PLAB - Earnings call transcript Q3 2019

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Operator

Good day, ladies and gentlemen, and welcome to the Photronics’ Third Quarter Fiscal Year 2019 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 call is being recorded.

I would now like to introduce your host for today’s conference Mr. begin. may you Dewar, Troy

Troy Dewar

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

morning Senior Chief Joining Officer; Chief Technology Christopher this are Strategic Kirlin, President, Peter me Planning. and Chief Progler, John Vice Jordan, Officer; Vice Financial and Officer President and Dr. Dr. Executive

by our today’s statements anticipate, issued of uncertainties on based available the to may Relations update section believe, we we earlier with estimate, are results expects, statements forecast. information. factors such those release are morning forward-looking other any press that along on materially presentation words remarks a the webpage. These any difficult Comments include risks, and forward-looking forward-looking expressed as of made our differ no predict. implied The call Actual this are may assume number material obligation participants which accompanies that include to upon and Investor from or

financial to of During to our course results non-GAAP of and ongoing investors for evaluate our the numbers these will our management GAAP in materials. performance. presentation discussion, refer are is to financial analysts, Reconciliation useful certain metrics. metrics we provided These

the At will to I turn over this time, Peter. call

Peter Kirlin

environment earlier once that is everyone. now morning, press Thank and has of downturn industry to face increasingly that you, geopolitical an become entire Troy, good execute being again of organization by release today we our The uncertain. ability issued illustrates the in a the reinforced

as China. reticles We growth. additional FPD capacity last new Revenue of revenue consecutive making record from eighth grew Hefei, from compared revenue this quarter in and X% with the X%, with year benefited demand same remain quarter quarter facility compared production the AMOLED previous year-over-year a strong. for achieved the

China. despite start-up while revenue IC $X.XX in enabled flat sequentially expenses. control offset cost us the to as was growth high-end share. foundries nodes of demand Asian higher deliver by greater in softness improved previous mainstream quarter, Margins compared we earnings Taiwan IC with for from with improved owing This per

balance cash million grew additional cash million China initial of we incentives In CapEx operating investments to plan addition, we by China strong China. with investment. aided completion consistent in as government $XX $XXX of borrowings our our near was received for and our flow,

As on of we the year’s and into fiscal last year’s in are total. fourth end of position. we superb pace head Year-to-date on year, improve financial our are our to last the puts outlook ahead us levels quarter record for a revenues

expansion convertible continues Our funding cash our our China. despite and off balance into to paying debt be strong,

hit Our as outlook targets stride $X.XX positive of and $XXX we in EPS. to remains of our million fiscal XXXX revenue

our today But ago. more established Overall, reaching quarter outlook. about China business attainable offset we growth those this than softness. and are long-term are remain conditions goals we record optimistic still of to levels challenging Revenues masks than first more representing IC grew XX and XX% they revenue for believe FPD when months total as

China of making FPD up with sequentially was and year compared FPD now revenue. XX%, up last XX% our with XX%

choice our of market for increased in became masks the GXX.X+ Hefei vendor and We the as AMOLED more continue for to be qualified reticle applications. facility revenues

that at to panel be mask are China appears The related demand between softness China in the of slowing for more the our is and has uncertainty designs trade to going escalated. some as geopolitical increase issues undeniable IC production both U.S. has level China as large and fabs war the increased demand customers. It begin plants. new should for forward, and that existing released are primarily format new

some challenging our supply customers. the Korea of for In tensions between addition, is rising and Japan chain

the we products impact. our beginning more and of more are impact directly are not do exposed feel our customers as issues these or to While operations, indirectly

to impacting or slow units business. tied releases, Even cautious thus displays, some not product rate to can the though cause uncertainty and new our demand of our customers more of is semiconductors necessarily and become design-driven

We tuned align this the half with expect do IC CapEx see some again phase in of have our in the initial and in we better expenses our to yet revenue. plan Consequently, QX our XXXX. to Xiamen CapEx business China in conclude of of first we

we we to positive the support increased Chinese have the of business, ramping qualify local fully customers with from impact successfully chain Long-term, provide dispute we production significant and localize tailwind our progress discussions up our it both as new trade for to a their believe of a which customers significantly the be trade results supply for because and facilities should tremendous applications.

ever We were opportunities markets IC for FPD us. be China more growth that and than will optimistic tremendous

market mask photo in using This globally, well This more differentiation is companies result the mask Looking at technology, to part photo demand is innovative solutions. as design new positive. trending and mask creates the differentiate products. as their specialized of

These trends for Photronics. are great

U.S., is across locations and strategically by mask close other that customers. unmatched We producer; formed global located have any network Europe, to Asia, the eleven

