Camtek Ltd Stock

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] Following the formal presentation, I will provide some instructions for participating in the live question-and-answer session. I would like to remind everyone that this conference call is being recorded, and the recording will be available from the link in the earnings press release and on Camtek's website from tomorrow. You should have all received by now the company's press release. If not, please view it on the company's website. With me today on the call, we have Mr. Rafi Amit, CEO; Mr. Moshe Eisenberg, CFO; and Mr. Ramy Langer, COO.

Before we begin, I'd like to remind you that the statements made by management on this call will contain forward-looking statements within the meaning of the federal securities laws. Those statements are subject to a range of changes, risks and uncertainties that can cause actual results to vary materially.

For more information regarding the risk factors that may impact Camtek's results, please review Camtek's earnings release and SEC filings and specifically the forward-looking statements and risk factors identified in the results press release issued earlier today and such other factors discussed in Camtek's most recent annual report on SEC Form 20-F. Camtek does not undertake the obligation to update these forward-looking statements in light of new information or future events.

Today's discussion of the financial results will be presented on a non-GAAP financial basis unless otherwise specified. As a reminder, a detailed reconciliation between GAAP and non-GAAP financial results can be found in today's earnings release.

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

Hello, everyone, and thank you for joining us today. Just 3 weeks ago, many of you joined us at our investors and analyst breakfast event at SEMICON West, where we shared our growth strategy, technology road map and new financial targets. With that in mind, I will keep my remarks brief today.

I will start with a review of our third quarter results, followed by a brief recap of the key messages from this event.

The third quarter marked another record quarter for Camtek with revenue reaching $161.3 million, exceeding our guidance and representing 28% year-over-year growth and 21% sequential growth. Operating income also reached a record $47.5 million with operating margin expanding to 29.5% compared with 27% in second quarter. These results highlight the strong operating leverage of our business model as robust revenue growth translated into even greater growth in operating profitability.

Approximately 80% of our revenue was generated from advanced packaging applications. The majority of which were driven by AI-related demand. Our new generation platform, the Eagle G5 and Hawk accounted for approximately 57% of our system's revenue, and we expect their contribution to continue growing as customer adoption expands. Order momentum remained exceptionally strong. As we shared at our recent investor and analyst breakfast event less than a month ago, we had received more than $800 million in order since the beginning of year until that date. And the strong order momentum has continued since then. Approximately 80% of this order were related to advanced packaging applications, nearly all of which are high-end applications driven by AI demand.

OSATs accounted for slightly more than 50% of total orders, reflecting their increasingly important role in the advanced packaging ecosystem. Importantly, for the past several months, many of our customers have been securing delivery slots through 2027, providing us with strong visibility into sustained demand and continued growth. We have seen this trend in all territories, including China, and we expect this strength in all regions to continue in 2027.

For the first time in Camtek history, we have visibility extending approximately 1 year ahead. This gives us greater confidence in our growth outlook. Looking ahead, we expect fourth quarter revenue of approximately $180 million, bringing our full year 2026 revenue to approximately $595 million. For 2027, we expect revenue to exceed $800 million, supported by our strong order backlog and sales pipeline. Moshe will provide more details on our financial outlook in a few minutes.

Let us briefly recap the key messages from our Investor and Analyst Day. First, we operate in an exceptionally strong growth market, advanced packaging, which is our core business, this market is growing faster than the overall semiconductor industry, while high-end advanced packaging for AI application is growing at an even faster pace. Second, increasing complexity creates new opportunities for Camtek. AI as advanced packaging becomes more complex, it requires more inspection and metrology steps as well as new tools with more advanced capabilities.

Third, we have a clear competitive advantages. Our advanced technology, combined with an installed base of approximately 4,000 systems and strong long-standing relationships with all leading customers put us in excellent position to continue gaining market share. Looking ahead to 2027, we plan to introduce new AI-based software products, creating an additional revenue stream for Camtek and further strengthening our competitive advantages. Fourth, we are ready to scale. Together with our manufacturing partner, who have already expanded their production capacity, we have strengthened our operational infrastructure to support significantly higher revenue level.

In the near term, like the rest of the industry, we are experiencing certain supply chain challenges involving a limited number of suppliers. We are working closely with this supplier to address the challenges and expect to meet our customer delivery schedule. All of this supports our new long-term target to double our 2026 revenue and reach $1.2 billion in annual revenue within approximately 3 years. Importantly, this target is based on organic growth without factoring in new potential contribution from substantial M&A. We recognize that this is an ambitious target, but we believe we have the right strategy, strong market opportunities and the capability to achieve it, assuming the continued trend of our industry. We are fully committed to this goal and are working hard to turn it into reality.

And now Moshe will review the financial results. Moshe?

Thanks, Rafi. In my financial summary, I will provide the results on a non-GAAP basis. A 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 level of $161.3 million, a 28% increase year-over-year and 21% increase compared with the second quarter of 2026.

The geographic revenue split for the quarter was as follows: Asia accounted for 95% and the rest of the world, 5%. Gross profit for the quarter was $82.3 million. The gross margin for the quarter was 51.1%, similar to the 51.4% in the previous quarter.

Gross margin came in a bit lower than our expectations. As Rafi mentioned, there is an industry-wide supply chain demand, which has not only created operational challenges, but also resulted in price pressure on parts, components and material used in our system, affecting our COGS. We have already started to increase our ASPs, and we expect this to positively impact our gross margin already in 2027. Further improvement is expected by higher share of our more advanced offering and by offering new software products.

Operating expenses in the quarter were $34.8 million compared with $32.5 million in the previous quarter. Most of the increase in operating expenses was in selling and marketing, in line with the higher revenue level. Our operating profit in the quarter reached a record $47.5 million compared with $36 million in the second quarter and $37.6 million in the third quarter of last year. Operating margin was 29.5%, up from 27% in the second quarter, reflecting the leverage we have in our model.

Financial income for the quarter was $7.1 million compared with $7 million in the previous quarter. Net income for the third quarter of 2026 was a record $50.3 million or $0.99 per diluted share. This is compared with net income of $39.4 million or $0.78 per diluted share in the previous quarter. The total diluted number of shares as of the end of the third quarter was $51.5 million.

Turning to some high-level balance sheet and cash flow metrics. Cash and cash equivalents, including short and long-term deposits and marketable securities as of September 30, 2026, were $877.1 million. We generated $71.1 million in cash from operations in the quarter. Accounts receivable increased to $166.2 million compared to $153.9 million in the previous quarter. DSO remained at similar levels of around 90 days.

Now to the outlook. For the fourth quarter of 2026, we expect revenues of approximately $180 million, up 40% year-over-year. This will bring our full year 2026 revenues to approximately $595 million, representing growth of about 20% over 2025.

For 2027, based on our backlog pipeline and strong order momentum, our initial revenue outlook is more than $800 million. Let me briefly remind you of our new target model. We are targeting $1.2 billion of revenues within about 3 years, substantially organic with operating margin of 34% to 36%. And with that, Rafi, Ramy and I will be open to take your questions. Kenny?

Thank you, Moshe. We'll now open the line for question and answers. [Operator Instructions] And we will take our first question from Matt Prisco of Cantor Fitzgerald.

I guess first on gross margins. I'd just love to hear where we're tracking in 4Q. And then as we move into '27, can you perhaps walk us through the levers as we just think about those cost increases, the pricing increases, the new product mix, higher volumes, a lot of moving parts there. So can you help us just kind of walk through those?

Absolutely, Matt. So first of all, indeed, we were a bit disappointed by the gross margin level, although we did implement cost reduction initiatives during the quarter, which will benefit us in the future as well. On the same time, the product mix is also working in our benefit and our favor, and this will continue to favor us in the future as well. What happened this quarter was slightly higher parts and material costs that offset some of these benefits that will remain with us in the future. Now our plan is, obviously, and this is already in motion is to increase overall ASPs in the market. And with -- together with the software offering that brings to the table, and we plan to improve the gross margin already in 2027.

Keep in mind also that over the last few quarters, the exchange rate also was not benefiting our business activities. The shekel got much stronger against the U.S. dollar, which was slightly an overhang on the COGS cost structure overall and also in the COGS level. So this is not something that this is definitely beyond our control, and we hope that next year, this will balance out. Did I answer your question, Matt?

That's perfect. And then as a follow-up, just can you give us an update on where orders stand today? Any particular areas of strength across markets or systems you would highlight? And then as we think about that '27 outlook, how much of that is supported by backlog today? And how much upside is there given supply and component issues and all those things?

So Matt, this is Ramy. So first of all, we are talking about an initial outlook of over $800 million and definitely, I think we cannot give more information at this stage. We said in our prepared notes and when we met in October that the backlog is significant. And I think this is as far as we can go. From the color, to give you some color on the backlog and what we see in those $800 million, definitely, we see a very strong, as we said, over 50% came from the OSATs, an area that we have a very strong position. About 80% is coming from advanced packaging. So all in all, our main segment is healthy, and we maintain a good market position. And I think all in all, all the trajectories are up, and we feel very comfortable with these numbers.

Our next question will be from Brian Chin of Stifel.

Maybe first, just a follow-up on the order commentary. I guess, one, to clarify, it seemed based on that last comment from Ramy, a little bit more of a skew towards AI logic relative to HBM in terms of the booking. And also, as you look into Q4 and really in the second half, based on sort of where lead times are for equipment, are you booking more towards maybe kind of midyear next year, maybe even second half '27?

So first of all, we are booking already the second half. And as we said, we have a very good visibility 1 year ahead of us. So this is indeed the case. And I would say, as a follow-up from where our discussion, definitely, the business is strong across the different regions, including China.

Okay. Great. I had a question about software. I know that was one of the interesting topics from the Analyst Day a few weeks ago. I believe you mentioned this revenue stream could increase from sort of tens of millions per year to well over $100 million in that kind of 3-year target model. A few questions there. When you think about your 35% initial revenue growth outlook for '27, do you attribute maybe a few percentage points of that growth to software in terms of some of these new products? And then just kind of thinking forward, is the idea here that you envision some of this AI-related and defect classification software to be effectively bundled with future shipments of Hawk or Gen 5 Eagles?

So let me, first of all, correct you. When we talked about the figure, it included software and service. Service is growing very fast at a rate of about 35% a year and has been growing in this respect at this rate for the past few years, and we see it continuing to grow as a result of the much larger installed base and our customers requiring more and more support as the machines are becoming more and more complex. And this is one leg of the growth.

The second growth will come from software. And I think we have said in the past and the acquisition of Visual Layer, which brought us a lot of capabilities on AI, but in parallel, it is a platform to develop products that we expect to start to sell in '27. And I hope that even we'll see initial revenues in the first quarter of '27. So definitely, combination of the software and the service is going to start to be significant already in '27, and we expect to reach the numbers, as we said, in the 3-year target.

Our next question will be from Charles Shi of Needham.

I want to follow up on the supply chain challenges. We obviously have seen some of that impact in the reported quarter gross margin. But can you provide a little bit of background on what specific components are in shortage and is it something more specific to, let's say, your tools, optics, light sources or maybe it's just some simple things like PCBs or even memory components, et cetera. So I want to get some thoughts on what exactly is in short right now and for us to get some sense on for how long do you think the shortage situation will last and when the supply can catch up and no longer being an issue going forward?

