonding, micro copper bumps with densities below 10 microns. RDL with line width of 2 microns and below and more.

This advancement requires state-of-the-art inspection and metrology capabilities. combined with AI-based algorithms to detect defects, filter out noncritical issues and classify defects hence, ensure that only high-quality components enter the HPC module assembly line. By integrating advanced inspection and metrology tools, manufacturers can significantly increase yield and gain valuable insight into defect types, empowering continuous process refinement and production optimization. Camtek anticipated the upcoming technological shift several years in advance and made significant strategic investment to develop innovative solution addressing these emerging opportunities. We have invested heavily in developing cutting-edge platform that combine exceptional mechanical precision with state-of-the-art optical technologies.

These efforts have cumulated in the launch of the Hawk and Eagle 5 systems, delivering breakthrough performance and significantly higher throughput compared to our existing systems. In parallel, we have been developing software solutions such as enhanced defect detection, EDC and aromatic declassification ADC technologies that will strengthen our competitive edge in the market.

The OP and LG 5 have been exceptionally well received by our customers and are expected to generate approximately 30% of total revenue this year, with an even larger contribution projected for the next year. In addition, our micro proof metrology system originated from the FRT acquisition has been successfully adopted and accepted by a Tier 1 customer for multiple metrology applications.

Over 30 systems have already been installed and are now operating seamlessly in full-scale production environment. In summary, Camtek has solidified itself position for a market leader in its domain. We believe that packaging technologies highlighted today represent significant growth opportunities for us in the coming year.

And now Moshe will review the financial results. Moshe?

Thanks, Rafi. Revenue for the second quarter came in at a record $123.3 million, an increase of 20% compared with the second quarter of 2024. The geographic revenue split for the quarter was similar to last quarter as follows: Asia, 90%, and the rest of the world accounted for 10%. Gross profit for the quarter was $64 million.

The gross margin for the quarter was 51.9%, similar to the previous quarter and an improvement from the second quarter of last year. Operating expenses in the quarter were $26.6 million compared to $21.6 million in the second quarter of last year and $24.4 million in the previous quarter. Operating profit in the quarter was $37.4 million compared to the $30.8 million reported in the second quarter of last year and $37.3 million in the first quarter.

These record results were achieved despite an increase in the operating expenses, which were mainly due to the exceptionally high shipping expenses related to the conflict with Iran. Operating margin was 30.3% compared to 30% and 31.5%, respectively. Financial income for the quarter was $4.9 million, similar to the $5 million reported last year and a decrease from the $5.4 million in the previous quarter. The decrease from the previous quarter was mainly an impact of the weakness of the U.S. dollars on revaluation of certain balance sheet items.

Net income for the second quarter of 2025 was $38.8 million or $0.79 per diluted share. This is compared to a net income of $32.6 million or $0.66 per share in the second quarter of last year, total diluted number of shares as of the end of the second quarter was $49.3 million. Turning now to some high-level balance sheet and cash flow metrics. So cash, cash equivalents, including short- and long-term deposits and marketable securities. As of June 30, 2025, were $544 million, this compared with $523 million at the end of the first quarter. We generated over $23 million in cash from operations in the quarter. Accounts receivable increased $112 million from $100 million in the previous quarter, mainly due to timing of collections. Inventory level increased to $149 million from $142 million. The increase over the quarter is primarily to support the anticipated sales growth of our new Eagle Gen 5 and hot product in the coming quarters. As Rafi said before, we expect revenues of around $125 million in the third quarter. And with that, lastly, Rami and I will be open to take your questions. Kenny?

Thank you, Moshe. At this time, we'll begin the question-and-answer session. [Operator Instructions] Our first question will be from Charles Shi from Needham.

Maybe the first question. I wonder get a little bit of updated thoughts about the compensation of the business, maybe for the second half of the year or maybe for the full year, whichever time frame you guys prefer to discuss. So I want to ask HPC. What's the expectation for the second half of the year, maybe from a mix perspective. Clearly, first half, it has been around that 45% to 50% level. Is it a similar level into second half or for the full year? And on a related question, do you want to ask, what's the current expectation for China contribution to the total revenue for the year? Last time, I think you guys were more looking at the 35% to 40% of the total revenue has any of those numbers changed.