In have advance our capabilities and technical all meet requirements. customers’ to of tools addition, we through processes

evaluate the support roadmaps optical mix the technology we operations we with manufacturing of continually ensure customers’ market our to our As evolves, assets. to are aligned

the been financial capital investments. we have long-term Recently, reduce to customer the securing return in risk improve commitments potential successful and of

investment upon once phase of this to they in We developing approach business expand to complete the new China. initial are looking

have months the follow through well XXXX nine will of it and QX looks trend. same first We performed the like

our good leadership excited amount more and the growing grow fabs Our market performing position. increases. how online come potential pleased we is is addressable our I our to and extend very design as activity am with of and financial about and health were

for environment. very words I win willingness their to well all do possibly it skill what challenging any worldwide louder takes results grateful and as to their a could. our employees professionalism, in very to speak am than as The

over and past would the online everyone the been ramp the planning have the plus of Bringing efforts without production if years. the involved possible not execution extraordinary China facilities two in and construction

of hard all for thank to like I’d our work. their employees

accelerating excellent future an our is to ramp and off The that believe extremely I are is in China. bright start. We

time, and performance outlook. this John I the on call commentary our over provide At will turn to to

John Jordan

everyone. Revenue you, in the $XXX.X better quarter Peter. than than quarter better Good X% the Thank third quarter of previous million, was third last and the X% morning year.

broad model continue design-driven have grow Our revenue environment. and enabled industry diversity us business despite to product products, a semiconductor to geopolitical challenging and downturn a

are see approximately We of impact new facilities our contributed Together, also revenue. they they ramp beginning million to production. in the as $X China

the macro third softer high-end last uncertainty improved demand. lower and QX year, sequentially for the was to in to IC sequentially as continued logic on demand was with Compared $XXX.X foundries X% revenue on flat IC nodes. demand. weigh High-end Asian million from quarter memory mainstream on

Looking quarter. factors forward, IC look the recovery positive, the the underlying next but demand geopolitical delay beyond drivers for our may

strong were release of Mobile quarter last as of customers new the with FPD better driver AMOLED this revenue business our XX% million, setting record Korea innovative primary XX% year. $XX.X than displays continued QX a the continued than designs. QX better in and increase to China and

an We production including in increase in we ramp China capacity also GXX.X+ as benefited from photo masks.

FPD AMOLED new from sequential growth the the shipments increase. should should healthy to plant remain and demand expect We China fourth continue quarter. in

margin the revenue expense. Gross mix qualification more We and impact due to Operating had improved growth product modest a start-up to margin XX% activity. in activity sequentially improved in from XX%. operating a offset R&D increase as the China to expenses favorable

a the income benefit partner impact were reduced million In total, and those the operating of to tax the on $X share per share. costs operations headwind overall EPS although China JV to $X.XX

We effect decrease to expect that going forward.

interest quarter losses expense. increased had Prior compared Taiwan this quarter increased was China modest quarter miscellaneous Other consisting a repeat to expense income gain by FX and interest of JV. a our not QX. revenue expense last Minority that from offset our partially earnings due at with did JV, in one-off

in attributable $X.X of per to shareholders resulted $X.XX income This net or million diluted Inc.’s share. Photronics

million to balance million cash government borrowed $XX the in equipment in quarter during We $XX million. in cash from operations, million million Our incentives and $XXX received purchases. an additional China for $XX from increased $XX China generated

million. $XXX of bringing we IC half expected of million to quarter CapEx be remainder phase year-to-date for XXXX. initial of completed first the completion the investment, as total million in investment the will the near in our was CapEx the is China CapEx be $XX of the to year $XXX the Total China

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

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

our industry and Lastly, between impact growing the therefore I any potentially results. tension our have discussions on adverse the from ongoing that caution and or China U.S. an Korea development Japan, could will between and trade

of markets will be Given mobile range fourth $XXX stable masks million $XXX quarter in continued to assume for displays. the those We in revenue caveats, million. expect strength IC FPD we that and AMOLED to our the will improving see to be

We also China anticipate contribution larger our a new facilities. from

current this be of in our we to the operating model, the to estimate on quarter share. revenue and diluted expectation $X.XX $X.XX Based for earnings range fourth per

meeting quarter We have our grown more become has in in as an the are we our third progressively performance that revenue environment pleased with challenging. expectations

market. with to in finish positioned production are pace China new last year’s important year two of ahead facilities We the the

are poised significant as sheet balance future deliver on to as even enter our we Our made investments has we remained XXXX. for we have commitments and growth healthy

I over will call for the your operator now questions. turn to the

Operator

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

line now open. Your is

Tom Diffely

outlook Yes. Good this great now. environment And morning. tough right in

in be? that to mainstream impact there look we any will risk the when Is guess, where biggest the discern the or the I Peter, side does slowdown way more China, side? impact geopolitical or So, on at the high-end

