PLAB - Earnings call transcript Q1 2019

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Operator

Good day, ladies and gentlemen, and welcome to the Photronics Q1 Fiscal Year 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions for the participants will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded on February 21, 2019. I would now like to introduce your host for today’s conference, Mr. Investor of Head Dewar, Relations. Troy begin. Sir, you may

Troy Dewar

to Thank Photronics of Welcome results. you, Good morning Jeremy. our XXXX review everyone. first financial quarter

on participants 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 Officer may Progler, results are release information. this Officer; and difficult and which our statements we such Technology 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 risks, call accompanies with Comments and include words Kirlin, Vice or materially available the Chief 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 of course GAAP results for management over discussion, At materials. analysts, will is the evaluate Peter. in I and turn will A certain non-GAAP refer of call to to financial are metrics. investors the During to performance. our presentation ongoing useful these to metrics These reconciliation numbers we provided financial this time,

Peter Kirlin

to economic weaker the of a XXXX mainstream an although growth and High-end memory somewhat high-end in industry weakness, basis, mainstream Thank timing you, mainstream. industry, by this mostly IC was despite logic remained quarter as we this a Troy, uncertainty geopolitical is basis, and not order XX% Revenue activity. was was weaker days headwinds. last due neither down sequential sequential compared order high-end high-end increase quarter, concerns quarter first good morning demand related both with On saw soft. was On We due revenue the market-driven. related an achieved declined to and fewer to and and to seasonal expectations. everyone. through offset macro down shorter line Whenever high-end with seasonality year. our grew, in We year-over-year believe for and

quarter, logic second memory less a clear. the see pickup into in expect [indiscernible] we to is Looking in

Regarding be see the expect the latter, we to deterioration, material recovery don’t quarter. the may second beyond

many While parts exception. high-end lower of was business, across FPD we demand a our experienced notable

industry’s up and again, by they devoted doubled offers Our sets relineup year. FPD business was and our the strong sequentially sold leading last FPD out were layers the AMOLED compared in throughout revenue approximately target mainstream which mainstream is competitive the mask half the AMOLED down pressures the and capacity market. revenues was P-XXX, extent production associated with building FPD to a total competitive more Once of tools. resolution quarter. anchored more an oversupply to our as represent of revenue than The very that position, non-critical we technology superior FPD to experienced first capacity now

to and line, from with into saw quarter. factors in the environment the tools lower that grow, temporary compared of we driven to in the by performed quarter second additional of I we a timing the as delivered profitability, quarter line incurred in coming fourth and we was we negative, primarily a China. expectations some our the Below receivables as also decrease resulting per earnings to with our capacity China. of with very the challenging half in business in cash we on Shifting share. value-added costs with well resulting minuses, in due flow line higher payment part the in production online revenue taxes such large for and pluses expect Operating into up our expectations. what display $X.XX the was forward Looking Overall, mobile quarter, China FPD of believe latter second with bring

We expect to see operating cash flow improve moving forward.

China in million our balance with dropped great balance with to cash repurchase the rebuilding in investments financially, the $XXX this, quarter, million of quarter. during at as are Even ramp. of CapEx cash begin we we facilities end enabled to China our a to Our $XXX peaking million, which us the new and are rapidly spot expect shares our X.X and

the China placed have priority We high strategic business. a developing on

times growing FPD. the gives that we larger reasons that solid million. in The panel and XX-XX of was that it first in In we our and and fact XX a ago. broader one one We IC of quarter, China. in revenue. over was China over just year-over-year customer companies in China of already first our business At To August the $XX customers represented a balance GXX.X+ context, investment a before our this IC even was an was base strong have the last X.X time, we X% our China in of other combination Revenue confident necessary our avail a China. were of revenue. we in on XX% to quarter investment headquarter a This first announced China our China approximately foundation and over us In In XXXX, themselves the the or manufacture year ability returns order in between little extraordinarily When success. revenue the million. generate that put photomask to multinational are XXXX, had a was we demand. in said is this approximately developed flat display country to performance in months already seen companies China China it improved words, $XXX with semiconductor invested of tremendous the to XX%

