PLAB - Earnings call transcript Q4 2018

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Operator

Good day, ladies and gentlemen and welcome to the Photronics’ Fourth Quarter Fiscal Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded, Wednesday, December 12, 2018. I would now like to introduce your host for today’s conference, Mr. Investor of Director Dewar, Relations. Troy begin. Troy, you may

Troy Dewar

to Thank Photronics’ of Welcome results. you, Good morning, Chanel. our XXXX review everyone. fourth financial quarter

on participant Joining remarks, Planning. President along material Dr. are Investor John we forward-looking are of forward-looking Vice number this forward-looking President a the and any me morning, anticipate, to Chief assume any Technology may Progler, results are release information. this Officer; Officer, difficult and which our statements we such Chief Executive from earlier by believe, Strategic on that Dr. as Peter update that Christopher upon based of presentation made Jordan, press section predict. expressed no today’s Actual Chief risk, call accompanies with Comments and include words Kirlin, Vice or materially available the and our Financial These to implied The are differ statements uncertainties may estimate, Officer; Relations Senior and webpage. morning issued obligation those forecast. expect, factors include other

our reconciliation course to financial for management call discussion, materials. presentation analysts, I results turn evaluate to provided time, and will will performance. certain non-GAAP refer of the metrics over financial are metrics. investors the During to ongoing in our our useful of to these These A numbers we is GAAP At this Peter.

Peter Kirlin

China, effectiveness we penetration industry the quarter we double-digit a are the in fact our and our posted face the of offering and quarter to strong in take product of Thank finding record to reposition growth. strong quarter business line top captive work sequential consecutive our increase testimony of growth downturn advantage to semiconductor everyone. where of is of is today, a we consecutive hit to the of on the another customers. million. of you, Troy fifth This a sixth record that The the good Earlier morning revenue with year-over-year $XXX.X growth

As Revenue periods, XX% realized year. working. a benefits superb we strategy was fact to XXX% from our fourth these over the to quarter. both increased shift revenue previous to is which of the the that reinforces improved It and with China captives last initiatives during quarter, year-over-year

In indicated revenue, record the the of as of million we solid year fiscal we quarterly market addition wins backs to of our that had the record have would $XXX.X achieved Entering wind revenue qualifications a we also had along year. secured at for we with the XXXX, growth. trajectory

better a in expected Photronics. new Looking set for back, came top and we our record than line

we an as taking the afforded some as reach organization, did even by well advantage opportunities creating of As believe I to enable market us of to ones tremendous higher. new us job the

seeing approach. believe are We and have secular and the market trends Despite business aligned I growth, with revenue decreased benefits margins we of the this operation our sequentially.

Some by of existing in this associated China. as with costs expenses expected tools as was startup relocating driven well

shifts given margin Beyond of necessary tools, that, mainstream high-end and some was lower from resulted IC levels high-end EPS on demand. of impact in of share. our logic This per This not in optimal, making saw which XX.X% at product operating profitability. we $X.XX an produced but

anticipate as a great I the details relative ramping sufficient in review, in we flat of results, quarter offset more very but headed into of performance our the generate we China am and to operating these with to XXXX his provide we will our and repurchases new sheet and completion are share positioned John at balance facilities. how QX. XXXX pleased cash and a with to able quarter balance CapEx With were cash end during the along essentially

deliver year-over-year IC we are the the growth and we quarters, markets two capitalize can for believe we that segments growth. optimistic and XXXX, first of For cautiously on as display the photomask

we on second in notes. We higher. large these control ramp uncertainties, which control In the of execution related our the are contrast, geopolitical market half our against not While factories opportunities. drive China the sequentially revenues do of year, the should and

continuously these It’s made needed. adjusting level as we are accomplished am of will keep this monitoring delivering areas grow and strategic as help we respond have while of possible, as our I to priority our XX-year with our history, effectively priority a XXXX future as was strategy of record DNA. The respond our to aligned we it organization, will developments confident by revenue reached on to the The an footprint We is low that cost customers in our always industrial any our challenges. And us diversifying to objective while in repositioning business. Throughout needs. be revenue stream. part