So thank you, Charles. So let's talk -- we'll start with your first question. We see a positive momentum in the second half. And as we discussed in the -- in Rafi's discussion, we have a healthy order flow and pipeline. We provided a positive guidance for Q3, and we'll provide the guidance for Q4 in the next earnings call. Regarding the HPC, so we expect the HPC contribution to our revenues in the second half to be not much different than the first half. And regarding China.

Regarding the China contribution to the business, all together, China is obviously significant to Camtek has been so for many years. Last year, the number of the contribution was around 30%. We expect that this year, the contribution will be a little bit higher than that. Still early to say how much will be the contribution for the second half but we expect it to be a little bit higher.

Okay. Specific on China, no additional quantitative view for the year. Maybe a second question a little bit more at a higher level and maybe this is more about product and technology. KLA has been making a good amount of inroads in 2.5D, especially at the leading foundry and looks like they are looking at HBM opportunity as well, but so far, it looks like it's more around hybrid bonding related HBM opportunity, maybe a little bit concentrated at 1 customer that is focusing on hybrid bonding. I want to get your general thoughts, Camtek's position versus potential entry of KLA in your existing HPC markets? And what's the management thought on how to compete effectively versus KLA? And -- yes, let's go from there.

So let me start with the hybrid bonding. So we see the hybrid bonding as a great opportunity for us. This bill is still in the early stages. And we are running our tools today at strategic customers, and we believe that we have the necessary capabilities in inspection and metrology to address the hybrid bonding opportunity. Now we discussed the KLA penetration and trying to get in some of the -- into this market, I think we discussed it also in the last call. And we've already been engaged in competition with KLA on multiple occasions, different customers, I would say, for the last couple of years. and we demonstrated that our equipment is highly competitive. I think we are very well positioned to meet the specific requirements of this unique market. And with our latest products, the Eagle 5, even more than in the past, more looking into the future, we offer a very competitive market. Now in general, the advanced packaging is our market. We are well known. We have excellent relationships with our customers, and we understand exactly their requirements moving into the future. and therefore, I think if I would like to summarize, I think the unique combination of our technology scale, which is important here and flexibility are key reasons why many customers choose to work with us over larger competitors who often are slower to respond. .

Our next question is from Matt Prisco of Cantor.

So I guess, first, for your product ramps, can you go over where you're seeing the greatest traction today for both the Eagle G5 and the Hawk in terms of applications and kind of what are the primary drivers behind the strong customer reception here.

So I think it's a few things that drive the new products. So let me start with the how. I think the hall provides 2 very important capabilities that are, first of all, very high throughput that is very important where people are very sensitive to their footprint in the fabs. And on the other side, it provides a path to very, very, I would say, difficult applications that people will need now or into the future.

And I think people that are looking into this changing market that the products are changing. And people are not sure what they will need in a year or 2. The hope provides a path to address those challenges with the capabilities it has today. And this obviously relates to the micro bumps with the pitches coming very small, very high number of pumps, hybrid bonding, a lot of challenges in the inspection market all of these challenges, the hope provides a very, very good solution moving forward.

On the G5, I give eat much faster. And I think it addressed it again from the optics point of view, the ability to detect, I would say, defects that we couldn't previously address with the current products and other capabilities. So for the -- I would say, for the price stack of 1 million plus. No doubt the Eagle provides the best-in-class solution into the market. So I would say it's still different reasons. It's 2 different product lines. And -- and I think what I've discussed, these are the reasons for the very high traction by our customers. And I think as we said in our prepared notes, we were able to achieve 30% of our revenues this year with 2 product lines, which is exceptionally well, and I expect that we will see more next year. Maybe a few words about the applications.