So thank you, Charles. So let me try and elaborate a little bit more. So first of all, these are not specific parts that are made for Camtek. These are general wide industry components. I think you mentioned memories and CPUs that's definitely today in shortage and the prices are higher. This is not something new to anyone. And there are other general purpose components that are in shortage mainly on the handling part of the machine -- and we are working, one, with our vendors. In most cases, we have dual sources. So this is really a question how to balance between the different sources, make the first source less and bring in the second source. These are things that are in motion. And I expect these topics to be resolved, I would say, within 3 to 6 months, I think it will balance off. But this is really my feeling. We're not sure about it. But I think we said in the prepared notes that we will not miss any delivery schedules. We are doing every effort and working very closely with the vendors to keep our plan in place.

Got it. Maybe a second question. Maybe more on the advanced packaging, especially AI-related advanced packaging outlook between 2.5D and the HBM. We know there are some unique situation on the 2.5D side, maybe just a '27 issue, maybe going to '28, not really an issue. But on the HBM side, what are you seeing today? Because since the SEMICON West event, a few of the packaging, especially the foundry companies reported at least there's one thermal compression bonding company saying they are seeing some TCB delays for HBM packaging build-out. Wondering what you're seeing there? Maybe you are seeing some offsetting factor, maybe that's not that good to read through to Camtek, but I wonder if you can address those issues that have been -- that has been discussed for a couple of weeks among the investment community.

So we -- I'm trying to think about your question, but we do not see any change to our plans or predictions. I think we are on track with all the customers in the HBM area. So I cannot bring you any more information or anything new based on your question.

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

To start, nice to see that Hawk and Eagle G5 are more than 55% of sales at this point of the year. If you were to kind of reflect back on the last couple of quarters, were there any areas where maybe your share gain or traction in those new categories progressed faster or better than expected? And what does that tell you about where -- about your confidence level in where you can potentially gain share next year in 2027 to deliver upside to that $800 million full view that you gave a couple of weeks ago?

So first of all, indeed, the position in the market continues to be strong. Talking about share in '27 and gaining share, it's a little bit too early. As I said previously, it's really an initial outlook when we talk about '27. And I think it's too early to talk about gains. I think that we are performing very well with our customers as we see it. I think we will definitely maintain position. I also hope that we will gain share, but it's too early to say in which areas.

Got it. And for my follow-up, I just wanted to ask about the OSAT market. I know this has come up repeatedly, but in the last few months, we've heard your peers become more vocal about being able to enter the space. Obviously, Camtek has had a very established position there for a long time and has seemed to defend that for the most part, pretty well. But when you were to look at each of the different players that are sort of like participating now, whether it is the local Chinese suppliers who are looking to displace incumbents to take share, whether it's the smaller process control peers in your ecosystem, whether it's KLA, what do you think is the Camtek value prop against each of those different competitors? Like why do you think your moat is intact from each of those players?

And when you think about why more competition is coming to the space, do you think it's more of a fact that your customers are looking for multi-sourcing away from Camtek or is it more just secure a very sort of temporary shortage situation in that market because there simply isn't enough capacity out there to address all the demand?

All right. So let me, first of all, address the competitive situation of many Chinese players. We do not see any competitive threat from those small competitors in China. We maintain a very strong position, and we expect -- if we talk about share gain, we definitely think that China is a place that we can continue and gain share. So this, I would say, about the lower end competition. And I think when you talk about from the other side that you see the bigger players that are trying to enter the market. And I think this is something that we have seen. I think the market is becoming lucrative and growing. So definitely, people are thinking of maybe we can get some share. This is natural. We never expect that it will be different. But I think when I look at our products, the competitiveness our responsiveness as a company. The products were designed for customization for the dynamic advanced packaging market that is very, very important. We hold a dominant position at the OSAT market, and I think will be very difficult for the larger players to enter.

And I think what is very important is that we have a proven portfolio with dedicated solutions for the advanced packaging. This includes our metrology where we hold a phenomenal market share, includes things like flexible handling, fluorescence inspection, and we can continue and talk about it. And when you think about it, the larger players do not necessarily have all of these capabilities, and it takes a lot of time to develop it while we are developing new and other capabilities that are required. And all in all, when you talk about the larger players, I think we discussed it in previous meeting, they are bigger than us. But in the specific market that we play, we are significantly larger.

I just want to add one point, Michael, regarding the Chinese market and the potential domestic competition. I would say that in the last few months, we received -- we enjoyed a nice order momentum across the board and specifically in China. When I look today in our backlog for '27, China will represent a meaningful piece of our business, at least as high as this year. So I think that the competition in China does not play a major role in our business at the moment.

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

I just wonder if you could maybe, as we think about 2027, help us with how you see the linearity of 2027 playing out. Obviously, you have much better visibility into the first half than the second, as you mentioned. But should we think about sort of like sequential step-up in revenue in the first couple of quarters of the first half and then flattening out in the back half or maybe any help on that would be helpful.

So trying to look at and as I said, it's really an initial outlook. And I think the business will be stable. We are starting to fill the shipments, the capacity as we speak. And as I said, we're already booking a lot of orders for the second half of '27. So at least when I look at it, I think it will be stable. But it's initially, I would say, balanced capacity growth over the fourth quarter. But definitely, we are in a very good situation, which we're actually seeing already slots in the second half.

And then can you maybe talk about the gross margin profile? I mean, obviously, you have mix in your favor. At the same time, you talked about the input cost headwinds. So can gross margins start to improve further as we get into the back half or is it too early to call on that?

Yes. So the expectation is that gross margin will gradually improve starting from the first quarter of '27. And again, as I said before, it's a combination of the cost reduction initiatives that are already in place, the favorable product mix that we have, as you saw, already 55% -- over 55% of our revenues are related to the high-end products, which carry higher gross margin. And I believe that this short-term supply chain constraints will be balanced out off.

So starting from Q1, we will see a gradual improvement. Together, by the way, with the contribution of the software and the service business that is starting to pick up. And Ramy mentioned that we are already looking to see some initial software business in the first quarter. So gross margin bottom line is expected to gradually improve starting from Q1 '27.

Our next question is from Ed Yang of Oppenheimer.

The first one is, can you size the ASP increase you're contemplating? And maybe talk about the initial customer receptivity to that? And was that always embedded in your $800 million revenue view or is that incremental?

So I don't think we can say now whether it will be incremental or included. It's really too early. But let me talk about resin prices. So there are 2 aspects here. First of all, we understand and I think our customers understand that due to the increase in prices of components, there will be some increase in the ASPs. So I think this is understood and this is starting -- we're starting to implement it. And this will, I think, will gain momentum in the next quarter.

Second aspect is implementing new capabilities into our machines. And definitely, this is the area where we can explain to our customers and our customers are receptive to pay more for more capabilities on our machines. So we are working on both fronts, raising some due to the increase in prices, our own prices, but I think on a greater scale, adding the new capabilities, the new developments that we are implementing in our machines, a reason for additional price increase. And these are the 2 things that we are going to do during 2027. And actually, we've already started it this year, but it will gain momentum in 2027. And whether this will be in the 800 initial outlook or not, it's too early to say. I do hope that there is some upside to these numbers as we go more into next year, but this is something that still yet to be seen.

Okay. And for my follow-up, we're starting to see some demand headwinds in consumer and non-AI electronics. And could you just remind us, do you have any exposure there? I know in the advanced packaging bucket of your business, there is a piece, primarily mobile, I think, that's not high-performance computing related. But are you seeing any similar softness in that line item?

No, we do not see any softening. Yes, there is some piece when we talk about the conventional advanced packaging, which is anywhere in the range of, I would say, 15% in average per quarter. But no, no, we don't see any headwinds not at this stage.

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

I wanted to ask a few to better understand what we're seeing in our calendar year 2027 outlook. I know at our analyst breakfast at SEMICON West, we talked a lot about hybrid bonding. The question, is hybrid bonding material in that $800 million outlook for '27 or is it really an opportunity that the company sees filling in 3 years down the road when we're looking for $1.2 billion?

So the hybrid bonding, there is a lot of development today being done -- so yes, we are seeing some business, but really on a low magnitude at this stage. I believe that this is business that will start to materialize more in the '28 and onwards. I think in '27, I don't expect to see any substantial business coming from hybrid bonding. But as we said in the previous meeting, definitely, we have a road map to address this market, and we believe that this is an opportunity for us.

Got it. And sticking with what's potentially in '27 and where there's additional opportunity beyond the orders that you have in hand now, if we were to categorize potential incremental business as either A; custom ASICs or XPUs, B; work from semiconductor companies with specific GPU and similar programs or 3, HBM, where do you think there's the most opportunity from what you have in hand today to add to orders for next year?

I think the main opportunity for us is to gain market share in 2D for additional steps. So this is not really specific that I can tell you whether it's a GPU or HBM or it's very hard for me from the top of my head to try and assess it. But definitely, I think that we discussed it, we have a strong portfolio for 2D inspection, but still, I think there is a lot more business that we can gain there, and we are putting a lot of focus in this area. And I believe if there is upside potential, it will probably come from this area.

And when do you think you might be able to convert that pipeline activity to orders? Is that something that you see progressing through the fourth quarter or are these longer-term engagements that might convert 1 half or midyear next year?

So first of all, I think we said in the prepared notes, and Moshe also mentioned that the order momentum continues. So at this stage, what we are seeing from our customers are ordering and really securing deliveries next year. And I think this is -- if I would try to put some color on the kind of business that we are, it's really getting and securing slots in 2027. And I think this we will see until the end of this year. And I think new upsides, if there will be, I think this we will see in the first and second half of 2027.

Our next question will be from Shane Brett of Morgan Stanley.

My first question is on services. I want to ask Brian's early question on software in a different way. If I think about the bridge from your service revenue this year of about $40 million to your $140 million target in 3 years, just how much new software revenue are we adding into the model? And apologies if you've mentioned this previously, but how much software revenue do we have this year?

Let me start, Ramy. So our service business, as you indicated, is around $40 million this year. It's growing at a rate of 35% to 40% annually. So within 3 years, we will be able to reach around $100 million of service revenues from the existing business together with obviously with the installed base that will get bigger. Additional $40 million was assumed with new software offering. At this point, we have pretty much 0 software offerings. This will start in next year in 2027 already in the first quarter and should gain momentum. We believe that there is potential upside to the $40 million that we've mentioned.

And I would like to add that we see the software business is going to already be significant next year and expecting double-digit revenues in 2027, and this business has the potential to grow. We have the platform, the capabilities. We already have some products in the pipeline that we started to introduce to customers, and I expect to gain momentum in this area starting in the first quarter of 2027.

Got it. That's really encouraging to hear. For my follow-up, so your comments on your 3D bump metrology inspection, 3D bump metrology portfolio for HBM from your investor breakfast, is very convincing. But just could you help us quantify how much of your HPC revenue will be coming from HBM this year? And is that mix within HPC, sorry, HBM mix within HPC going to go higher or lower for you next year?

