PLAB - Earnings call transcript Q1 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Photronics First Quarter and Fiscal Year 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions] As a reminder, this conference call is being recorded Wednesday, March 4, 2020.

I would now like to turn the conference over to Troy Dewar, Vice President of Investor Relations.

Troy Dewar

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

Kirlin, morning Progler, John this me our our are Chris Joining and Peter CEO; CFO; Jordan, CTO. our

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

the soon. I'm Photronics Peter, I turn this I New pleased Day XX, to coming over host will will the City. over XXXX call be At announce York will May to in Investor Peter. an call time, turn details to More Before

Peter Kirlin

we from delivering but revenue year-over-year while our achieved operations improved consecutive quarter, a previous for our we you, market weaker. quarterly Thank solid second quarter increased. tenth during our is a seasonally morning, and that well with consecutive remained performed activity year, revenue new record China revenues to activity design quarter quarter, quarter We same leading the quarter everyone. first growth. the enables compared Not did only sequential in quarter, last growth and as us typically the deliver in our and high and Design position the Troy, of good revenue

operations, of year-over-year growth, extend strategy. our and further global validating position market technology to of value enabled revenue our investment the streak Our us portfolio,

were income increased cash was is million. flow adjustments quarter to QX during statement, income earnings Moving per it and $XXX the ramping by negatively was our share. balance compensation good, down quarter for from below line the several operations expenses, $X.XX our Cash as to and impacted relative the the operating

investment, targeting prepare We positioned we well market. are FPD as the next of waves for our

Before the while priority offer the been to on the health comments employees, our I business. to our measures to Obviously, protect moving take would like of has maintaining on, safety few a and coronavirus.

and Our in policies complying safe implemented Taiwan, all China, our Korea governmental to have sites while keep regulations. with employees

minimize are suppliers We actively to operations. managing our impact to our any

at So our usual. XX are standard Effectively, by along pace. far, moving business seven we as

quantify their the As having far as it the customers is and our is to the operations, are fluid. very is on virus concerned, difficult impact situation

in seen leases impact. our quarter have Asian out we consider to FPD and businesses, IC design been some both push guidance associated and far, the second So has reduced our

the the virus our masks. advancing to heavily The as display companies initiative, market enable part our business globally. years, share of growth would predicted region and logic, from investing developed China. away of Shifting In in will have on production China that back XXXX XXXX, in Chinese their memory, several during we and focused in Made with expand technology a country and the been be both for China capacity, investments was IC to strategy, and last FPD their

addition, existing In with in versus us new were other effectively there, establishing providing China. companies a manufacturing many presence from customers countries

predicted paths. the our growth, Based two upon assessment of strategic follow parallel we

a our obvious Chinese results. domestic these and the with First in identify and and working This efforts strong country business presence to IC display the leaders. The hard with was the manufacturers. develop financial establishing is in to outcome sales new market required of partner

our since have total represents Our annual significantly the XX% several compounded last over a rate now XXXX, of China years, revenues. revenues grown at XX% expanding and growth

a somewhat evenly diverse is as broad revenue as companies, has FPD, country. creating of well customers, a many of a now benefits summary, develop and IC base the business smaller initiative what deliberate Our developing long-term In comprised enjoying across been large to key stream. a we split are China and of the few between business

network second We in These and merchant Hefei two in build the was enabling to us manufacturing facilities, ramping now several of manufacturers. leader was state-of-the-art equip Photronics FPD The QX, running capacity, technology manufacturing in are facility production. to as of year-over-year. an An of facilities. a the and of integrated new to firmly is requirements, Xiamen pieces customers' have our that plants and full XX% all million us in the strategy among at photomask facility qualifying achieve establishing meet $XX.X up enterprise marketing part record our enabling global is customers of of critical technical and process XX which IC

finish long-term upon phase Xiamen build the and further first, do things our part ramp be correctly, first technologies to value, agreements. our improved an we will trends, customers' we support end, work If to second have secular The currently of position, Therefore, roadmap, doing and allocation as step be we with our enhancing the should purchase these growth the established in already the phase will leading place in as we same capital, so, product and on to the expect market by extend the We conclude expansion China. our our disciplined our of strategy. are shareholder will next growth in align realize phase the year in the of strategy, of momentum FPD. right into we first objectives with capital developing customer return ensure operations the secure

next we our with be We long-term plan May. when to our more in plans Investor Day host specific

few development, and end one process. the is manufacturing micro-LED, design market artificial to to OLED, deep trends intelligence, XX-inch, with the eight-inch, is UV, XX-inch, and or circuit manufacturing. the AMOLED, critical importance from process advanced years, bridge have remains what packaging. EUV, lithography evolved constant XG, matter the advanced LCD, electronics last serve happens the of over lithography we markets thing No organization our As

a can of deliver that design. bridging partner trusted products technology require the photomasks, All at of place, of and right the to and right these manufacturing time and photomask developers the the these need right convergence

excellence outstanding operational leadership low carried XX confident customer has of technology been continue I'm our to producer the and while future. in being years, us foundation have and competencies cost through will they delivered These to the first our the success. service, so Combining do

optimistic our made We XXXX for have demonstrate year-over-year is a of thank potential with of in certainly we are results another quarterly photomask start market. the clearly believe our to contributions We us all tenth I in quarter record of and would some regarding while long-term employees the business. to great QX, consecutive there challenges their revenue outgrow ahead, are that our outstanding like for our enabling Photronics. growth, near-term strategy these