customer example, due the revenue way, FPD our leader customer an in demand FPD X% year QX sequentially most the advanced see By we as reflecting down than largest the high-end revenue total increased the demand to position our industry. our This with was lithography to with for XX% the increased to as was up PXXX our largest technology began of XX%. as Yet, improving more in from China AMOLED full As for which revenue doubled. FPD well revenue XXXX. increased platform

rooms XXXX reasons QX. is begin established our strong we XX% ended On We The during running optimistic and revenue, work the at is revenue increase that mid am QX year a are increased presence the the in total to largest region. announce related attain of level systems China and to China customer note, our while as moving captives total complete us allowed we IC China full Moving China investments. tools. in and growing have of facilities only two our new are than our to is and with shares equip record XX%, the that achieved Clearly, critical IC, only both well. single-digits. market manufacturing in This clean in revenue our of to country. revenue total for and build, very a should process more along revenue the in we essentially of moving revenue and XX% helped doubled. already Construction was our ramp grow in the us pleased to to I of year up regarding is to This shipments the we one and we

on for remain begin is in track coming us finish this we with amount with work team in line proud exit importantly, customer continuing to global QX. China very point done of am the qualifications commence More bring we to has photomask the The market strengthen. into to to of as this slated view. the now tremendous spring I production to

large producers can pushing and screens tablet. the to of be In higher power size coming is years. Chinese display primary Royal, Recently, the market and is with the a forward TV, be power foldable size. there market For first to producer we technologies that and brought the innovative up larger believe This the screen increasing mobile introduced driver resolution. in to the example, open that that will foldable devices format introducing phone many for commercial-ready a customer average

business under to in production GXX.X+ Secondarily, continue panel XK to China fab second This construction. currently displays panel the market more with transition ramping supported by the fabs and three is is GXX.X+ gain share.

trend. Our new capitalize this on facility designed in is to Hefei

Court the not far news governments way recent offer tension my more surprises is actions discussions high as impact a and There two UMC is direct secrets Circuit and UMC Fujian without so run, District This like ultimate seems outcome often are equates While appear than of from manufactured can uncertain. material California less manufacturers. that ongoing related filed a content Jinhua this a ultimate Everyday long results. there said alleging been tension X either chips more will has outcome and of on to theft especially trade between yet issues. far, I against these U.S. not many demonstrates indictment that the come. Short-term, China. certainly Photronics perspective go motivate is to of demand and we’d and our Having for In Northern to an doubt business the process not in China more photomasks, known. be been the the former semiconductor most to as new more have domiciled far Micron. the concerned. executives On more thus the to is to believe of displays for for an that Integrated China, legal Company, minimal our and the to topic, significant trade not remained trade And piece

these not actions. see I of However, impact seen as a that a can result we mutual have

provide monitor to performance our and am various In earnings. I and grew in conclusion, continue XXXX. will updates as We revenue extremely situations with pleased We needed.

leadership and in China. increased We our accelerated penetration our business in at advanced AMOLED. technology Our dramatically captives market

at can China even strong begin Our and year we was and months. for facilities few two state-of-the-art the great to be is in next within are XXXX believe I production new set that XXXX a balance Photronics better. sheet

the I Before all turning over to would call to achievements Photronics business of outstanding for employees performance like record your XXXX. the to drive John, John? in thank

John Jordan

market reflects for by our record our with China million everyone. our posted business both repositioning markets Thank photomask share The Demand successful in Good customers revenue morning, of $XXX.X we growth and captives. revenue increasing IC fourth the Peter. of robust most the you, in FPD. across remained and quarter with developing of and business

periods. comparison want that the XXXX, in Beginning to the we October quarter the year reviewing change previous I Before the of fiscal results quarter, end for with fourth XX. discuss to results a moved impacts

last first Going year. will end end quarter. continue Fourth XX quarters on the three Sunday to October will on every quarter the forward, the in