I'm telling what the last numbers that we mentioned. I think at the time that we mentioned and it was 2 quarters ago that we said that we received $600 million in orders since the beginning of the year. And we said that the HBM was over 20%. So it's going to be significant, and we didn't continue to add it because the order flow on what we call the high-performance computing, OS and CoWoS-related applications, we -- they don't come together. It's different streams of orders. I expect that the HBM business, both for inspection and 3D metrology will be significant in 2027. I cannot comment at this stage on exactly the magnitude.

Our next question will be from Vedvati Shrotre of Evercore.

So the first one I had was, as we go into 2027, you're seeing the order momentum. But at the same time, you're seeing some of the component supply chain constraints creep in. Can you talk about the lead times and how the lead times for your tools have changed? Have they started to stretch now versus last quarter?

I think these are 2 separate issues. First of all, the components issue, it's more, I would say, of a tactical issue that some of our vendors are just -- don't have enough capacity, and we need to use second sources and to overcome, and this is a short term. I expect this will be for 1 or 2 quarters, maybe it will be longer, but I'm expecting us to resolve this situation specifically. And I think Rafi said it in his prepared notes. And I think in general, because of the level of orders intake, definitely, our lead times are increasing. And typically, they are 3 to 6 months. But in some cases, customers are willing to give us today orders a year ahead. And this is not that they necessarily need the machines today. They just want to secure capacity on our floor for the time that there are clean rooms or whatever they need, they want to secure this capacity, and that's the reason that they are already placing orders today.

Understand. And then for my second question, you mentioned Eagle and Hawk is more -- the Eagle G5 and Hawk is more than 55% of revenues this year. What happens next year? Does that become a majority? Like is that 80% and up? Is that a good estimate on the contribution from these tools next year?

So definitely, this will be more than 55% next year. And whether it will reach 80%, it's a question that's very hard to answer. And the reason for us that certain customers do not want to change the machine in production if they have a very quick ramp and they don't want to qualify a new machine. So this is really something that is also related to customers. I do expect an increase in the percentage of these products and -- but I don't know if they will get to 80%. Eventually, they will, but I'm not sure that it will happen in '27.

Thanks Vedvati. That brings us to the end of our question-and-answer session. I just would like to remind everybody that a recording of this call will be available from Camtek's Investor Relations website in the coming hours. Also the Zoom link will also have a link and I hand back to Rafi for his closing statement.

Okay. I want to express my gratitude to all of you for your ongoing interest in our business. I look forward to our next conversation in the upcoming quarter. Thank you, and goodbye.

That ends our call. You may disconnect. Thank you very much.

Let's get started. Ready? Great. Okay. Thank you, everybody, for coming. Welcome all of you to Camtek's Investor and Analyst Breakfast, which we're holding in conjunction with SEMICON West. Today is October 14. I know you all have packed schedule, so we appreciate you coming. My name is Kenny Green. I'm part of the Investor Relations team at Camtek. I want to remind everybody that we are webcasting this event live, and it will also be recorded and the recording will be available following the event in the next day or 2 on Camtek's website.

Earlier today, we released the press release preannouncing the Q3 revenues as well as guidance for '26 and '27, which we'll also cover today in our presentation. In addition, we've also filed this presentation, which you can find on Camtek's website as well as through the SEC filings. So I just want to refer you all to the safe harbor statement, which I'm not going to, but I will summarize.

Statements made today by management 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 the actual events and results to vary materially. For more information regarding the risk factors, please review Camtek's SEC filings and specifically the sections covering forward-looking statements. Other such risk factors can also be viewed in Camtek's most recent annual report filed with the SEC on Form 20-F in March 2026.

I note that Camtek does not undertake the obligation to update forward-looking statements in light of new information or future events. Today's discussion of financial results will also be typically presented on a non-GAAP financial basis, and a detailed reconciliation can be found at the end of the presentation.

So just to introduce everyone. So today, we have Lior Aviram, Executive Chairman; Rafi Amit, Camtek's CEO; Mr. Moshe Eisenberg, Camtek's CFO; and Ramy Langer, Camtek's President and COO; and Eyal Segev, Director of Marketing. So over the next hour or so, all five will present. And following that, we'll open it up for a question-and-answer session. We'll probably have about 20, 25 minutes for Q&A.

So with that, I'd like to hand over to Rafi Amit, Camtek CEO.

Good morning, everyone. On behalf of the entire Camtek team, I would like to welcome you to our Investor Day here in San Francisco. Thank you all for joining us today. We are delighted to have you with us. I would like to open today's Investor Day with the important announcement we made earlier this morning regarding our forecast for Q3 for Q4 and the outlook for 2027.

Revenue expected in Q3 is $160 million to $161 million. Revenue guidance for Q4 is $180 million. Revenue outlook for 2027 is more than $800 million. Until now, we have not been in a position to provide revenue guidance a full year in advance, simply because our customers' visibility and forecast typically extended only a few months ahead. However, the exceptional demand for computing power, driven by AI applications is creating a level of demand for our equipment unlike anything we have experienced before. This extraordinary market environment is giving us something we have never had before. Visibility approximately 1 year ahead. And for the first time, this increased visibility allow us to share with you our revenue expectation for 2027. This is an exceptional moment important milestone for Camtek.

The semiconductor industry is experiencing an extraordinary acceleration in growth driven by the AI revolution. Just a year ago, most industry forecast projected the semiconductor market of approximately $1 trillion by 2030. Today, those expectations have changed dramatically. Recent forecast range from approximately $1.7 trillion in 2026 to $3 trillion by 2030. This is not just another growth cycle. We are witnessing a fundamental transformation in the semiconductor industry creating a great opportunity for Camtek.

Looking further ahead, assuming that demand for computing power and physical AI continues to grow in line with current market forecast, we believe we have the potential to double our annual revenue within 3 years compared to 2026, reaching $1.2 billion representing a CAGR about 26%. Importantly, this target is based on organic growth without factoring in any potential contribution from substantial M&A. But don't get me wrong. We are dedicating significant resources and management effort to pursuing M&A opportunities. At the same time, we are being extremely careful not to divert management attention from what we see as a once in a generation opportunity to grow our core business organically at about 26% annually over the coming year.

We are aware that we are taking an ambition target. We recognize that we have set a highly ambitious goal, but we plan to work very hard to achieve it. One of the fastest growing segment of the semiconductor industry is the advanced packaging, which is Camtek's core business. We see 3 major growth engines driving this market, HBM, 2.5D and 3D integration and photonics. Each of this segment is experiencing rapid technological advancement, increasing manufacturing complexity and growing demand for advanced inspection and metrology solutions. Later in today's presentation, we will take a closer look at the technological development in each of these areas and explain how they are creating significant growth opportunity for Camtek.

Later today, we also will explain in greater details why we are confident in our ability to achieve $1.2 billion in annual revenue within the next 3 years. But first, let me briefly highlight a few of our key strengths that support this confidence. Camtek is the market leader with a strong and well-established position in advanced packaging, particularly in 2D inspection and metrology.

Regarding our technological strengths. Over the years, we have developed exceptional technologies in our optical systems along with hundreds of innovative features and customized solutions for our advanced packaging customers. We continue to develop unique capabilities to address the increasingly complex requirement of emerging advanced packaging technologies. More recently, we have integrated to our system, advanced AI capabilities, which is redefining the inspection and metrology capabilities. Further strengthening our competitive advantage while creating new opportunity to expand our software portfolio and generate additional software revenue streams.

Regarding our operation, we are expanding our manufacturing capacity and strengthening our supply chain to support the next phase of growth. Our manufacturing partners who produce our core systems have already increased their production capacity to meet our anticipated demand. We have built long standing relationship with all the leading customers in our industry. We work closely with them and are involved from the early stage of developing their next-generation technologies. This close collaboration gives us early insight into their future requirement and enable us to develop and integrate advanced inspection and metrology solution into our system tailored to their revolving needs. This combination of market leadership, technological excellence and deep customer relationships give us the confidence in our ability to achieve our target.

And now I will hand over to Eyal, who will elaborate on the latest technological development and market trend. Eyal, please?

Okay. Good morning. I'm Eyal Segev, Director of Marketing, and I will talk about Camtek organic growth strategy and begin with the market analysis and growth potential analysis for Camtek.

So technology trends are mostly driven by AI and AI data center requirements and challenges. These challenges are best-in-class computing power, extremely high memory capacity efficient power consumption and high bandwidth for massive data transfer. For these challenges, the advanced packaging evolves with high-end technology. First, the 2.5D interposer which enabled the combination or the integration of the GPUs together with the memory on a single interposer, then interconnect that becomes smaller and denser to accommodate these high data transfer at smaller distances to improve the power efficiency and hybrid bonding, which even take this interconnect dynamics further. And then photonics that enables the communication between packages at a very high transfer rate.

So when looking beyond AI data centers that we all know, the next phase or the next wave for implementing AI is the edge devices. What we call edge AI or physical AI. In fact, AI will be influenced at the edge computers like autonomous cars, humanoid, PCs and mobile phones as well as wearables and will require smaller and more energy-efficient variation of logic and memory compared to what we have today with data centers. This actually would be data centers building blocks that we know today, but they will be scaled for usage on the edge devices, smaller stack HBM structures, for example, HBF or HBC, other variations of high bandwidth memory.

But altogether, this existing power packaging technologies that we know today, like 2.5D, 3D IC and fan-out will all still be utilized on this next wave of edge AI and the physical AI. Now having seen this silicon demand for AI data centers, the technology trends and future outlook of edge AI it's clear that the semiconductor wafer fabrication experiencing significant growth in the past and for the foreseeable future. In this chart, we can see the percentage of wafers that are undergoing advanced packaging as a portion of the entire semiconductor wafers. And note this that this chart is presented in wafer count, which is more relevant to us because we inspect wafer. So we see that the growth rate of these advanced packaging wafers is almost doubling the pace of the growth rate of the entire semiconductor industry. And this is significant to us because advanced packaging is our main business.

Now taking another step or zooming in. So we saw that advanced packaging is growing faster than the total semiconductor market now. We take the advanced packaging market and segment it into two segments. One would be the standard advanced packaging. And the other would be the high-end advanced packaging. These will be packaging technologies of 2.5D interposers, 3DIC sometimes fan-out. But the important thing is that these are packaging technologies, which are mostly related to silicon packages for AI data centers, components for data centers. And that's -- it's not surprising to see that this growth rate of the high end advanced packaging segment is again almost twice faster than the advanced packaging segment. This is even more significant for us because 60% to 70% of our business is right there at the high-end Advanced Packaging segment.

So when referring to the semiconductor market growth, I'd like to discuss a few growth engines for advanced packaging and naturally for Camtek. The first one would be edge AI and physical AI. So the usage of silicon for computing and memory in data centers today is actually only a fraction of what will be needed for edge AI and physical AI. What we see today is that the amount of GPU modules that are manufactured for data centers is estimated by about 10 million modules. But the annual number and now moving to 2030, the annual number of the logic and memory that will be required for humanoids and autonomous vehicles is already in the tens of millions. And when going to PCs, it's going to be in the hundreds of millions, and mobile phones, billion or even billions.