So as I said, and I will -- I said it may be not clear enough. I just want to make sure that it's well understood. So first of all, the applications are, I would say, a large number of pumps. That's very important. Very small defects. The hope will address defects down to 150 nanometers. And this is very -- this is challenging, and this is very important for hybrid bonding and other to the inspection requirements.

And of course, the throughput and similarly, the Eagle on a different, I would say, not to the extent to the capabilities of the hope, but definitely a very good solution in the price range that is being offered. If I answered your question,

Perfectly. And then as a follow-up, given the success you're seeing in these new product ramps and continued success into next year, can you maybe offer some early thoughts based on your visibility and customer conversations and how you're thinking about Camtek's growth prospects overall for the company to 2026?

[indiscernible] '26?

'26.

So look, regarding '26, I think in our market and specifically the high-performance computing are expected to grow rapidly in the coming years. And this market also technologically changes, and the HPC is undergoing a lot of changes that we believe will create a lot of opportunities for us. For example, and I think Rafi mentioned it in his prepared notes, fine beach micro bumps, hybrid bonding, HBM 4 and many others. So if I look at these opportunities at our market position, assuming a positive market environment in 2026, will no doubt support another growth year for coming.

Our next question will be from [indiscernible]

I guess it's a 2-parter. First, can you talk a little bit about the content uplift from HBM 3/3 to 4 you guys I know there's a couple of different paths people are going with it. So what you're seeing there? And then Second part of that question would be from a CapEx perspective, what you're seeing at your customers and what you're seeing for HBM specifically as we wait for potential qualification.

So obviously, the [indiscernible] market from a capacity point of view continues to grow, and we're seeing customers adding capacity. Now in general, the uplift in the -- it goes in a few ways. First of all, there are more HBMs per product. We see the intensity is growing, not drastically, I think the major job intensity from the HBM will come probably late '26, early '27. But definitely, on the 4, it's moving to more layers. And eventually, this means that we will scan more wafers. There is some change in the number of of bumps, some beach differences, but all in all, we've already been qualified at some customers for the HBM4. So all in all, it's a very positive path. We're getting very good, I would say, input from our customers. So expect that definitely HBM4 will be a positive opportunity for us. .

Got it. Then if you could just talk a little bit about what you're seeing in terms of timing for customer spending and kind of the shape of that spend? in terms of HBM4 specifically. .

In HBM4 force specifically, I would say that customers are talking to us, HBM4. We are starting to see initial forecasts to support the uplift of the HBM4, I think more than that, I will not be able to discuss during this call. .

Our next question will be from Craig Ellis of B. Riley.

I wanted to follow up a little bit on HBM4 to start. So it sounds like it's a very immaterial part of revenues today and the visibility may not be clear on when you'd get the crossover from HBM3 to HBM4 release. But if you have some idea of that, sounding like 2026, it would be helpful. The question is more this. When you look at the specific feature enhancements in either or hawk,what are they that are very advantageous for HBM. And what does that mean for the trajectory of gross margin as we move through the HBM ramp-up period?

Okay. So thank you, Craig, for the question. Now first of all, the equipment that we sold most of the equipment that we sold to HBM3 will be used for HBM4 with. So it's not that the -- what we sold in '25 or '24, this is immaterial for the additional growth. So based -- some of this equipment has already been qualified to address the HBM. So specific, this is in general. However, there is an uplift. There is going to be an increase in capacity for the HVNI. And what I indicated in my previous answer is that we are already in the process of talking to customers about the forecast for HBM4. Definitely, this will start to happen early in 2016. We are in this, we will ship equipment to support the HBM4.

More than that, I will not be able to give you any details. Now going to the Hawk versus the Eagle. The advantage for the work, as I discussed in one of the previous questions are 2 things. First of all, it's the throughput, which we immediately much better footprint in the fab. It's the ability to address a large number of bumps and the HBM is going into this direction. It's inspection capabilities today already down to 15 nanometers, already we are demonstrating it at customers. This capability will be able to support also the GBM, the hybrid bonding requirements. So definitely, all in all when customers looking today whether he wants an eagle versus he wants a hawk those that are thinking about the future and want to ensure that they will be able to support their products in 2 or 3 years. Some of them linked towards making a higher investment today and buying the ROC. From gross margin, in general, the hub is more expensive and it will have a positive contribution to our gross margins. It answered your question, Craig.