year-over-year related that was For strong XX% activity. previous generally. products representing softer sequentially using once IC overall in revenue. was the increasing for threefold demand this of as same stronger Revenue $XXX.X in High-end softness into performance million. logic shipped a for X more is and fiscal big these revenue somewhat last and growth of high-end days was in comparable was change demand in advanced driven by quarters. IC demand quarter’s year-over-year offset China captive sequentially XX% in Asia slightly but logic. mainstream is softness the after X% up logic than Revenue increased a our for factor products overall by the year the demand to chips quarter-over-quarter strength X% high-end that improved year quarter strong Revenue over customers over very total by than to memory primarily again XXXX tepid, to QX comparisons, XXXX and year importance this and down longer two XX% last only and was

over obviously mobile believe quarter. displays XX% $XX.X quarter, will we up million and was the is FPD up recover, were uncertain. last in year ahead, for of timing from XX% AMOLED Looking revenues recovery driver, that year. the high-end XX% but last logic last a demand record over biggest

AMOLED and format. in between trade-offs talked the have LTPS the We before about mobile

AMOLED the rose continue see for it’s the LCD Masks past panel LTPS during quarters, With we and expected demand that to toward the are format panels trend more quarter. to technology. That apparent more being this slightly and produces near-term. for large two still strengthening the in in contributor moving a be said, solid

see revenue. ‘XX year in year from to IC in $XXX.X in more to $XXX.X year XXXX, million million produce to later we China. fiscal fiscal fiscal of $XXX.X $XXX.X GXX.X+ increased also million revenue fiscal increased when in expect than FPD million XX% and growth fiscal XX% XXXX masks year We from was meaningful to in $XXX.X begin sector XXXX this XXXX. Full revenue this in higher XX% million

few was margin gross a mentioned, Peter from down QX for As reasons.

the customer of demand. to has cost quarter tools First, the manufacturing moving match footprint our readjusted during

lower there was on product of high-end margin some Second, a produced mix tools.

in increased for the anticipated, in $XX.X the in increase as expenses million QX, activity for $XX.X manifestly similar tax in operating before and and higher XX% reported diluted margins. holiday in $XXX last XX.X% was the $XX.X margin $X.XX but expand operating million excellent locations foreign million $XX.X year expenses when margins believe for but and of was due expense one-time of XXXX. than Below in minority operating the XX% Reform we revenue QX on XX.X% Photronics to quarter fiscal $XX.X part $X.XX Tax attributable $XX.X in impact in on from in gain margin Photronics QX. and to the was much better mix recovers. $XX to results over and expense expense in share of rate in was the expect sale the operations the the from million margin effective the XXXX. Tax a a income million. in in earnings better net Operating or a the in year, million, of Operating the tax decreased the factors quarter operating the for last per QX, In of of than QX higher in XX.X% quarter margin the an product operating credits interest certain XX% with per operating cost year nearly for for exchange fiscal was XXXX increase in million reported compensation increased qualification XX% improved $X.XX million favorably in drove temporary from million, to representing per other shareholders China in for benefit Finally, fiscal $XX.X the of fiscal income net adjustments. the income these of large are $XX.X diluted million and activity than products net expense several together line, share million approximately QX fiscal expenses. high-end China income was significantly high-end Full-year R&D the Full-year area, strong but expenses of to XXXX. of and minority and business Full-year or XX.X% share, The cash with for start-up same of quarter. in year $X asset. Act, Net of revenue a to IC the shareholders to accounted due to per QX of was Full-year operating We revenue revenue was for million X.X% operating operating $XX.X unfavorable XX.X% an flow $XX benefits XXXX. shift one-time to income increase had XXXX. expense $X.XX the million and XX% China’s million in or and accounted other share Operating net tax compared quarter, operating $X.X year year. interest XX.X% $X.XX increased to compared XX.X%

We continued that to share X.X count. shareholders million, returned quarter $XX and $XX the million shares program. the were from the million share repurchase purchases during initiative additional an Full-year share removing outstanding through

the investments million year. under current $XX there CapEx of approximately As was $XX authorization. $XX quarter the for year-end, the million, million remaining repurchase in We of made