Furthermore, the amount of HBM memory, a single humanoid or a single autonomous vehicle requires is 200 gigabytes. This is similar in the range of the memory that is backed with today's GPU by NVIDIA. So this is enormous additional capacity for advanced packaging because they will all undergo advanced packaging, and this is a huge opportunity for Camtek.

Another growth engine is silicon photonics. When looking at the market forecast for silicon photonics, in terms of die shipments, we can see outstanding growth. This is for the next years and the numbers are huge in a multiplier of 24. This growth is basically stimulated by a new technology that is based on silicon photonics, which will be used for communicating between GPUs packages.

So I would elaborate on this. Today, the communication-based silicon photonics is mainly between racks at the AI data centers. There are foundries such as TSMC, Tower, GlobalFoundries that have mature processes for fabricating the photonic engine as well as the co-package optics encapsulating together the ASIC for generating photo-based communication between the server racks. However, the trend that will drive the silicon photonic massive growth, which we saw in the previous slide, is using the silicon photonic technology for communicating directly between GPU assemblies. This is a method for faster, reliable, energy-efficient and higher bandwidth for the data transfer which corresponds with what the industry trend needs. It's actually more powerful AI-related processing.

But what has it got to do with Camtek. So this is benefiting Camtek in several levels. First, the transmitting and receiving silicon photonic communication module will be integrated with the GPU and the HBM on the same 2.5 interposer as you can see on the illustration to the right side. Second, the DFB lasers, which is the source for photons is going to be fabricated for instance, or it's already been fabricated for instance, Coherent or Lumentum, but this is a new process, which requires new inspection and metrology steps, and this is additional potential for Camtek. And third, the photonic engine, the PIC, again, it's a mature node fabrication process. It requires, again, new inspection and metrology process steps along the fabrication process.

So wrapping it up together, the new process steps that are required together with the utilization or the massive utilization of advanced packaging or high-end advanced packaging with these processes. Also adding to the increase of the quantity altogether benefit dramatically to -- or will benefit dramatically to Camtek business.

Now as a core technology for Camtek, we see that micro-bump interconnects continue to grow. As technology trends to higher bandwidth and faster communication as well as reduced latency and better power dissipation or efficient power dissipation, the interconnect becomes smaller and denser. Bump-height, the most advanced HBM applications are going as small as 6 microns today, with the trend of reducing the bump-height even to 5 microns and possibly even down to 3 microns. These are outstanding numbers that never -- nobody has thought about 2, 3 years ago. In fact, the interconnect design of the future HBM5, which was supposed to be based on hybrid bonding to remind you, bumpless interconnect, it's not going to be like that. It's going to continue to be based on bumps.

And then Camtek is right there, dominant with bump metrology and advanced packaging. Our bump-height metrology sensors, our industry reference for HBM4, HBM4e, CoWoS, CoWoS-like or CoWoS variants all over the world, and dominant at OSATs with fan-in and fan-out applications worldwide. Our plan to support the future requirements of smaller than 5-micron bumps, as we know, with our next-generation sensor, which will be released next year. The 10th generation bump-height metrology sensor.

As I said before, interconnect technology evolution is based on market demands for reduced latency, better power efficiency and higher bandwidth. Hybrid bonding interconnect, which eliminates the need for micro-bumps and metal or reduce the amount of metal there, actually addresses all these market needs. Hybrid bonding is utilized rather at the high-end advanced packaging applications, 2.5D interposers chiplets, 3DIC, HBMs, it's ramping up, as we can see here. However, it's slower than we expected, it's ramping up slower than we expected. But it's reaching a share of 10% of the advanced packaging applications interconnect by 2030.

This is for Camtek is a source of new business opportunities because these are new process steps for inspection and metrology, such as post-bond void detection, pre-bond defect detection, very small particles, dishing metrology, wafer geometry metrology and others.

So I return to this slide that you saw before in which we see that the AI data centers demand and the flowing packaging technologies that are responding to these demands. And my point here is the result of this technology shift due to the demand is an increased complexity, which in turn drives our business to new opportunities, and let me elaborate on this topic a bit. How this increase complexity, accelerate Camtek growth. So generally, increased complexity contributes more inspection and metrology steps, but also contribute to demand of new tools beyond the capability of the installed tool base. And I will show you 4 examples to illustrate how new inspection and metrology process steps and demand for new inspection and metrology technology.

The first example is moving to high-density fan-out, where it requires tripling the amount of RDL layers from 3 to 9 layers. Now it's the same process, but now it's 3x more steps. So this, in turn, requires more tools. The second example, today, we measure wafer warp for a spec of 1 millimeter full wafer warp metrology. But moving to die metrology or die warp metrology as required with stacking the HBM stacks, it's actually a requirement for a tighter spec of 100 micrometers and even lower. This cannot be met with the current sensor, then it can only be met on a different tool with a different technology.

The third example is detecting defects on hybrid bonding wafers, pre-bonding. This requires the capability of detecting sub 150-nanometer particles. These are crucial because they create voids after the bonding. This is a different detection technology than we use on high-runner advanced packaging applications where the defect size is roughly hundreds of nanometers. And the last example, our bump-height measurement sensor, the 9th generation measures the most demanding bump-height applications with bumps down to 6 microns. But as we saw before, when moving to 5-micron height and lower, this technology does not suffice anymore. So it can only be measured on our next generation, our 10th generation sensor. Eventually, additional process steps and new technology result with more system demand for Camtek. So the -- actually, the increase in complexity drives higher inspection and metrology intensity.

And with this, I hand over to Ramy, who will take this from here.

Thank you Eyal. So far, we discussed the market, the potential to Camtek, let me move on and discuss the products, road maps and our plans. So we have 3 product families, the Hawk, the Eagle and the NanoProf. The Hawk is our newest and most advanced inspection and metrology platform for high-end advanced packaging application, 2.5D interposers, high-bandwidth memory and hybrid bonding. It can detect today defects down to 150 nanometers and applies the most advanced AI powered detection and classification engines.

The Hawk main products are 2, a dedicated model for advanced packaging with 2D inspection and 3D metrology and the model for just inspection. Each model can be equipped with additional options ranging from the 360 scan that you see here on the right, infrared and many other capabilities.

The Eagle has an installed base of thousands of tools. The most advanced Eagle is the G5. It is best-in-class for inspection and metrology tool for the advanced packaging market. This family includes a wide variety of products and options. The latest Eagle model we just launched is a product with fluorescence illumination to detect organic residues. In the metrology family, we have launched last SEMICON Taiwan, the NanoProf, which includes a wide variety of capabilities designed for the most demanding advanced packaging, hybrid bonding, wafer fabrication applications, metrology for TSV, wafer geometry and post CMP.

Now of course, we're constantly improving the performance and adding capabilities to all of our products. Now the 360 scan module was designed to increase the envelope of capabilities of detecting additional facets of the wafer. It performs backside inspection as well as wafer periphery inspection and can be attached to the Eagle or the Hawk and it is a seamless part of the overall inspection process. A couple of words about the panel. We have configurations for panel for all the 3 products. Furthermore, we have a cost-efficient configuration combining the NanoProf with the Eagle and the Hawk.

Now let's discuss the technology road map. We provide solutions today to the high-end advanced packaging, including hybrid bonding applications with our current technology, enabling detection down to 150 nanometers. We plan to deepen our presence in the specialty market targeting photonic as well as other applications. What is the -- what are we developing? We are developing technologies to enable detection well below 150-nanometer sensitivity. We are evaluating several technologies to address the crucial requirement for post-hybrid bonding, the ability to detect voids at high sensitivity and production throughput.

For obtaining superior defect detection faster, more accurate and with no false calls, we are implementing AI into our detection engines, but not only there. The AI is also added to the classification engines and for fast and intuitive machine setup. We are designing the next-generation platform to accommodate the accuracy and repeatability levels required with the most demanding applications while allowing better cost of ownership. This is obviously through higher throughput.

For the metrology road map, we will address hybrid bonding and several additional challenges to increase the market share. Starting with our unique sensor for measuring depths of very small TSVs. Continuing for post-CMP metrology, where we plan to improve topology sensor for measuring accurate roughness and the sensor for measuring copper pad dishing both prior to the hybrid bonding process. Before hybrid bonding, we are improving our current capability to measure not only the wafer warpage, but also the die warpage at very high throughputs. As for the bump metrology, as we mentioned before, we intend to release the next-generation sensor, which is our 10th generation to provide us with capabilities to measure bumps significantly lower than 5 microns.

On top of the new developments, we have improved drastically our metrology platform in terms of accuracy and robustness. And we are in the process of applying AI technology into our metrology algorithms as well. Let's talk about our SAM. We have discussed the growth engines, market potential and technology road maps for our products. Let me discuss now how these translate to growth. Looking at the SAM of Camtek today, the advanced packaging inspection is dominant with about $1.5 billion. While macro inspection in wafer fabrication is about $0.5 billion, metrology counts to $200 million.

When we look at 2030, the contributors for increase of our SAM are the significant market growth of advanced packaging, both in inspection and metrology. And in parallel, of course, our technology developed road map that will enable us to address additional applications that we have discussed earlier today. The outcome of this is an increased SAM of about $6 billion in 2030.

Now let me talk a little bit about our inspection business and our bump metrology. Significant potential for our growth will come from the inspection. Therefore, I would like to discuss our current business. We're looking at the split by application of Camtek's tools sold this year in '26, 85% of our tools were sold for inspection applications, where tools that were sold solely for bump-height metrology reach only about 15% of our tools. This trend is true for the past years as well, and it proved that although Camtek is a dominant market leader for 3D bump-height metrology for advanced packaging, in fact, we're a significant player in 2D inspection as well. As we mentioned earlier, one part of our road map strategy is to maintain our dominance and market leadership with bump-height metrology. And the other part, which is a more important is our road map strategy to develop capabilities and increase drastically our market share in inspection applications.

So let me discuss the plan to reach the ambitious goal of $1.2 billion in revenues in about 3 years. First, we will continue to strengthen our position into the inspection with hybrid bonding, 2.5D, 3DIC and high bandwidth memory applications. We're expanding our presence at specialty wafer fabrication, including the silicon photonics market in which we aim to become a major player. We plan to expand our market in metrology penetrating new process steps at advanced packaging, hybrid bonding and wafer fabrication. We expect in parallel to increase our revenues from software and service to a level of 12%. The acquisition of Visual Layer has accelerated the development of software products, and we plan to generate revenues from this product starting 2027.

We will maintain our leadership and market dominance with 3D bump metrology. Regarding the competition, something that we have been discussing and especially the competition with larger players. So we have competitive technology. Our products are designed for customizations for a dynamic advanced packaging market. We hold a dominant position at OSAT all around the world. And of course, we have a strong position at all the top IDMs and foundries. We have a proven portfolio with dedicated solutions for advanced packaging, including the bump metrology, fluorescence inspection, flexible handling and many others. While the larger [indiscernible] players do not necessarily have these capabilities.