Peter Kirlin

I ago, And based. two trade on, the going really half war would or the dialogue. in now but three it you present as It the in of wasn’t if basically broad months Yes. spent August first obviously China. was what is active more look describe I’ve back

tip the on of it’s customer’s - tongue. almost Now every every

that it I place the was with largest regarding generally it’s regarding affecting were their when was out hanging XX% threats the in market. and China So, there markets in particularly export local the additional

at present Some bring. the time tomorrow’s who of Twitter that what feed will down. damped But knows is,

So, it’s to very hard to – anyone quantify. for

by As for the I China the accelerant customers, market the it’s accelerant a short-term by a my just but said not a it’s and Long-term, that shared, government is clear whole. it’s as in drag. an remarks,

a positive. I months next it’s undeniably like, because what it’s long-term impact like in gauge Short-term, real said, looks Hard the to really negative. hard So, to situation. the dynamic few –

Tom Diffely

more Okay. Chinese guess, key that. well? facilities you customers one for as just I following four your seen new Have it impact on the up two

Peter Kirlin

in at impacts FPD no all. the Seeing business

is year I of market through just I to year, that very good that can end if fact, of our end we look fiscal – not FPD, the confidence calendar In going at pretty with say the be strong. the

So, no impact FPD. in

One very in our IC of has Chinese fact, has Huawei customer largest our, customer. a large

So lot anyone that, an But from a impact headwind. expect and there additional of would there is that. aside not

Tom Diffely

John, Okay. That’s question helpful. the then, very a cost And about structure.

the represent quarter doesn’t next couple the next on that quarters? of CapEx, With of does that the up spending delay last the tranche true costs we cost will that structure those over mean seeing that are China, in fully the cost go

John Jordan

during delay delivered is be The a to tool going that’s XXXX.

would depreciation the that with Tom. come in, So, in XXXX, associated

it, So, into quarter. extent it’s revenue would next with But not reflected that so. the also to in future, the that’s bring that

Tom Diffely

amortize Is basis? meaningful that isn’t great it to is or slug Okay. too quarterly years multiple a that on a over

John Jordan

Thanks. repeat that, to Tom. Want

Tom Diffely

the longer hits time going period to I be impact it books too it’s if where when quarterly amortized impactful if material structure basis? over not be going was it’s on wondering of a a cost it’s the to to or a

John Jordan

period. It’s long amortized a over

impact of that wouldn’t be alone tool So, material. the

Tom Diffely

question toolset the IC can ratio Chris. a two-thirds the at demand on look if you up need high-end go of your Okay. based And business flat just that have. for then, fixed Is roughly portion with of the high-end, you When be? one-third it’s finally, panel, that or

Christopher Progler

the I fixed don’t on Tom. it’s based think toolset,

our more constrained we capacity more on IC and it FPD definitely, – think have can go on some than the side, larger side at or deliver our IC up. I’d a the on with particularly perhaps side, IC fraction a FPD. say, to high-end the But tools. of - I maybe the revenues the existing portion high-end little can

to which we and of as alluded well. made on revenue high-end share this year investments some the percent grow allow to next And grow have and us year our one will John

on. mainstream dynamics more So, them We to tend There it end or if run fixed. isn’t But really market. sometimes do is lower-end equipment going on higher much. too call of based little the that let’s not – a on necessary of masks the

a existing toolset. lot have we more of with the I them think high-end the to grow

Tom Diffely

time. Great. Thank you. Thanks for your

Operator

[Operator Patrick Instructions] with Stifel. Our comes Ho from next question

is now line open. Your

Brian Chin

of that ask in how Brian that for kind sales question the is flat fiscal This I expect a us revenue facility looking the revenue panel out XQ, letting questions facility for much million morning. China sort Maybe level? roughly Thanks exiting the of baseline, fiscal can curious, a $XXX results. give Patrick this in for fiscal you target, you, for sales Ho. ‘XX Good and much sense flat first so a assumed us on And to few panel contribute on is on of the congratulations Chin China the you side? year, Hi. at am how

Peter Kirlin

Yes.

of and not $XXX the the combined did out to China ago, we, there. the do we yet. revenue Brian, and We not year, revenue of Coming target coming its So, million the from think, a current front I we fifteen the months set We IC. looked China FPD said right, have about incremental expected factory between on out the FPD factories. expect split we maximized quantify when

right, expect FPD. the FPD What fab. in we qualifying the had to fourth essentially with customers fourth we we As still exiting for that, qualifications in are the be products quarter, specific our said complete quarter,

should So FPD Taiwan we moving into or qualifications the production of with fab next be other in be should see Korea. FPD running happening fiscal our factories year, in and what number the consistent largely

think fiscal the done. Nothing qual this has By year, of changed that. year, about be to end we this

lot qualified China. now in some of We got customers made We a good have progress.