addition they are produced at then by production photomask XXXX. of to projections facilities. Insights, there end ramp be compete effectively many domestic and with making more target achieve risk China capital. IC investment of China targets. in investment management more will IC commitments, year for in needed In our and The our incentives semiconductor manufacturers, XX% the XXXX the to to investment and chips. the This return DNP mature will return than that confidence China implies The will against provided those XX% investment us on Made better significantly the that industry by goals has only occur, hit XXXX. need are give us those to customer factors ambitious. stated joint IC our is at growing recent to These revenue includes they China. be in production objectives invested the already self-sufficiency According help contractual stream, extension to investments venture for by more much historical If they progress

are While positive, of economy, moving there looks in are trend in development production logic, companies the softness XX-nanometer the Chinese in is short-term commencing XX. municipal industry technology at with stage the trends semiconductor robust, into China early also long-term

XX XY XX-level manufacturers, to see both DRAM XD and nodes flash at and are we XX-level With Chinese XX-level For flash starting nodes NAND respectively. -- memory production. DRAM in beginning a the development

manufacturers FPD, Adoption for becoming technologies this in are mobile smartphone displays pure GXX.X+ AMOLED component. as country. For more important continues for using of application are the AMOLED

technology. with the supply producers more panel this continue we On developing are partner to side, that

increases, adoption as increasing we which makers competition should available rates market, total reduction the LCD. panel accelerate smartphone will shift As in likely more prices, see from

additional become laptop displays, widely growth drivers. as should adopted also In addition, more applications providing other such

operating noticeable We space, a of is supplied a every producers. GXX.X+ should and at Introduction this are the impact of technology grow as continue panel with in ultra have doubt, shift having the This years this AMOLED already a TV the five leader is panel photomask the large-screen Without fab disruptive more each technology. in clear the we accelerates. the We anticipate to one And market on in will industry. to today, in move next there two will market. just production three years. be China to one

to point, So will our have local us GXX.X+ We sufficient coupled aligned we supplying producers, a to history that panel reticles long to believe leadership. plant industry’s our with of competitive market this leading production with provide with advantage mask. produce equipped attain inflection high-end Hefei

being with of and the new for addition expand Our investments Both manufacturing two China currently facilities geographic production. buildings complete, in going are are installed to our well. tools are and ready footprint

original is proceeding Our our plan. factory FPD to

key the hiring largely first this and have revenue the of by of We ship we end our generating to photomask personnel expect of recruitment quarter. completed

will majority the As we most the a despite mask sets. market negatively TVs, heard which reminder, is our affected. is to business primary IC AMOLED downturn. semiconductor as make large-screen also the focus by being the of Furthermore, is business Chinese but logic, have the GXX.X+ sold for you photomask to contrast is ultra FPD, out, our ability earlier, headwinds, which industry impacted is In

the CapEx actual last IC our quarter, approximately have less which in $XX the given one we the million, spend call. reflected delayed of result, which in a guidance of the As million than factory is is by $XXX ramp earnings

our best cycles we beyond IC a high-end are ensure qualification XX months delay a the As that reminder, nine for And with downturn, production not reason the instead China to methodology into to training current market, months. This ramping the are our is the volume and investment for business of to for does but of market. IC delay align doing strong enthusiasm three-month deepening a indicate mass growth. always reflects our operating our

across is XXXX expected, we challenges industry. number of out our a with As starting

nearly sequentially throughout revenue our anticipate this turn and facilities two John? are FPD At of of on time, over the we half to China well, I and are provide our this John and in commentary will However, new performance wherever ready for we production, the strong pathway call outlook. a performing in growing see a ramp to the year remainder second XXXX. to