And last but not least, the large players are much bigger than Camtek. However, in our market, we are significantly larger. In fact, advanced packaging is our home ground. And lastly, we are -- we have built the capacity for expansion. Our operation infrastructure is already in place to support the huge ramp up to $1.2 billion and beyond.

And with that, I will hand the presentation to Moshe.

Thank you, Ramy, and good morning to everybody. Thank you for coming. Over the next few minutes, my job would be to translate everything that you heard so far this morning into numbers. And my message basically boils down to one sentence, Camtek is in its best position it has ever been, and we have the best visibility and a clear path to reach our ambitious goal of doubling our revenues within a matter of 3 years.

So you've all seen the press release that we've issued earlier this morning, preannouncing our Q3 numbers to a range of $160 million to $161 million, representing over 27% year-over-year. We also provided an initial outlook for Q4 for $180 million, which translates to 40% year-over-year. And basically, sums or brings our total revenues for this year to around $595 million, just shy of $600 million. And most importantly, we have provided an initial outlook for the first time of $800 million for next year, representing 35% over this year, which is acceleration of 20% that we will show this year.

In fact, this is the first time in the history of our company that we are able -- and we have the visibility to provide a revenue outlook so far out. So let me start by saying or explaining why we are so confident and why we feel so comfortable saying that. So you probably remember, like a couple of months ago, when we announced our Q3 results, we provided a number for the orders -- incoming orders for -- since the beginning of the year. And we said that we received $600 million worth of orders. So it's been a couple of months now since this announcement, and we are happy to say that today, we have added additional over $200 million of additional incoming orders, bringing the total orders -- incoming orders since the beginning of the year to over $800 million. And we are only 3/4 throughout this year, and the order momentum continues.

If you look at the breakdown a little bit, so around 80%, there is no much difference between what we said a couple of months ago and what we see today in terms of the breakdown, 80% comes for advanced packaging, and we heard a lot about the advanced packaging before from Eyal and Ramy. This is our main market, and 80% of the business came from this market to support HBM applications, 2.5D and the like. Almost all of the advanced packaging is high-end advanced packaging to support AI applications. And if you look at the breakdown by customer type, a little over 50% came from OSATs where we enjoy a strong and dominant market position across the different customers and the different geographies.

The result of all of that is that the -- that we have now the strongest backlog and the best visibility we have ever had in the company. And these deliveries will be for '26 and for '27. And this order book and visibility is the starting point of the model that I'm going to discuss in a few minutes. So before looking forward, a quick look back. Over the past, we have proven our business model with a long track record of ongoing growth and improving profitability. We also managed not only to grow but also to ramp up quickly and efficiently the operations to support the growth, and we plan to do the same in the future.

If you look at the revenue growth, we almost doubled the revenue since between 2023 and 2026, translating to close to 24% CAGR over the period of time. In terms of margin, we improved our gross margin by 3.2 points and improved our operating margin by 3.6 points over that period of time, driven by the scale, driven by the leverage that we have in the model, and driven also by the richer mix, the Eagle Gen5 and the Hawk.

Over the longer term, we have consistently outperformed the industry. If you look at the industry numbers, since 2017, until 2026, our revenue grew sixfold by 540%. While wafer fab equipment or WFE grew a little over 200%, which basically means that this is 2.5x more than the pace of the WFE. And the reason I think that you heard the presentation so far is that early on, we took a decision to focus on the advanced packaging market. This was way before it became so popular. And it turns out that this was the fastest-growing segment in the industry. So the fact that we focused on this market segment enable us to grow faster together with a market share that we were able to take from the competition.

And as you can see, the market definitely recognize it since the end of 2022, our share price is up over 650% compared to the NASDAQ, which grew 160% and even the SOX, which is closer to our market, grew by 423% over that period of time. And now to the new model. So we are targeting $1.2 billion of revenue in about 3 years. Doubling from $600 million that we plan to end this year with substantially organically. We are looking into 3 buckets or engines that will support the growth.

First, and the bread and butter and our main market, which is the inspection and metrology, mainly inspection and to some degree, the bump metrology, will contribute around $380 million to the growth, led by the newer tools that we use, the Eagle Gen5 and the Hawk. We believe that growth will come also with the market trends that we discussed earlier as well as -- and we will benefit also from the strong market position that we have. Second is the metrology market, which is originated from the acquisition of FRT a couple of years ago. This will add about $120 million to the revenue. And third, service and software that will contribute around $110 million. Again, some of the growth potential here is originated from the acquisition that we have done only 6 months ago of Visual Layer that is adding to our AI capabilities.

And these engines don't just add to the revenue, but each and every one is enabled us to lift a little bit the margins, and I'll show you in a second. I want to spend a moment on the third engine, which is the software and the service because it brings a new kind of dimension or a new revenue stream to our model. We have around -- today, we have around 4,000 systems installed at customer sites. Service revenue is based on installed base. Now the nice thing about it is that we have built the infrastructure, the infrastructure is there to support customers, but we never really monetized this. The focus of the company in the early years was to take market share, was to sell more machines, but not as much on the service part.

A couple of years back, we started to focus more on the service given the size and given the bigger installed base. And it's already paying off. If you look at 2025, we grew 40% the service revenue, which is faster than the growth of the product sales, and we plan to maintain this momentum in the next few years ahead. On the software side, I think we've mentioned the fact that we plan to launch AI-based software offering in '27. And we plan that this will contribute also to the mix. All in all, together, we plan to increase revenue from this business from $28 million today, which accounts for 6% of the revenue, all the way to over $140 million, which will be 12% of the mix. And this revenue is actually accretive to gross margin, obviously.

One word on R&D. I don't have enough words. Needless to say and to emphasize the importance of R&D to our business. Our growth is really depending on staying ahead of the competition ahead technologically. So over the years, we have increased the investment in R&D to maintain our leadership position and the growing technological challenges. If you look at the chart, you see that we are investing -- we increased the investment in R&D from a little less than 8% in '24 to a little less than 10% this year. And the idea is that with the -- as we discussed, the challenges that we have ahead of us, and the increased complexity will require additional investment in R&D, and we plan to basically -- in our model, we assume that R&D will account for around 10% of the mix to support and to fund everything that we have discussed beforehand.

So now I would like to talk how the growth turns into profitability or into margins. In our baseline, we know the starting point is our 2025 operating margin of 30%. A richer mix, and when I say richer mix, I mean, first of all, the Eagle Gen5 and the Hawk, which are gross margin accretive as well as software and services, and as I've mentioned, also gross margin accretive. Together, they will add around 3.4 points to the profitability, to the gross margin -- on the gross margin level. SG&A, we have leverage on the SG&A level, revenue grew faster than the overhead and the fixed expenses. And as a result, this will contribute around 2.4 points. And as I said, as we increased a little bit the R&D spending or the investment in R&D, this will take back a little over 1 point from the profitability. And the end result will be that we will grow our profitability, the operating margin from 30% last year to 34% to 36% at the $1.2 billion revenue level.

So putting all together, this is our updated model -- our target model, replacing the model that we had up until now of $750 million. This is 60% higher than the previous model, and we are basically reached the $750 million or we are -- very soon we will reach the $750 million model. So it's about time to introduce a new model. We plan to double and we target a $1.2 billion within around 3 years. Gross margin goes from 51% to 52% nowadays to 55% to 56% under the $1.2 billion revenue level. And operating margin will grow from 27%, 28% in the first half of this year to 34% to 36% in this model.

Models are models, but our model can accelerate if adoption of, for example, edge or physical AI will be faster than expected. But on the same time, things can go a little bit slower and there could be challenges. Could be that, for example, the WFE -- the WFE will get into a CapEx digestion period. So this is -- this could challenge the numbers. All in all, our model takes into account a balanced set of market assumptions and we -- this is what you see here in front of you.

So just to wrap it up, 4 key takeaways. We are targeting an ambitious $1.2 billion revenue within around 3 years, substantially organically, and we have a very nice start already next year of over $800 million, supported by the nice order momentum. Second, this -- there will be a big shift to the newer product lines and software offering and service offerings. Margins are going up. And finally, we have a strong balance sheet. We have over $800 million to support the growth and to fund potential M&A activities.

And with that, I'll hand it over to Lior to discuss our M&A strategy.

Thank you, Moshe. Do you hear me? Great. So good morning. For those of you don't know me yet, I'm Lior Aviram. I'm the Executive Chairman of Camtek and my role on top of leading the Board is to lead the M&A and strategic initiatives, activities of Camtek.

Now we get questions about the M&A strategy of the company, and we wanted to shed some light on it. As we understand that people are moving from here to the next meeting at 9:00 and we want to leave enough time for Q&A, I will try to stress what we find to be important in our strategy on top of the slides, and the slides you can review, and they are part of the deck anyway.

In principle, there are 2 basic channels of activity for straightforward M&A. The first is aimed at gaining additional capabilities to our core business. Here you are. These are the 2 work streams on the left side of the slide. In most cases, we are looking here at the acquisition of smaller companies, which are either technology -- which have either the technology or the team and preferably both that our core business requires to fill certain gap or to achieve a certain competitive advantage. The other stream on the right side of the slide is about acquiring businesses, not necessarily in our immediate core business. And this could be private companies as well as public companies. We've looked at both during the last year or so.

The bigger the businesses are, of course, the fewer opportunities arise, and they tend to appear in a more sporadic timing. So if the first channel of activity is an ongoing one with an established deal flow, the second requires us basically to be ready and able for the opportunity, knowing the landscape, having the relationship in place to make sure that the opportunities reach our table before -- for an early as possible look and, of course, having the balance sheet and the organization capacity to act quickly when the right one comes along. I can tell you that during the last 1.5 years, we've looked at over 100 opportunities among all work streams. Now what's vital to the larger acquisition of businesses where the stakes are higher, is disciplined in applying the criteria that we have defined to be required in each and every opportunity.

First and foremost is a strong management, leadership that we can build on. Since it's an additional business, not necessarily in our core. The next 2 are the growth and profitability profiles. We preferably have those at the pace of our growth and rate of profitability or at least with a clear path to achieve that in -- again, in a reasonable time. The last, but maybe also as part to the leadership is the significant synergies. Basically, it's a clear understanding or actually a conviction why one plus one will be much more than two.

Now it is clear that in each case that each case is different, every opportunity has its stronger and weaker points. And they are to do -- is to do the integration of the factors and to take the right decision. But I can assure you that we are very disciplined, and we continuously challenge ourselves during the M&A process, whether what we know after more due diligence still support our initial thesis, and we with no hesitance about processes where we find the answer to be negative.

Now I'll touch briefly on the strategic partnership or acquisition -- less acquisition, as I prefer to look at it. Strategic partnerships offer another way to achieve a strategic combination without an acquisition. It may extend our core business. We bring together basically the partner's technology and Camtek's capabilities through collaborations while each company remains independent. Our aim is to bring innovative and sometimes breaking through technologies to market at scale and at speed. We can integrate in this channel a partner's technology into our systems, integrate our technology into partner system or combine them alongside in a cluster tool. The application determines which approach makes sense, and we -- I can tell you that we are actively pursuing this channel of initiatives as well.