$XXX The into for less significantly but quarter many Our Peter China XXXX, initiatives will approximately the project complete have China of paid. CapEx CapEx occur projects progressed of payments investments million, as this fiscal primarily already were in been rescheduled so $XXX To-date, really million $XXX quarter well mentioned, was be $XX will to has which that first XXXX than the first anticipated. quarter. million million

of XX, cash at October million debt expenditures, time-to-time million will of balance fixed year-end to XXXX loan April increased convertible result a XXXX. or agreement of new CapEx payment is to Post and and drawn a a XXXX import X, XXXX. The reduced financing These the the million for million issued cash the of at capital new As announced strong million from at payment of October in $XXX long-term needs, for be due our asset $XXX $XX.X JV debt flow taxes agreement for or $XX suppliers China. VAT for tools. from loan we close, general working XX, $XX

incentives flows cash initiatives, take in While provide interest to we on to of fund local loan advantage the the and managing agreements sufficient greater to us China flexibility cash have expenses. allow local

and predict. inherently provide of reiterate X X Before demand and difficult products limited is to reminder for I’ll our is quarter as some first always our uneven our to typically backlog I is the visibility that guidance, only weeks

business impact and ASPs as this high-end sets for orders grows, And the relatively of quarter. of a revenue segment a the number our are high. have can high-end on low significant mask for Additionally, a earnings

range those caveats, of quarter to first to million we expect $XXX revenue the million. Given in $XXX be

revenue our in XXXX. of and each The progress FPD seasonally than for $X.XX of shorter cyclicality including with operating optimistic for revenue China IC we more positive assess of as just we associated great in X on per the first capacity projections against and fiscal memory first quarter of as a should year the objectives, will net end-market, was be growth necessity start-up be is liquidity to into we in reduced Photronics. we our is our challenge days fund diluted to slow been and and operations will beginning has the quarter China of This late risk QX, the cautiously the share. in expectations our growth a high-end achieved believe position, and endeavor operating remain typically diluted At XXXX that $X.XX and a uncertain. mixed We are the the our initiatives. us QX, be We earnings Based meeting on to the operating to ensure quarter could made be the initial share effort estimate per we of expenses. approximately $X.XX first investment substantially considerable logic the year, includes the and our risks half China for record our delivered of discussed model, XXXX. China. we acknowledgement current while China this fortified expectation with our strategic ramping for XXXX in range When production

augurs and strong Our balance improving for competitiveness markets continued all and well sheet in success. growth our

We’re the your over fiscal the for strategic in XXXX the I continue to our looking forward operator turn year now a that call on progress questions. path. challenging will will to

Operator

Diffely Instructions] D.A. line Our Tom Davidson. first the Thank you. of [Operator from of question comes

open. now is line Your

Tom Diffely

reported gross the the Good the the versus give Yes. you’re When costs? some kind of mix the way start-up the impact from the dig into you wanted is there seeing margin costs. I us impact that impact of at to quarter, relative to morning. of look new

John Jordan

don’t really each Tom, effect bottom margins, details our into that get on other little expect result the than line, on bottom operations at given we than usually we’ve the we the but of of discuss. detail line the we more

Tom Diffely

Okay.

So what projected was last it quarter the current to the in $X.XX was similar quarter? impact [sic]

John Jordan

I’m sorry, that? repeat

Tom Diffely

for that the seeing at The for you’re current, $X.XX quarter October impact the January the level quarter? was similar a

John Jordan

the quarter to of $X.XX No, October $X.XX. was the in range

Tom Diffely

Has basis impact look an just becoming then when percentage just comes China a ramping overall up at that very on strong a growing bigger margins, broader to business And you the year-over-year. and had of Okay. it on margins? when

John Jordan

To those revenue associated production hire from people so need impact them, have with the isn’t costs. area, costs to lead we in don’t those extent the that there an

Peter Kirlin

No, I interpreted think, – correctly. his I’m you answered not sure – you question,