Yes, it does, Rami. And the next question is somewhat intermediate to long-term question. And I'll start with congratulating the team on being just inches driving the business to $500 million run rate target. So good for you for getting so close to that target. But the question is this, if we look at the list of incremental growth drivers. We spent a lot of time on HBM4, and it sounds like that would be at the top of the list. But as we think about growth through 2026, what are the next couple of applications that we should be focused on is your bigger incremental growth drivers over the next 18 months? .

So I think, first of all, no doubt the high-performance computing is going to be a main driver for our business. This goes to metrology in general 3D metrology. It's also in the metrology. And Rafi in his prepared remarks, talk about the, I would say, phenomenal success we have seen at the Tier 1 customer with our metrology line, and that's a line that's also going to contribute. I think it's a very good growth engine metrology in general for our business. And so I would say that the high performance compute, and getting into more and more applications, we are gaining more and more traction on the inspection part. And definitely, that's a big market with our capabilities on the G5 and on the hog specifically, ability to go and detect very small defects in the range of 150 nanometers will definitely try a lot more applications outside also the high-performance computing.

I think we are going to gain some traction with our new software capabilities, which we discussed in the prepared remarks, the EDC and the ADC, I won't go into all of the details. definitely, these are technologies that are going to push us much, I would say, begin to give us a lot of strength on the inspection side. But all in all, no doubt, we are in a market that's going to grow at a run rate with what I hear from all the different analysts over 25% growth in the next few years. So definitely, I think this is the main driver. Of course, our task is to gain more and more applications in this market. Now we haven't forgotten the other markets. the, I would say, the conventional advanced packaging fan-out and other applications still have a very nice momentum. And last but not least, today, I think still, we see a lot of opportunities in the front end. Compound semi is comparatively depressed in the last couple of years, but definitely. This is an opportunity looking into the future. And don't forget we have, I think, about 350 customers, 200 active every year. a lot of ones and tools that all of them will definitely provide additional opportunities in the foreseeable future.

Our next question is going to be from Gus Richard of Northland.

Just in terms of the OSATs, can you talk a little bit about what you're seeing in terms of applications, how that compares to the traditional foundries that do advanced packaging for HPC.

Us, it's a very interesting process that we are seeing because I think we started to talk about it a year ago. that we expected the OSAT to start to take, I would say, a position in the high-performance computing. And this is definitely what we are seeing. They used to do -- they started to go into the heterogeneous integration a couple of years ago, started with these applications. We are seeing major assets today, some of the -- just to the cores, and I think that the TSMC made some remarks about it about specific names -- but definitely, we are seeing all the major OSATs going into cohorts or what we call cohorts like, it's something similar. It's becoming a significant. And then we're definitely -- it's a significant number of orders that we are seeing for these applications from the major all sets.

Gus? Go ahead.

Yes. Can you hear me?

Yes. did you hear my answer?

No, but I can follow up later. Follow-up is how do you see the opportunities for like chiplets and advanced packaging [indiscernible]

Well, look, the chiplets, -- we look at the chiplets in general as part of the high-performance computing. Eventually, it's a giblet which is either the GPU or CPU. It depends on the actual, I would say, design of the high-performance computer. And with it, it's surrounded by the high-bandwidth members. So from that point of view, when we talk about ABC, we specifically talk about chiplets, the high-end chiplets, but in general, no doubt, this market is picking up as part of all the changes in the market. And I think from all the numbers that I'm seeing, it will continue to grow very in a very healthy way in the foreseeable future.

Our next question is from Tom O'Malley of Barclays.

Apologies if this got asked already, I just hopped on from another one. But I think you guys gave Advanced packaging is about 20% of the revenue mix in the quarter. Can you talk about how much of that is HBM today versus a year ago? Has the percentage within Advanced packaging grown pretty materially? And maybe give us an update on how much of that is HBM today? .