Why partnering? This is clear. Not every opportunity is justifying an acquisition. It opens for us or it may open for us at least, the door to collaborate with larger players in the industry that cannot be an acquisition target, and a partnership give us a way to work with technology without owning the company behind it. What I wanted to quickly touch upon the acquisition that we closed just about 6 months ago of Visual Layer. This is a good case study. At least for me, this is the model. So there, we actually acquired both talent and technology. And that one has already boosted our AI capabilities. We found in Visual Layer a strong leadership and an established team with an amazing AI research depth.

Today, 6 months into working together. I can tell you that the PMI has already been completed. The team is fully integrated in Camtek's AI initiatives and it feels like our AI development power is on steroids. It has accelerated the implementation of AI algorithms in our tools already in 2026, and at the same time, allows us to look at developing an additional line of AI software businesses that were mentioned before here, that will contribute to our bottom -- top and bottom lines with better margin as early as 2027. We are very happy with this acquisition, which has proven itself to be not -- to be maybe not very big in its dollar value but truly strategic to us.

And with this, I hand over to Rafi to wrap-up. Rafi?

Okay. Thank you all for your attention and patience. Before I conclude, I would like to leave you with four key messages: One, a powerful and substantial growth market. We operate in a rapidly expanding market with strong growth drivers for years to come. Two, increasing complexity creates new opportunities. The growing complexity of advanced packaging driver demand for more inspection and metrology steps while raising barrier to entry for competitors. Three, a clear competitive advantage. Our advantage technological extensive installed base and a deep customer relationship position us to strengthen our market leadership and capture additional market share. Four, ready to scale. We have the technology, manufacturing capacities, supply chain and organizational infrastructure in place to support our next phase of growth. We have proven our ability to win in the past. We are confident in our ability to do it again on a larger scale.

Thank you very much.

Okay. We'll open now for the question-and-answer session. I think the way we'll do it is put your hand up, we'll choose you for a question. And I'll bring over the mic and introduce yourself and feel free to ask.

Charles Shi from Needham. I know next year, preliminary guidance, very strong, maybe now the questions I was going to ask didn't really matter for next year, but I think still some questions remaining regarding your market position, et cetera. So maybe the first part of the question, your competitor did announce $200 million OSAT orders for CoWoS offload, but OSAT has been your traditional strength. So wonder what's your plan to regain back that opportunity, maybe beyond 2027, because I'm sure that's important piece for you to get to that $1.2 billion.

The second part of the question more on the HBM side. We did here over the last couple of days, there seems to be some hesitation. I don't know if you agree or not, please tell us, that the customers have some hesitation to buy the dedicated 3D bump metrology. 2D is still ongoing for HBM related demand, but 3D seems to be some hesitation. We don't know exactly the reason. Interpretation maybe they are kind of stuck in the limbo of HBM de-spec, go to hybrid bonding or not go to hybrid bonding. So we heard some of those, but I wonder if you can address that. So that's a 2-part question.

So let me start with the de-specking question, and then I'll move to the first one regarding the OSAT. So we do not see this hesitancy that you've just discussed. I think in general, we are seeing orders for what we call 3D bump metrology. This is ongoing. So I don't know the source of your information. This is not what we are seeing. Regarding the de-specking, I think you need to look at it in a different way. Currently, because of all the announcements and the plans that NVIDIA and others are making, there is a tendency not to go with higher memory density in each of the module actually to reduce it. But when you look at the capacity that's being built for HBM, it's still -- they're adding a lot of capacity.

And I think on the other side, you will see some increase in other applications that are focusing also on the server side. So I think that this is, I would say, one point on a market that is going to grow drastically in the very foreseeable future. I don't see any hesitancy from ordering. We're seeing part of the $800 million, they are orders for HBM and specifically for 3D bump metrology.

On the first question that you had, you asked. So first of all, the announcement from our competitor about the $200 million, we have received a very significant order, not much smaller from the same customer. So yes, there is a tendency to move from the big foundry to offload some of the CoWoS capacity. This is part of it. I'm expecting that our share in '28 will be larger. But I want to make another comment. If you look globally, at all the countries that have OSATs. I think we are the strongest across all the regions. And even specifically, the orders, the area that we are talking about Taiwan, even there, I expect that our share is at least 50%.

Thanks Blayne Curtis of Jefferies. I wanted to just expand on the silicon photonics opportunity. So today, you're seeing PICs added into pluggable transceivers. There's a lot of debate as to like MPO CPO timing. I'm just kind of curious to your visibility into that and then just your positioning on the silicon photonic PICs side today. You said you want to improve your positioning. Obviously, there's a big opportunity as you get to CPO, but what's the opportunity with MPO as well?

So first of all, I think we mentioned it in our call, and it's not different when we look at the orders that we have on hand, about 5% are going to photonics. Obviously, I cannot elaborate to which customers and exactly the application. But all in all, we are seeing orders on the silicon photonics and what we call the DFB lasers, which is the indium phosphide part or the compound semiconductor. So we are seeing strength on both sides. I think there the opportunity is just building. It's very small today. We will see the customers ramping. I think the ramp will be steep.

But at this stage, we are well -- I think, in a position to take a significant market share from the photonics market, and it will take -- I think we'll see -- it's more of a '28 and onwards, I think the ramp will happen. I don't think the growth -- yes, no, '27 we're seeing, but I think the big step in the business, the main growth, you will see the ramp will be in '28.

Jim Schneider, Goldman Sachs. I was wondering if you can maybe sort of address the forward outlook, very nice outlook, 26% compounded growth embedded over the next 3 years. However, I think at the same time, a lot of market participants believe that maybe the WFE growth could even be stronger than that level. So I wanted to kind of understand and gauge your confidence in if WFE is much stronger than that growth rate, your ability to match or exceed that growth?

So we're still not there, we're still 1 quarter away from '27. And like Moshe said in his presentation, no doubt our visibility today is much, much better than we ever had. But if the WFE will be stronger, I'm sure that our results will be probably better than the WFE as we historically over exceeded it over the past years. So I think it's too early now to give a different number. This is still the outlook as we see today from the backlog, the pipeline, the discussions with customers. But no doubt, as we move along this year, we'll have a much better and clearer position.

I don't think we have any technical limitation, not from our equipment, competitiveness on one side and from a capacity point of view, we will be able to increase the revenues if they are required.

Maybe just to add, let's split the issue to 2 parts. '27, we obviously have good visibility. We provided over 35% growth in '27, which is well within the WFE expectation for '27. For the model, indeed, we assume 26%. This is initial number. We said that this is -- we didn't commit to specific 3 years, so the number could be bigger or different from the 26%. And the assumption is a medium assumption. As I said, we wanted to have a base case, and we will update the number as we progress throughout the years. But we are committed.

And as Ramy said, I think I said it very clearly, we've managed to consistently outperform the WFE. And given the fact that we are focused and exposed to the highest growth drivers in the market, I don't see any reason why we will not be able to outperform the WFE in the next 3 years.

Ed Yang, Oppenheimer, and thank you for this, Analyst Day was very informative. If I could ask the revenue question a different way. Eyal talked about high-end advanced packaging wafers growing 24% CAGR. And versus, again, your revenue forecast CAGR of 26%, so about 2% outgrowth versus that high end of advanced packaging wafer growth. How does that compare historically to your experience? And what's the possible range of outcomes around that outgrowth of that 2%? What would bring it to have you grow faster or slower than that 2% outgrowth?

So first of all, we are talking about 60% or 70% of our revenues are going to go to that segment. Of course, we are targeting other applications like photonics that are going to grow more or less in this range even faster. We plan with our new capabilities specifically the AI that we've implemented into our inspection and metrology algorithms, we expect them to even make a stronger and be able to take some market share.

So all in all, of course, we are trying to build also the other segments that historically have been slower than the advanced package to catch up with these kind of numbers. So of course, this is something that is too early to make a comment. But definitely, we would like to find other applications that are going to grow as fast as the most advanced packaging segment.

Okay. We'll take some questions from the back.

This is Vedvati from Evercore. The first one I had is you mentioned almost 3 kind of big revenue growth areas, hybrid bonding, silicon photonics. How would you think about -- like where do you have the most conviction in terms of gaining market share? And which one has the highest revenue generating opportunity for you?

So I think it's a matter of the way that the market goes. I mean those 2 segments are growing nicely. Hybrid bonding is moving slowly than the other segment of photonics. So I think it would be more mature to take bigger portion or bigger revenue from the silicon photonics before hybrid bonding will actually be in full steam. I think it wouldn't be full steam before the end of this decade.

Auguste Richard, Northland. There's levels of customer commitment forecast...

Auguste, we can't hear you.

Can you hear me now?

Yes.

All right. I worked for Verizon. There's levels of commitments from customers forecast, orders and prepays. And I was wondering if you could sort the $800 million for next year into those 3 buckets. And then also, where are you slotting deliveries for next year at this point?

What was the last question? What are we slotting?

Yes, where are you slotting deliveries for next year at this point?

Okay. So first of all, I think we made a general comment regarding, first of all, it's backlog. And the backlog is significant. We did not say the numbers, but it's a meaningful number. When we talk about pipeline, it's not just somebody we met is going to place an order maybe. This means that we know that the customer has the budget and he intends to place the order. Most of the cases, very high percentage when we refer to pipeline, those orders are actually received on time. In many cases -- it's a case that a customer already asked us to slot, already to give him a slot and committed to give the purchase order at a later date. These are the cases of the pipeline.

And of course, discussions with customers. So talking to all the customers, and we have so many of them, you get a sense of where the market is going to. Historically, I think you followed, we've been pretty conservative on our forecast and we've met them so far. I don't think we miss -- I don't think we ever missed one of our forecast in the last few years. So we feel comfortable with this number. And I think, as I said, there is a lot of substance and work before that was made before we put these numbers.

Now regarding slotting. So we are getting to a slot for all of '27. Now the reason for that, customers that already know exactly when they are going to finish their clean room. Let's say, they're going to finish it in the third quarter of next year. They will ask us for slots now. Some customers are more interested in getting the machines as fast as they can. But in general, yes, there are slots throughout '27 as we speak.

Daniela Talio with Stifel. I wanted to go back to your SAM. So if I look at '26, your estimated sales just under $600 million on the $2.2 billion SAM. That implies about a high 20% share of the market. And then if I look at your 3-year revenue target of $1.2 billion, on your $5.8 billion SAM, that implies a lower 20% share. So I wanted to see how we should think about that change in share if it's a matter of the markets?

Okay. Thank you. I'm just referring you to the fact that the SAM refers to 2030, which is 1 year after the 3-year model. So this is why you see a slightly lower share in the market. Obviously, if you look at the 2029, we plan to increase our market share with everything that we've mentioned.

Shane Brett from Morgan Stanley. So the messaging I felt from the last hour is that Camtek is well positioned for 3D metrology. And you gave a lot of reasons why you're well positioned. But when I look at Slide 25, I was pretty surprised to see 60% of your portfolio is 2D inspection. 2D is where your 2 American peers are continuing to strengthen their product suites. So like just how do you see the competition there through 2030?