John Jordan

to first you, our IC last end. as some high-end weaker than customers’ of The primarily previous uncertainty China in new in designs. declines revenue in high-end, from such headwinds mainstream mostly due the as designs of impacted in the year days revenue large Asia, decreased macroeconomic a Peter. were quarter quarter and in [$XXX.X IC particularly, products. a reduction face AMOLED. void high-end the timing we Sequentially, overall market. and X% weakness Revenue product the drop improved first macro anticipated year-over-year than experienced in mainstream in record morning, fourth share a combination by XX% to and where for again Within XX%, of up first with cadence was quarter high-end compared both FPD down, mainstream. from last in Taiwan was once similar and more were year’s X% the logic in XX%, due to customer. as as memory applications quarter, a Good growth year in advanced improvement due was new same order fewer declines Thank smartphones of softness declined October XX quarter, six the after offset reflecting seasonal over the also High-end increased million quarter everyone. quarter], fiscal of there market with

the anticipated on masks and decline China expense start-up portfolio impacted offset have We demand and and LTPS several lower positioned XX.X%, AMOLED established with for in activity, have long demand. that expense products. have to China technology, ourselves expense, leaders by industry and why was demand. the due currently R&D growing GXX.X+ AMOLED qualification by used costs. are in FPD margin and Operating was for work with we for among higher trends GX.X in to level a this Both we align expansion we both was from Gross increased our high-end compensation start-up secular revenue benefited applications. large-screen demand for screens mobile TVs and LCD have somewhat growth

the which holders hand. of China, gain in -- of these delivered $XX.X XX% is we VAT of owned in As pay a issued. X.X in Payments primarily shareholders payment primarily cash conversion to the convertible our in Under instrument payments. future, do tools fund expenses approximately of our matures and anticipate a interest If April in the million, timing Operating the expect income, Photronics operating loan to local of to X, of operating related resulting of agreements convert the flow to are receiving line, be on would FX so agreements resulted all net pre-tax tax approximately in cash reflected that share. use a this to with million. to from a generated attributable capital China, to rate borrowings. VAT effective cash China price on recover elect We $X.X our balance our we receivables $XXX we interest in million lower cash loss $XX due diluted our China, million positioned repay in of minority result, balance majority JVs, Below Over on payments. X.X%. that the The these quarter cash the to the are bonds from shares remainder other or into and was reimbursement on recorded per on income plan that margin well $X.XX expenditures, Xiamen. speak, activities to in income million money, issue operating $XXX $XX.XX time, loans payment, debt not with of for if we holders reduced we for or of million an

[first] we the quarter, X.X $XX.X shares, of shareholders. $XX.X announcing July, of over million total stock During our shares returning repurchased our a to program we first Since X.X million for repurchase million. have share common repurchased last million

issue, maturity the concluded. impending the the repurchase of convertible With recently share was program

complete remaining we unchanged balance tool our two $XXX and for the XXXX, anticipate is China prepare in of quarter production facilities. target for at installation second the million. We as Our during the spending CapEx majority

will Before is two demand that difficult one predict. is limited only backlog weeks reminder always guidance, visibility and of a our I some as provide is second uneven to week and I our our reiterate, products inherently typically for quarter to

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

this range second on share for soft current million. the in we first of diluted earnings of stable headwinds per in Given $X.XX Chinese our seasonal diluted start-up be per macro dynamics expect the impact to per a those the to share, market potential we for quarter China expenses. million range and be expect including share quarter model, $XXX and be to to revenue of with Coming the quarter, Based operating to revenue improving expectation caveats, out estimate Year. we $X.XX effect approximately seasonally diluted New $X.XX $XXX second to

XXXX. performed line have with During the we expectations first in quarter, in

designs. Looking forward, as year customers we remain new that share this can release we optimistic grow market

In addition, to turn growth the over the meaningful should ramping for provide now questions. will this achieve of production support call to in year. I additional operator China the your

Operator

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

now line open. Your is

Tom Diffely

good Yes, morning.

wondering seeing now? because the to there from figure to it’s any all, on right you’re out to some macro of First was time actual impact way I the know way of year impact the or what tough calculate quantify I but of if this headwinds seasonality, the is?