Okay. So let me -- Tom, let me get the numbers correct. So 70% of our business goes to what we call advanced package. High-performance computing, or HPC, whichever name you go is part of our advanced packaging. So out of this 70%, 50% goes to HPC and 20% goes to what we call conventional advanced packaging such as fan-out in the HPC and because of the -- we do not specify what goes to chiplets and what goes to the high bandwidth memory. And the reason for that there is changes, and it depends when the orders are coming, and it's too complicated.

And therefore, we've been just talking about high-performance computing. And for the last few quarters, we've been at a run rate where 50% of our total revenues went to high-performance computing, which includes HBM and chiplets.

Got you. I wanted to ask a little bit of a strange one, so bear with me. In a world right now where you have 2 major memory suppliers that are qualified on HBM for the largest guy in the world. And there's a 1/3 that's attempting to do that pretty aggressively, which world suits you the best into next year, a world in which it is still 2 guys that are qualified that need to add more capacity or a world in which there are 3 qualified guys all who are serving the market. If you could walk through that, that would be super helpful.

So we don't have any preference, whether it will be 2 or 3. All of the players today are very good customers to us. And if one of them that is not qualified will be quantified, we will enjoy it with additional application and steps, and we're working very closely with all of them. So we are fine with 2, and we will be very fine also with [indiscernible].

Our next question will be from Edward Yang of Oppenheimer. .

Moshe mentioned high shipping costs that may have elevated your OpEx. Has that moderated now?

Yes. This has been kind of an exceptionally high level of shipping expenses due to the conflict with Iran. Now that the concept is muted to some degree. The shipping expenses went back to normal rates, and we don't expect anything like that in the third quarter if the situation remains as is.

And can you quantify what the impact was in the second quarter?

It was over $0.5 million. Yes. .

Got it. And just to clarify on the positive momentum that Ramy was talking about that you're seeing in the second half of the year. Are there any seasonal puts and takes that could impact fourth quarter? Or should we also expect that to grow revenue sequentially. And for the 2026 expected growth, the Street is modeling about 7% total revenue growth, but that's slower than what's typical for you. So maybe you could help us reconcile any divergence there or any reason why we shouldn't see another year of double-digit growth for Camtek in 2026.

So it's too early definitely to talk about Q4, and we will discuss it in the next earnings call. But as I said before, there is a positive momentum in the second half, and this is based on orders on hand, on orders that are in the pipeline. And as we said, we did provide guidance for Q3, it is positive. And therefore, I think the overall second half is definitely, as we said, we are -- it's a positive momentum. Now I'm going back to '26, and there are a lot of discussion today how '26 will look like. But again, I think really this is much too early to discuss it. And this is a very dynamic market. Things are changing so fast here. This is true with the technology. This is also true with everything that we do. But as I said, a high-performance computing is growing rapidly and will continue to grow in the foreseeable future. And with the technical changes and everything that is happening in the market, it's -- assuming a positive environment in '26, definitely will lead to another growth year for Camtek. What will be the percentage? It's really too early. Unfortunately, it is too early today but we'll talk it in future calls. .

Our next question will be from Denis Pyatchanin of Stifel.

This is Dennis on for Brian at Stifel. So for my first question, maybe you could discuss that for HBM 4. What is the expected ratio of Hawk versus Eagle shipments? Would you expect it to be roughly even? Or do you think for HBM4 that customers will require more of the newer system?

So first of all, this is very customer dependent. And so -- and we don't really give these numbers of Eagle versus the hopper applications. As I said, the Hawk has specific advantages in terms of capabilities, in throughput, accuracy and other aspects that for certain applications and specifically for those that want very high volumes in the HMI may take some of the capacity will move into hawks. .

But then again, this is very customer specific. And as we said, both products are very successful in the market. And definitely, there is -- and don't forget, it's not just HBM. A lot of the business goes to the conventional advanced packaging, and there are many other applications where the Idyline, I think, is the best product all the price it is offered today in the market. Next. But then again, we'll probably stand mall will be able to give you a much more, I would say, clear estimations and discuss this a little bit more accurately, but that's more or less what we see today.