So first of all, no doubt that 2D inspection is the largest market, and there are going to be additional players that are trying to enter it. We've heard the announcement yesterday. It's not a surprise. We've heard the rumors before. So definitely, and I think I discussed it, why we believe that we will be able to compete very well in our market also against the larger player. So when you look today at the competitive landscape, they are smaller players. And you get the local ones in Korea, in Taiwan, in China, that are there, and they are doing an excellent work and take some market share. But I believe that we have a much better position as a global player.

And I think regarding specifically the big large player, yes, no doubt, it's competition. we will need to address and work very hard to meet the requirements. But I think all the discussion that I mentioned from all the different aspects, our understanding of this market, the way we built the business, our ability to respond very fast. All those hundreds of capabilities that we've built over the years that put us -- give us a very strong position within the customers. We understand where the market is going to go. And I think very much like the way we've been able to compete with KLA, give me the confidence that we will be able to compete with also larger players that enter this market. The market is growing. There are many opportunities, and I think we are very well positioned to meet the ambitious target that we put today.

So yes, over the last 1.5 hours, you also didn't mention China. But just this might just be a clarification. But when we get to $1.2 billion, what's your early expectation on what percentage of that revenue China will make up? And if there's any comments on local competition?

So first of all, China is around 45% of our business, and I expect us to maintain the market share in China. I think it will continue to be in the foreseeable future, a big opportunity for us. So yes, there are local competition in China. It's not a secret. There are many small players. There are a couple, I would say, of good companies there. And that manufacture, good equipment, competitive equipment and no doubt that the local players will play a significant role. But the market opportunity there is very large.

But I want to talk about our position in China. We've been there from the very first day, we sold the first machines to all of the big OSATs today that are playing in the Chinese market. And we have a huge installed base there. And the relationships are very close. And I don't see people that bought so many machines from us and made such a big investment, not continuing working with us. I think the Chinese players want to get equipment from global companies because they want to make sure that the capabilities are those capabilities that are being done in other OSATs. So they want to see in their machines experience that we gained in Korea and Taiwan and elsewhere.

So I don't think this market is going to go away. Yes, there is going to be competition more and more from the locals. We see it on the inspection, we see it on the metrology side. But definitely, we are confident that China will continue to be a big opportunity for us.

Okay. I think we have time for 1 last question.

Yes, just one sentence, just to complete the answer. As we said, we have good visibility already for 2027 and a strong backlog. And based on that visibility and backlog, I can tell you that China is expected to be at least as strong as it is this year in 2027.

Matt Prisco with Cantor. I guess digging a little more into the 2027 side of things. It seems like the $800 million is a very reasonable bar today as you guys are kind of booking almost $300 million per quarter in orders and exiting the year to 180 run rate. So if we were to believe there's upside to that number, what would kind of be the rank order most likely sources in your view? And is there an ability for Camtek to supply upside to that $800 million number today?

So obviously, it depends on the market. Is there a potential upside? Yes, there is potential upside in all the numbers that we have seen. Of course, it's too early to size the upside. And we'll need to wait for another 1 or 2 quarters, and we'll be able to size it, but I do believe that there is an upside at this stage. At least this is what we see.

About 2027. Look, this is not a guidance. This is an outlook. This is what we see now, it can be more than that, and we will have the ability to supply more. This is -- this reflects what we know now about '27, and it can be more than that.

Now from a capacity point of view, I think I mentioned it also during my discussion. Our operational infrastructure will be able to supply more machines if they are needed. I don't think this is a limitation. I think we discussed it yesterday. We're set up with a lot of subcontracting, very big subcontracting companies are supporting us. They have enough capacity to increase. If the market will be there and our customers will want more equipment, yes, we will be able to supply it.

Okay. That brings us to the end of the Analyst Day. So thank you very much all for coming. We appreciate your time. The webcast will be posted on the Camtek's website and also is available from the link in the coming hours. And thank you very much. Have a good day.

Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtek's result Zoom webinar. My name is Kenny Green, and I'm part of the Investor Relations team at Camtek. [Operator Instructions] I would like to remind everyone that this conference call is being recorded and the recording will be available from the link in the earnings press release and on Camtek's website from tomorrow. You should have all received by now the company's press release. If not, please view it on the company's website. With me today on the call, we have Mr. Rafi Amit, CEO; Mr. Moshe Eisenberg, CFO; and Mr. Ramy Langer, COO.

Before we begin, I'd like to remind you that the statements made by management on this call will contain forward-looking statements within the meaning of the federal securities laws. Those statements are subject to a range of changes, risks and uncertainties that can cause actual results to vary materially. For more information regarding the risk factors that may impact Camtek's results please review Camtek's earnings release and SEC filings and specifically the forward-looking statements and risk factors identified in the results press release issued earlier today and such other factors discussed in Camtek's most recent annual report on SEC Form 20F. Camtek does not undertake the obligation to update these forward-looking statements in light of new information or future events.

Today's discussion of the financial results will be presented on a non-GAAP financial basis unless otherwise specified. As a reminder, a detailed reconciliation between GAAP and non-GAAP financial results can be found in today's earnings release.

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

Hello, everyone. I am delighted with our second quarter results and even more excited about the exceptional momentum we are seeing across our business. More importantly, the expectation we shared with you on our previous call regarding the second half of 2026 and our leadership position in the advanced packaging market are now becoming a reality, as you will hear through today's call. But first things first, let's begin with our second quarter financial results.

Second quarter revenue reached a record of $133 million, exceeding our guidance. Gross margin was 51.4% and operating income totaled $36 million. Approximately 75% of our revenue was generated from the Advanced Packaging segment, with the majority supporting AI-related applications. The remaining revenue was generated across a diverse range of 2D inspection application, including photonic and various 2D inspection applications.

Now let me return to the point I made at the beginning of the call. Earlier this year, we communicated that we expected the second half of 2026 to be significantly stronger than the first half. That expectation has materialized. Since the beginning of the year, we have experienced a significant acceleration in order intake, bringing total orders received year-to-date to more than $600 million with deliveries scheduled through the remainder of 2026 and into 2027. This exceptional level of order intake has significantly improved our business visibility for the remainder of 2026 and well into 2027, giving us increased confidence in our outlook.

Our leading position in the Advanced Packaging market is expected to drive approximately 45% growth in our Advanced Packaging business in the second half of 20 compared with the first half. Looking at the year from another perspective, we expect our advanced packaging revenue in the fourth quarter to be approximately 70% higher than the first quarter, reflecting the strong acceleration in demand.

[indiscernible] second quarter, approximately 50% of our systems revenue were generated by the new generation platform, the Eagle G5 and the Hawk. We expect the contribution from these products to continue increasing over the coming quarters as customer adoption accelerated.

Let me provide some additional color on the more than $600 million orders we have received since the beginning of the year. Approximately 80% of these orders are Advanced Packaging applications. The industry transition to HBM 4 together with continued capacity expansion has resulted in significant order from multiple leading HBM manufacturers. In parallel, the ongoing expansion of 2.5D and 3D IC packaging capacity is creating a substantial growth opportunity for Camtek, as reflected by the large multisystem orders we have already received from leading foundries, IDMs and OSATs. Notably, OSATs accounted for more than 50% of our total order intake.

Another existing market emerging as a meaningful growth opportunity for Camtek is photonics, including silicon photonics and compound semiconductor. We have already received multisystem orders from several customers in this market, and we expect Photonics to become an incredibly important contributor to our growth in the coming years. This brings me to our outlook. We expect third quarter revenue to be in the range of $158 million to $160 million, representing an exceptional 20% sequential increase over the second quarter.

Given our strong order momentum and record backlog, we expect to deliver more than 30% growth in H2 2026 versus H1 2026, followed by continued growth into 2027. It is also important to highlight that we are continuing to expand our core product portfolio with new platform configuration and application-specific module that will enable us to address additional applications and markets where we have not previously competed. Example, including a high-resolution backside inspection, module and fluorescence illumination technology for detecting organic residue.

In the metrology space, we are also launching a new platform, NanoProf, which will significantly expand our metrology capabilities and enable us to address with existing and emerging process step. The Hawk, combined with its enhanced optical capabilities, and our breakthrough AI technology is further strengthening our competitive position and enabling us to penetrate additional process steps. -- including hybrid bonding as well as other fast-growing emerging applications.

We look forward to discuss this development in greater detail at our investor breakfast in October at Semicon West. I'm also pleased to report that we are successfully managing the operational challenges created by this 100% level of demand. We prepare well in advance by expanding our production capacity and strengthening our supply chain, enabling us to meet customer delivery schedule while supporting our continued growth.

At the same time, we are preparing the organization for the next stage of growth by further expanding our manufacturing capacity, system integration capabilities, sales organization and customer support infrastructure to support substantially higher annual revenue level.

Let me conclude by summarizing our key messages. The AI revolution is driving unprecedented demand for data center, cut capacity and power infrastructure with AI adoption still in its early stage. We believe demand for AI compute infrastructure will continue to grow significantly, supporting sustained investment in AI data center and advanced semiconductor manufacturing. Camtek is exceptionally well positioned to benefit from the expected growth over the coming years. We have 100 of system installed at the world's leading customer, and we work closely with them to develop inspection and metrology solutions tailor to their evolving technology requirements.

Our product development road map is closely aligned with the technology road maps of these industry leaders. This strong customer engagement combined with our expanding product portfolio and proven execution giving us great confidence in our ability to deliver sustained growth in the year ahead.

And now Moshe will review the financial results. Moshe?

Thanks, Rafi. In my financial summary ahead, I will provide the results on a non-GAAP basis. The reconciliation between the GAAP results and the non-GAAP results appear in the table at the end of the press release issued earlier today.

Second quarter revenues came in at a record level of $133.2 million, an 8% increase year-on-year and 10% compared with the first quarter of 2026. The geographic revenue split for the quarter was as follows. Asia accounted for 92% and the rest of the world, 8%. Gross profit for the quarter was $68.5 million. The gross margin for the quarter was 51.4%, similar to the previous quarter. Operating expenses in the quarter were $32.5 million compared to $30.9 million in the previous quarter. The main area which has increased its R&D. This is around the investment in new technologies and additional resources from the visual layer acquisition in order to strengthen our AI offering.

Our operating profit in the quarter was $36 million compared to $31.1 million in the first quarter. Operating margin was 27% compared to 25.5%.

In line with our forecast for a strong second half the leverage we have in the model together with the improved product mix towards the Eagle Gen 5 and the Hawk is expected to result in a gradual improvement across all profitability metrics in the next few quarters.

Financial income for the quarter was $7 million compared to $8.1 million in the first -- in the previous quarter. The main reason was devaluation of certain balance sheet items due to the weakness of the U.S. dollar versus the Israeli shekel.

Net income for the second quarter of 2026 was $39.4 million or $0.78 per diluted share. This is compared to a net income of $35.5 million or $0.70 per share in the previous quarter.