Peter Kirlin

as you tough Yes, to quantify. I are think Thomas, quite said,

first all of the We business. in aren’t impact seeing any FPD

gaining are in a market We share market. shrinking

is in downturn for a there between our of a downturn. a So XX%, effect that’s number and no IC a in FPD. impacts business typical X% I business see typically, level to our

that’s best think we Yes. I do. So can the

Tom Diffely

start-up at talked And quarter. both impact flat $X.XX per $X.XX Is about per to is being or of Okay. point the facility just panel China you the this the that quarter facilities? that

John Jordan

a combination. That’s both, that’s Tom; both facilities,

Tom Diffely

And what was quarter? it in the reported

John Jordan

of effects FX $X.XX before I said and $X.XX think the net. we our recording

Tom Diffely

Okay.

by on China to be side So panel that in a require profitable year. ramp just end you the disappear expect get to like flat to that it the that the break-even? to Does or sounds of

John Jordan

our Essentially, that budget in end be that’s by online we overall. plan. be and of the profitable the should plants what’s our should year shows Both

Tom Diffely

be and Great. already then, about running so product in a little how GenXX.X, has are been of Applied in recently Okay. not your talked impact assume equipment bit too I And Materials should ordering customers but the place of you of there a slowdown the dramatic?

Peter Kirlin

year December March. online I to Yes faster March-April to factory we’re reason the landscape online if Guangzhou we the end that in of ago this construction start] at than volume the FPD ramp. their -- think its [going even that, so, factory facility start bring by BOE evenly brought first of sometimes later, been April possible a GXX.X CSOT’s factory we’ve and our you started look This last Hefei. that timeframe, first -- is, for And will in and

driving where be first on So is factory summer. see, BOE’s set we’ve that GXX.X with [indiscernible] to early online. is been second And reticle can timing as not it for two, then our factory you

third the of hard of second ramp; advantage from the volume coming Hefei very the of for to factory the point take online; being the to view PoR. being and in worked we’ve of from there point factories So view our positioning other one,

the we their basically bid winners, timetables. So are spend with in equipment softening companies best the to of from one would companies in the our strong call maybe and commitments the has -- delays second-tier that -- it’s players, of describe contractual GXX.X have on they we have our knowledge, exception, as one been the with or with impact players. The

on and business So winners. the our our is winners; on plan based plan no, the it because is affect doesn’t based business remains was,

Tom Diffely

have Okay. to that’s China, up really facility out And the you then that that Thanks. would seems same and capabilities you the ramping serve at to out be over or big next or finally, look be for AMOLED is it Korea? incremental or that will Do you to in Great. going a when doing be served XX.X you opportunity have then the are served of capabilities the yes, years few of potential Chinese you.

Peter Kirlin

Samsung reticles has number a Yes, progress it years, despite for we’ve been building all business they the one and quality -- remain than will technology be years. more Korean there site of reticles FPD can by our mix a is now, be Chinese and no Right great that been our XX XX the of a there make Historically, the out driver in do the we match. that will it manufacturers. partner,

your created technology customer. toughest generally by So best is

toughest long our as going made customer be are is best to as our reticles Korea, in So there.

Tom Diffely

very Okay. much. Thank you

Operator

Ho Patrick with Stifel. from our Thank next comes you. And question

Your line is now open.

Patrick Ho

noted remarks their any NAND of foundry you logic the some of macro issues the in as memory segment. you’re to seeing much. seeing their you’re it that very you things yield that Peter, maybe the your regarding of you the transpire and Are to some given prepared seeing particularly side, in there, through? headwinds has ramp-up follow-up that on of given side a China working slow been memory, they’re Thank

Peter Kirlin

prepared Yes, in our so or I comments. as to as turn goes, maybe to two will one Chris remarks, China far over quick make -- it I

the surprised or memory more quarter First, we was, but our that in had pushed move one we us to less out. orders some business thing was, along as it expected

materialized. here, sit those I As orders have

course, you at Chris? certainly the business in foundry memory some China, memory swimming move which governor right players in you we Chris, NAND and memory in large today what of really multinational, be we’re to speed be grow But manufacturers do the want is will So flash in with else some manufacturers PoR believe -- manufacturer Taiwan anything there business we dominates is be on memory memory We dominated to what to large want reticles. rate is China. multinational memory or And our happen to business. other our now, advanced, by to our a can of the domestic which add have of is China. in the most they business high-end -- that,