And then for my follow-up, maybe you can tell us a little bit more about the OSAT. So do the OSAT continue to exhibit more signs of strengthening. And maybe you can tell us what's driving this? Is it just purely colos or something else? And do you have any of you found your OSAT logic expansion plans for second half of 2025 and to 2026?

Well, definitely 2026 is too early to discuss the OSATs. And don't forget, a lot of these players are still planning '26 and are still not in a position to release orders to give us the actual forecast. But I think for OSAT today, where we see A lot of the growth is coming, first of all, from the HPC as we discussed before.

The major assets are starting to produce the [indiscernible] and [indiscernible] life applications, and this is definitely a very high growth area. And I think this trend started a year ago. We see it undergoing today and will continue into the foreseeable future. But don't forget, there's a lot of regular advanced packaging and fan-out and other applications. We see a lot of this business still strong in the OSATs, and we are shipping equipment to address those applications as we speak, in each of the quarters that some of the application that all sets of buying equipment from us. So I would say from the OSATs, the major, I would say, 2 applications are the ones I discussed.

Our next question will be from Vivek Arya from Bank of America.

This is Michael Mani on for Vivek Arya. To start, I just wanted to ask about one of your major chiplet customers, which is covering some challenges currently. They recently revised their outlook for their CapEx in 2026 pretty meaningfully. So the question is, have you seen any major changes to the investment plans at any ship with customers. And to what extent could this already be reflected in your backlog? And could we see this demand be made up of some of their other customers over time as well?

These are discussions about the forecasting move by quarter here and there. And this happens on a regular basis that people move around their forecast. We have not seen anything significant in terms of changes in the focus to our shipments. So I can't comment on anything more than I've just said. .

Got it. Understood. And just on your newer products. You said that 30% of sales this year would come from Hawk and G5. So could you give us an idea of how much of that is weighted in the second half? And then I guess my main question, kind of the spare of other questions that people have asked earlier in the call. I mean how much incremental growth are these new tools driving for you? Would you say that they're mainly replacing for now mainly replacing demand that you would normally see for your older systems? And is it possible that we won't see the incremental growth from new applications to customers really until we get to something close to 84%. Just how would you frame the incremental growth opine over the near term from these [indiscernible]?

So let me answer your first question. So first of all, the was actually introduced in the market a little earlier than the Hawk. So we started to see it in larger quantities already at the beginning of the year. Actually, if I recall correctly, the first shipments were down in Q4 of 24%. And then we gradually increased it. So it was really loaded very nicely already in the first half. and we continue to see the growth into the second half as well.

The Hawk, the shipments actually started a little later. And it's more, I would say, load -- maybe I would say we started more in the second quarter, and we -- probably most of the shipments will be divided on 3 quarters. And obviously, we will see more shipments and the, I would say, the percentage will definitely be higher in '26. Now going into applications, definitely, we are seeing more application, but I will put it in a different way.

I think that our product lines today, when we talk about the G5 is more competitive than the eager and it's definitely more competitive today compared with our competition. So I think definitely, this will mean for us potentially to take market share as we move into the future and gaining some applications. And this is these applications that require, I would say, more performance, and it's always throughput and it's always better detection. So thesis in general. When we talk about the Hawk, definitely, these are capabilities that we didn't have before. Definitely, this will open a lot of opportunities for us as we move along. And -- but still it's too early to quantify.

That will end our question-and-answer session. Before I hand back to Rafi for his closing statements. I'd like to mention that in the coming hours, this call will be available from the Investor Relations section of Ham websites, camtec.com. And with that, I'd like to thank all of you for joining this call, Rafi. Please go ahead and make your closing statements. Rafi?

Okay. sorry. I would like to sincerely thank all of you for your continued interest in Camtek. A special note of appreciation goes to our dedicated employees, an exceptional management team for the outstanding performance and commitment to our investor I am truly grateful for your trust and long-term support. I look forward to updating you in our continued progress in the next quarter. Thank you.