So, QX Hefei of capacity. is is full first the where quarter running kind

as mix change in that, come moves would it momentum. in to year and demand Having we more additional GXX.X the said Hefei the form new of and on, expect revenue factories give the that revenue online

on trajectory the FPD. that’s So

muscled reticle the far we quarter, just of at we IC the quarter. – sets as the goes, first this As end out

either. So is back to a don’t when and CapEx But we ratchetted not million. did million, next it into contributor that quarter was you was guidance material expect original hear to $XXX push year revenue, out the be this we $XXX to

you So push not kind CapEx of out was. quantify of the It’s trivial. can it amount

we mix for and we have is what and what do done years match. can But

amount DNP is a of of right the and Japan, others because we So China where likely, in of is is underway can now. most build A activity reticles certain set elsewhere bulk Taiwan, small in partner. in that course, our

match use can we mix So strategy. the and

we don’t opportunity. So any miss revenue

that nonsense simply an then, push just describe And least that expense shelf it’s the I look hopefully, as with really quarter So, out. trade two beyond at called war. the would nonsense,

without we’ll And IC. with pick able disruption be to of up a lot

by ramping should year is qualification because match not now using that momentum. strongly. IC next lose strategy and to phase be middle right through mix And a are of revenue So, the and we

Brian Chin

Peter. Thanks, color. right. appreciate All Okay. I the

And that would gross cost can, in remind the EPS top-line is can addition year margin you CapEx to revenue through the the next If that the taking sort of level? what million the full assumption and/or you just against with fiscal what drag full be also, year, relative year? $XXX throughout start-up us fiscal against target for you again

Peter Kirlin

think have was, I this we that expect million. CapEx heard now what we about said maintenance pushed because next. we to Well, expected $XX be some you into year Right, was CapEx historically

quarter as on direct John a to the want answer? it simple being you this commented, see add or or point China we for you So EPS. work inflection John. of expansive math something give yourself. turn on drag also kind to John, the that can more maybe do over the I’ll

John Jordan

of to start revenues mentioned was as cost, as a some and we’ll profit. more I So, these offset quarter China increase goods generating of in this fixed and cost $X.XX the our effect share

forward. $X.XX So that decrease should going

Brian Chin

Okay.

maybe perhaps So, less $X.XX than think, I year? impact next the a through full fiscal

John Jordan

this One would quarter. be to in we expect profitable after hope, overall China

Brian Chin

Okay. thing. Got Maybe it. more one

revenue obviously XQ commentary Thank recently sort – fiscal in are expected of that, you. IC XQ? perspective a reduction memory from And Peter, terms some just of top to trending. curious the about that In what There part if you the we on seeing how masks and/or a any drag business is has IC also, curious fiscal in in kind been that is have of just business? the there was of and is what in side, way output the quantify

Peter Kirlin

back IC QX revenues went Yes, in levels. China to our

So we lost Again, the it’s fluid growth in market. in dynamic QX, QX. a very

are has on market We in IC as not more than deteriorate front. to expecting said John the it his guidance is the

do of to you that best was So, I can simple kind on and what again, can that’s drag math know the do you’ll – a the top-line. that

pretty maybe, straightforward. represents, basically that’s It

everyone downturn has severe. As far memory in memory the think goes, very as aware been I as is

business memory phase has of in the pretty held Our well the up downturn.

and little quarter-to-quarter. It’s a been down bit up

not it until is We in And think predict. XXXX. expecting materially calendar when is year year exactly to calendar XXXX, improve to are that I memory going now right hard

Brian Chin

Got it.

necessarily improve necessarily but next not the So year, till be calendar drag, in either? incremental business drag a not

Peter Kirlin

not is because necessarily pretty base in – not customer changed right. right, memory materially, our Yes, diverse,

exactly best We tough We the for But best have memory I do, as think, of photo it’s we again, least DRAM. technology we in NAND recover advance mask that to know - have when think happens. to globally. others the at expect

a and environment a we are ago, fifteen have in. our all event. we operating an targets just which Because contemplated you, when. Time when industry we where will months said exactly place in downturn It’s cycle XXXX are to the we explicitly we in put tell remind they normal

going contemplate the rest. on weaponizing didn’t and in with the photo-resistant noise we extra But wars trade

nobody knows, what nobody week next I long next talk that little at least means knows to So, year.

Brian Chin

Thank Okay. you, Very fair. Peter.

Operator

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

Peter Kirlin

time this join us Thank morning. to you taking your for

we in business and ahead. opportunities much exploit our the great same the truly environment. have our more there job a can maximizing is with do current performance of light we At pleased are this done We of the believe know time, quarter to we

good to future Our beyond. looks grow and well to we continue positioned in XXXX are and

Operator

thank conference. participation conclude This and you today’s Ladies in for does your program. the gentlemen,

a disconnect. great have Everyone may day. You now

Photronics (PLAB) 20 Aug 192019 Q3 Earnings call transcript