Christopher Progler

just getting No, I big just say factor to to sort a memory production. It’s Chinese mass the I thing, mean more and into related that’s factories regarding of the been challenges macro ramp. of headwinds those think don’t on that

layers a memory So the faster climate to side. on shrink on XD to to NAND is current them I competitive more they progress. it. and think little bit add continue in the making pricing stay If They’re work forcing anything,

challenging Chinese those just we’re among think seeing be more a foundries. more But it’s these really pursuit of anticipated in So to generally, production. get I than the fabs to little proven many aggressive mass technology memory

the with macro seeing, kind would ramp, to or itself do engagement kind we community independent rectify expect are headwinds. but production problems and the situation So of eventually yield slow, of we and see any that to say, it’s I steady of

Patrick Ho

display flexible Great, area lot and I terms the in IC remained Maybe of, are if have terms opportunity, some your segment? of John, the -- spend, are that’s an got ramp could is believe your of in flexible their a you display of to where you’ve that given that’s you helpful. given you sluggish CapEx where challenge in I in a CapEx China that because internally, for spend CapEx of Peter promising either expectations terms only the how outlook strong how or of shift

Peter Kirlin

around an they we that as the very you’ve things Patrick, been I has industry Company time, company Yes. our think very most of are because in the players, the is a lie. opportunities our long to historical, and to small a focus we compete of where investments best large flexible move do one

that now back -- the pull be why pessimistic would a the with think and see think in remains China DNP. aggressively together ensure the some all some them with to That’s the one that also We of SMIC, our we right them, it billion IC Photronics to partnered we customers, to want foundry DNP we we partners there market company. on is on look, logic, reasons side, moving the partners I Chinese -- of and overly mask IC be exception logic into investment merchant. $X the to would support walk China. pretty particularly and We potential tell

TSMC, of enough focus you, job with because handle You’re you’ve so big got silicon in challenge, trying photomask you with compete can front that on once you the the let to already. us

is as FPD now, So said, out. sold right I

the capacity We’re [IBO]. going to business into online bring sold-out

comes Our our adjust it’s is very capacity IC trying out, are market. when we a not coming timing online so so online, be the to the business sold that into to downturn, strong beyond

and we’re So send only message more. that is nothing the trying to

Hefei in back be FPD, and it’s not end about to capacity out. sure Yes, will year, the the the the big although expect we’ve going I your of Now that by sold opportunity. comment installed

to we don’t metrology have that line, is, and [indiscernible] if the the So is is, will Hefei do to will inspection. is, now sits our business where additional etcher, an All we whole point add The need want coder, capacity good don’t have maximize revenue we of needed. be our at tool. sitting we to add a -- means, rest growth, a to news a that add

is the as of So goes up, generation CapEx efficiency as capital incremental revenue concerned. far

actively do So but maximize what our evaluating at time. we growth, returns to now yes, right our also financial the same we’re need to

we on GXX.X build it. position. in AMOLED, also have AMOLED and position. In our a We it, online, market are So capacity address to very incremental do we coming exploit strong should want

feeling pretty what we’re good maximizing So what we’ve about of as the we by done, we’ve and what growth go. our done we’ve quarter-by-quarter quarter-by-quarter -- timing done

Patrick Ho

that’s for given Great, helpful. the your up as from year you terms me, ramp as in How -- do progresses, the in John, question go look OpEx final of maybe as Thank And of a China you. terms progresses? management, XXXX facilities of could OpEx two at much how the that trends?

John Jordan

probably on quarter first we head got the put into start to increasing a For good going the resources to Patrick, both lot. a We’ve China be plants. we’re pretty that not need

it we’re rate increasing run somewhat, be where So will are. but at we I pretty think good a

Patrick Ho

Great. Thank you.

Operator

back to further no questions time. the queue And Kirlin like to the closing for over showing remarks. this at call I’d am you. Peter in turn I Thank any

Peter Kirlin

in I of Photronics. for So thank each in closing, interest and your time you

a this to to on bring new China our growing position I as progress. continue We’re on forward production in updating we you look our facilities. great year

Operator

your today. for please this the you and gentlemen, ask thank your disconnect for that and call participation We Ladies concludes conference line. you

Photronics (PLAB) 21 Feb 192019 Q1 Earnings call transcript