Total diluted number of shares as of the end of the second quarter was 51.5 million.

To some high-level balance sheet and cash flow metrics. Cash and cash equivalents, including short- and long-term deposits and marketable securities as of June 30, 2026, were $815.8 million. We generated $12.2 million in cash from operations in the quarter. As a result of the increased business volume, accounts receivables increased to $153.9 million compared to $131.7 million in the previous quarter.

DSO increased to 105 days. No change to the inventory level this quarter. However, we do expect it to grow in the coming quarters to support the forecasted strong growth in revenues.

As Rafi said before, we expect revenues of $158 million to $160 million in the third quarter with sequential double-digit growth in Q4 and further growth into 2027. This represents over 30% second half 2026 growth versus the first half.

Before we open the call for questions, I would like to announce that Camtek will be hosting an investor and analyst breakfast presentation at Semicon West. It will take place on Wednesday, October 14, 2026, at 7:00 a.m. Camtek's management will present our market outlook strategy and technology road map. A formal invitation with additional details will follow, and we look forward to seeing you many of you there.

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

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

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

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

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

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

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

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

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

Our next question will be from Matt Prisco of Cantor.

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

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

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

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

Our next question is from Jim Schneider of Goldman Sachs.

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

So all in all, we spoke about $600 million in order. So let me try to draw some color there, and then we can talk about the HBM business. So we said 80% for Advanced Packaging. I think this indicates the strength of our business in the Advanced Packaging space. And with that, OSAT is a very strong business. Over 50% of the business goes to OSAT. A lot of them are doing Advanced Packaging.

As we talk about the HBM, we spoke about the strength of our business already in the previous call when we discussed the $260 million of POs and forecast that we had. Out of the $600 million, over 20% is from HBM players. And we do have additional strong forecasts into 2027 in this segment. Now of course, we cannot talk about main customers. This is something that we are not allowed to speak about.

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

Jim, this is Moshe. We definitely plan to see some increase in our OpEx level, but not to the extent that it will exceed the revenue growth. So the leverage that we have in the model will play a major role in the improved profitability in the next few quarters ahead, and we definitely plan to improve both the gross margin, but even more the operating margin levels.

Now maybe just to give you some color, most of the growth that we are going to see in the OpEx will be on the R&D level with the acquisition of visuals edge a few hundreds of thousands of dollars to the R&D. And we plan to continue to invest in R&D, that's for sure.

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

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

So we -- if you look at the $600 million orders that we talked about, 5% is photonics. So it's a nice number to start. And this is really a market that's just taking off now. So definitely, there is a potential there. And I think we will get more orders to this specific market as we go on this year. So I think '27 will be more than the 5% I just mentioned.

When we talk about the applications, so basically, there are 2, and Rafi spoke about it, there are basically 2, I would say, main segments when you talk about photonics. Obviously, the silicon photonics. And this is, I would say, it's an area that we already sold quite a few machines into and we are selling, and this is part of the 5% we discussed. And then there is the compound semi. When we talked actually about the diodes, the -- there are all kind of diodes that are being used for the transceivers and receivers or at a different segment -- in, I would say, the characterization of these applications are different. But that's, I would say, the main 2 segments that we are seeing today in this specific market.

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

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

We still need time to really digest this information and really build it into a full picture. This will take at least one more quarter to 2 quarters until we'll have the full picture of '27.

Our next question is from Dennis Pichana from Needham.

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

On what -- on the non-AP?

Yes, not non-AP.

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

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

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

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

I wanted to start on the OSAT business. If you look at the overall CapEx trends for the back end market, I think they're growing something like 45% to 50% this year. some of your customers in that segment are expanding CapEx even faster. So first, how should we compare your growth in the OSAT opportunity this year and even potentially the next year relative to those very strong CapEx trends we're seeing.

And second, related to OSATs, it seems like a lot of your competitors have been more vocal about some of the progress that they're making there this year, especially as that market moves to more sophisticated architectures and capabilities. Could you talk about the competitive landscape and how you see that evolving as competition intensifies?

Michael. So first of all, obviously, we are hearing what our competitors are saying. We are aware of where they are and the applications that they are doing. Let me start from the basics. We are very -- we have a dominant position in the OSATs market, something that we've had for quite a few years, very good relationship. And this relates to when we talk about OSAT, this is the growth of the 2.5 IC and 3D IC manufacturing and all the other applications that we have been discussing. Definitely, this provides us with a very good opportunity for further growth.

50% of our business goes to the OSATs business. This is also reflected in the $600 million orders that we have received so far. So we feel very, very comfortable that with the increase of CapEx by the OSAT, we will have a very good -- very strong intake of orders we accept and we're actually in discussions with some of our customers for additional orders for 2027. So definitely, our position is strong. We are very competitive there. And I don't think we are going -- we feel very comfortable about the business and our market position there.

And just for my follow-up, I wanted to ask on the progress you're seeing in some of your newer systems. So it seems like relative to maybe a couple of quarters ago, a higher mix of the business is going towards Hawk and some of these other newer systems this year. It seems like they're doing better than expected. So could you break down where that traction -- incremental traction is coming from like an applications perspective or customers or end markets? -- versus like the beginning of the year, where are you seeing more progress with these new tools than you expected?

Okay. So first of all, yes, we have spent a lot of R&D in our new products, the Hawk and the Eagle G5. And definitely, the performance is superior and we are very, very confident that we can continue and take market share and go to new process steps with this appointment. And when we look at the target application, let me start with the Hawk. The Hawk definitely is for high-volume applications. And I think the HBM is a very good example where we are selling more and more Hawks. It is really targeted there. It can go to the high-end applications. It will go to the applications that will be required in 1 or 2 years. So definitely, this is the right machine at the right place.

When we talk about the Eagle G5, I think there, it's not only better profitability, but the performance of the machine from the resolution and optical point of view, the throughput or I would say the cost of ownership is better. And definitely, we're seeing a lot of our customers that have been buying Eagles and want to stay with the Eagle, switching over to the Gen 5 that provide them better cost of ownership, but also being able to address applications down the road. So we are very confident with both of these products.

Our next question will be from Shane Brett of Morgan Stanley.

So If I assume HPC was 55% of your revenue in Q2, I think your guidance implies Advanced packaging revenue growth 30% this year in HPC closer to 40%. Just within HPC, is there 1 end market that has been growing higher than the 40%? And do you have any early expectations on HBM versus other end markets next year?

So , let me try and understand I didn't fully work you want to understand, but let me try and give you some insights on what you discussed. So first of all, on the business, Yes, 50% of our business, over 50%, 55% plus goes to the, I would say, the HPC or AI-related products and another 20 like goes to what we call conventional Advanced Packaging. The Advanced Packaging will grow by 70% this year. And we'll actually reach also the growth will go -- the HPC area will probably grow faster and will reach probably closer to 60% by the end of the year. Did I answer your question?

Yes. So I guess, just to clarify that. So for the full year, total Advanced Packaging revenue should grow kind of give or take, 30% of which HPC should be growing 40% for calendar '26?

So are you now referring '25 to '26?

Correct, correct.

Okay. So we're talking anywhere between 35% to 45% between the advanced packaging and within the advanced packaging, the AI-related business. That's correct. Bear in mind that last year was a record year for Camtek. So we are starting off from a high bar.

Got it. And my question was kind of just within the HPC portion, is it HBM or sort of 2.5D Logic that's driving the growth?

Yes, of course. There are 2 aspects for it One side is the HBM. On the other side, what we can call as go as like applications. These are the 2 main segments for what we call AI-related products to our HPC.

Got it. And is there any color as to which one is growing faster this year?

No, I think both eventually, it's the same thing. I think they're growing at similar pains. It really depends also which customer is adding capacity in which is not. So it is really hard to judge. Both are expanding very fast.

Could you help us ballpark where could be this year?

Growth came to our market. And now we see the growth coming in the full degree. And in the fourth quarter, we are going to see 80% of our business coming from Advanced Packaging.

Our next question will be from Ed Yang of Oppenheimer.

All right. Well, thank you for your time. the 45% half-on-half growth in advanced packaging, can you just qualitatively characterize whether that's market growth, share gain or just higher process control intensity?

Edward. So I think it's -- the bottom line, I think it's both. I think we are gaining share in certain areas. And definitely, there is a lot of capacity being added to the market. And when you look at the growth, it's coming from all the different applications. There is a lot of growth that has been discussed on the HBM side and on the cohorts and cohort-like applications. And definitely, we see also the fan-out and fan-in. There is a lot of capacity out there that is being added. So the market overall for the Advanced Packaging is very strong and continues to be strong.

And also just going back to this question on the outlook for 2027 and understand that you're still fine-tuning your forecast, but rough cuts, do you think Camtek's growth should track overall WFE? Or do you think that your Advanced Packaging and share gain should allow you to outgrow WFE?

So if you look historically, we are always better than the WFE. What is happening this year, and it's -- we've seen it before already at the beginning of the cycle or the end of the cycle, it's our business lags -- and as a result, it is very, very difficult to say this year how the WFE versus what we will do. And -- but if you look at, I would say, a little bit longer time, we'll take, let's say, from the second quarter of this year to the second quarter of next year, I believe that we will be doing similar or better than the WFE.

Our next question will be from Gus Richard of Northland.

Just real quick, your book-to-bill in the first half is quite strong. And I'm just wondering if you could give a little bit of color on the shape of that booking. So did that happen in Q2 mostly? And is that momentum carrying into Q3?

I think this order flow started in the first quarter, and it's been steady ever since. it sometimes shifts by a couple of weeks. But all in all, it has been growing steadily.

Got it. And then just on the product side, you've talked about the NanoProf. Could you talk about what that product is for and just some description of what metrology steps it might cover?

So the NanoProf is a very important product because this is a product where we believe through this product will be able to significantly increase our footprint in the metrology area. If you recall, 3 years ago, we bought a company in Germany called FRT. We have been working with this company, developing new application. And on one of the key highlights was to take their own product and come out with a brand-new product that is based also on technologies developed in Camtek, much more stable, much faster with new capabilities we didn't have before.

We finally completed this product. We started to install it in the first quarter of this year at selected customers. And we believe that based on this new platform, we will be able to significantly increase the revenues, win new application and process steps. And definitely, that's a market that when you're looking at Advanced Packaging and some of the applications that will be recorded in the future, it's definitely going to help us to increase our footprint in the Advanced Packaging.

And as I recall it, it's for wafer shape bow and that sort of thing. Is that correct?

That's one of the, I would say, the older replications work, and there is a lot of wafer topography. There's a lot of applications that are related to there. And there are a few new applications that it's still not time to discuss.

Our next question is from Tom O'Malley of Barclays. Tom, are you able to there? We don't hear you.

Okay. So I think we'll -- that actually brings us to the end of our Q&A -- so Rafi, if you have any closing statements, please go ahead.

Okay. I want to express my gratitude to all of you for your ongoing interest in our business, special thing goes to our employees and the management team for their outstanding performance to our investor. I appreciate your long-term support. I look forward to seeing you in October at San Francisco Show in Semicon Show -- Semicon Show in San Francisco. 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.

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.