Tom Diffely

No, forward looking Yes. –

Peter Kirlin

So our saw my intact, in variable still demand no drop, saw mainstream. year in What margin long strong remained prepared we said – variation. model remarks but was demand all I we has high-end so

we the that nanometer there. be normally XX and those When we on depreciation and So build through business margin nanometer XX that, do not tools that would normally built products XX. we on have running XX

business but margin it’s – to and way and business up, mainstream compression business on to allow we same as alternative, and we enjoy case business business the which we’re mainstream margin is saw competition the when positive, that’s the margin So than the but proper is contribution our move what the building not that and the the as less. quarter, that’s significantly in our still we long tools, it’s has high-end see the better

concerned. the what quarter the as mix as in far that’s So was happened

Tom Diffely

market both for then flat and do business and and for structure? broadly, to normal kind margin you look mainstream maybe enough the get relationships at normal your IC high-end to of when Okay. panel, business see looking But Chinese high-end there between more back you

Peter Kirlin

associated nodes, of at targeted of IC for at – share job the the most on is course, the mainstream tools And, GXX.X+, China capacity which the ever seen. tools the top it’s into it lion’s the like that’s so And headed of the hand. right very revenue sure. Yes, has the nothing we’ve FPD first, of initially are with

business. new all it’s So

and we’re the hit tools installing the think markets. of IC FPD have the we we actively both that the sweet So spot

Tom Diffely

new much What you like Okay, the, have China track is it just that? revenue or qualification in high-end longer you great. here, take or the with installing actual typical fab two, within And equipment the on door, a time going obviously, panel the customers quarter looks is for that right the lead time now. it new to can systems does like very qualify? a situation Is out have it where a production flat facility

Peter Kirlin

normally a unlike FPD with in quarter a take the qualification concludes could easily Yes, IC, to close cycle which year.

all ramps, – given as is around is the us not as business So the far China concerned. substrate FPD have FPD is fact new a the all for The we that the are they much new. customers the contemplate size guidance

we qualification for would said significant all with of cycles will in the right. have contractual I out shortened, profitability that to and them business that quickly. are FPD the again enable commitments doing there capacity point significantly We’re that the us also the we have arena, ramp

us for plan to the the gaining qualification very then with is tools on build there, the of what’s and our of of and So right. our factory, customers, finally, ramp ability the the is FPD business, ability the our business side to the line factory equipping then on much execute it’s the the our for realize of – it

line to It’s ramp different for in the business is line, once right. looking looking So it’s scenario. we’re not the – we’re but are our very ramped, – hands, those

Tom Diffely

and sounds to of benefits there? terms like it a be have you’re what advantage no, Yes, in finally, that to of it’s the credit good some in new interest you projected the tax or is position expense China take going the then line

John Jordan

interest expense. reimbursed timing Yes, we’ll by there, that the be the will but be the different, interest for incentives the so the have at that period expense end zero we Tom of have will

Tom Diffely

well, Alright time Okay, thanks your today. great. for

John Jordan

Tom. you, Thank

Operator

and the Stifel. from of Patrick comes question line next Thank Ho of you, our

is Your line now open.

Patrick Ho

duplicate to the that as and get one that terms you also to offline when Tom’s IC tools as as much. start Thank believe startup to fair do good and follow-up costs for is look you you questions away you up some it Chinese the Peter, costs color in to about the fabs? a of as cost of have Or expected at Maybe ramping than in between the up times you take display duplicate faster me gave of very China? qualify those you begin can you keep qualification

Peter Kirlin

what sure meant duplicate can us we Patrick, I’m a more? you the any not explain by looking cost, that you puzzle were of whole at little

Patrick Ho

Yes.

running So you’re you’re just today qualifying to into are that the necessary fabs you’re to at optimum holding at actually level at at ensure at? be duplicate capacity doing up facilities and you’re your where current levels, current of the I’m capacity, where and I’m going production going your to ramp keep kind qualify assuming cost China having that’s some and your current, costs you’re the what until getting Chinese fabs up

Peter Kirlin

Alright.

existing to in see so that So fully capacity expect of the will duplicative no can to of only order in John, once is end as what they hope all we new we’re to of to our point we and were business that course, drive focus GXX.X revenue the it costs to related China this arena, far cost across will generate across factory the the to the be business qualified what make on network, fully far so doing move the with that quarter to line of were incremental greenfield is are so a as P&L quarter, in so our I a now there we as the but that want now capacity duplication, and FPD the I sorry, fast the incremental contractual it expenses I China early question. China commitments will starting in to but be so and to some going customers the go is business guess revenue, tool the so they not have the the can of no there said, answer costs expecting be system be in in our capacity your right fully there, the as fully now, there and places leverage and/or all to not sold duplication, global as that’s support start you said footprint, we it other quarter, doesn’t again, to may out, fully there tools we through definition IC factory current those demand we ramp China really margin right, of second out not in billing sold us so it we’re will of blending right now not moves, build I have tools between guess out humanly was the before you network blend but loading, next many those those goes, the nothing tools sold FPD That more we’re the get it so is are out there, existing out meaning or one that’s here viewed that major at not was we use Hefei won’t they’re the to as long the times have to changes to still existing also now right? will the as tools could the onetime sold in so breakeven is revenue beginning be a be location primarily so the load has the the to going real best dismantling be mobile so asking out to you then significantly no coming China, capacity partner of demand if are it’ll to to in we as China event ones them so IC out QX, obviously duplicate as continue a could said the so your to call capacity system in that they China saw we AMOLED ramps same generate incremental we extent quarter inefficiency new push if is related no as LTPS had would beyond get global moving tool you some most quarter FPD tool capacity possible the cost to itself are duplicative concerned, that on in that it broad do duplicative duplicative a like to as move sense to two and expenses

Patrick Ho

That you. is Peter. helpful, Thank

uncertainty on a at I you guess it nodes or give logic in As logic XX just follow-up weakness more a broadly across it the not XX of qualitative market could little was maybe given of or a a node the the surprising was my lot on question, high-end it’s high-end the couple side, totally certain front? whether the to-date

Peter Kirlin

both I and was was in single strong, it XX the XX it XX you confined don’t a generally was as broad it quarter it XX was not and No, customer but really surfaced to have and or to said it that it weakness and downstream to use optimal. to there but much from just able too enough load market or was where business was more to coming wasn’t less tools, there understand anyways, were continue imagination in we the so that

Patrick Ho

the able will how expected? sets I Or you sound around logic logic does the meet for of will reallocate to my high-end it tool terms the your tools? a the be of some based guess it as to guess, than couple quickly healthy high-end continue about demand little it question a those on give sooner appropriate tools only the softer quarter the it continue bit final you over guess that to adjust to I an does like to of be that Maybe than relocation I the and indication end turn demand took I Great. guess will of in quarters expected, mainstream next be on

Peter Kirlin

year are I but operated we can in position Yes, FPD years in had the last XX as sold so capacity not were again, a the as online we likely it change. and in change our and quarter the that our we and right running at level IC strong second the really ramps of highest the demand, we regardless the my have factories that right demand all I’ve obviously in wildcard, because, was there segments happens revenue the is technology sold checks if fortunately, still second nobody in here particularly us not there still record overall the in to year, Yes, half are market the is market great factories, where some only hard working preferentially would now on to we of more have still high-end AMOLED best we utilization the knows, is the quarter memory node of FPD the several in even now, very haven’t segment. don’t weren’t of years ramping business the that on any are out our we is at testimony market mainstream FPD we they the one a strong for of that but obviously, in yet, market space because Photronics, their coming is are out of right segment think our and so pretty the seen the customers potential consistent and but at factory are and said China the say and positioned were our capacity the against tools half both had depending we competitors that a gear system, in if capacity and course, the we we do based I with earlier, as in FPD out need business we to IC of we capacity been will puts fast right, I’ve highlighted slowed generally, XX of obviously on John our up, is business that specific in the our right we that’s what sold on with bike

Patrick Ho

thank very Right you much.

Peter Kirlin

Yes.

Operator

further I’m call time. no you. to showing Mr. at turn Kirlin Thank remarks. would like over now to I Peter closing the for And this questions

Peter Kirlin

performed Happy we facility you, XXXX thank morning. was step and online our for we strategic growth strengthened. XXXX market a to Okay, and joining I can great our as well it holidays better our once all. plan. again even in to Chinese come this to be Photronics, take that for believe next year

Operator

participating in conference. you today’s today’s program. and concludes Ladies thank This gentlemen, for

a great Everyone day. disconnect. all may You have

Photronics (PLAB) 12 Dec 182018 Q4 Earnings call transcript