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

John Jordan

quarter, Peter. the you, morning, X% last previous Despite record revenue than quarter, first Thank XX% typical this last delivered record better everyone. first year's quarter. than Good better seasonal quarter softness, and we

We continued to that especially the China to realize growth the market capability important allowed more in the strategy our over and benefits capacity market. to investment has bring the from us last year,

a XXXX quarter strong Our performance XXXX continuation during our of first results. is of the

plus us differentiation lower achieved vital a the as decreased somewhat in year-over-year, trends. double-digit margin in them was gross XX.X%, to of IC to for revenue a ramping operating of partner of compensation mobile costs strong as as margin LTPS Display The point remains QX. large trusted enable demand growth specifications. their TVs. but from resulted displays, rely driven FPD line business customers, businesses many to and our and Record GXX.X for sequentially, margin XX.X% AMOLED well Lower an meet that in upon increased seasonal technology and by format due with of China they costs the

from that we Hefei profit China, facility income operating in denominated operated China. our assets increased and at expense resulted loss of foreign re-measurement dollar liabilities from the U.S. quarter. of quarter a out $X.X First offset $X.X our ports subsidiaries, somewhat interest included point results the exchange of million in foreign of million Other by in although a gain

per to together and of shareholders losses million to Inc. diluted investment strong of We tax again. resulted $XX $XX of invested foreign operations, in the $XX shareholders tax of valuation once or and jurisdictional $XX with of repurchases million $XX.X generation the income from share. was and million, million attributable and debt. holidays The provision to million stock. million the was flow the $X.XX in through was The jurisdictions, profits million Cash generated end for number $XXX a credits have in $X.X in we fiscal returned net anticipated Cash from at allowances Photronics common year capital jurisdictions. expenditures, balance quarter and mix certain

that previously million, will discussed we For total expect the approximately includes million of financed $XX fiscal equipment plus CapEx a XXXX, which through carryover, approximately XXXX the lease. $XXX to be year be

week visibility remind demand is provide you uneven guidance, three our is first quarter our only predict. I always as our limited, of to one weeks, and for to backlog inherently products some is Before difficult and I'll that typically

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

have countries that operate in caution results. within therefore and policy impact could on I'll any in we an Lastly, our industry, trade which our the change adverse

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

to to we earnings our to diluted is revenue incorporates anticipate coronavirus. general trend While wider we and range our model, related on operating the expectation positive, $X.XX range and the in per second account for revenue current expectation to $X.XX for uncertainty of the and quarter healthy this a be market the to Based environment the remain longer-term estimate share.

potential and performance, to near-term full-year with are pleased to plan. the a our good are managed. We Long we term, have objectives. a we have executing coronavirus focused start to impact on are believe believe actively our being related and challenges our our The made will minimal, be first we and impact the meeting business, quarter

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

Operator

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

Your now line open. is

Tom Diffely

morning. good Yes,

the on a of now. quarter businesses right It sounds and to the you guide pretty quantify some the how just text IC second strong question can flat your was? quarter safe, impact first that stable the much and on there are coronavirus. like Is or any tunnel both way First, quick the

curious, much a So, haircut you how I'm taking? of are

Peter Kirlin

second the flat in we Normally, if business, guide at you up, look quarter. seasonally, our up, would

$XX have we million on of midpoint our our guidance the of of the the for into baked impact downdraft coronavirus business. So, plus

Tom Diffely

you that components then very impression that's Okay, look outside of And that China. impact, it's driving key at when my most your from of what's helpful. come

be uncertainty the quarter? wouldn't supply a of issue. big the I it lot fact that at business The would this customers Is during the that think point? just turns So, the of

Peter Kirlin

shoes, our through event. go constituencies have four in the we key right trajectory as Sitting we this of manage to particular

and customers, our our course, have we employees, we our have have of we suppliers, have We shareholders.

there's to So, communities need care that take of. we four

far Chinese as to employees go, different do, places through always in New As Year's. evolved. our regulations continue we operate, we have The

as employees, facilities, ends someone group in up and walk we through of provided that we've their door our decimated. be a our key that masks, facilities get they temperature taken, up so with front the end otherwise if and critical groups with sick, don't Our isolated would they're

operations So as normal wrinkles. far, some it's with

we As regions as from far as inventory the levels. our we've suppliers unreliable, raised are particularly concerned, view

materials good to are we run enough contain have more all our our So, than and shape in factories. to

not as supporting tool job on far the the our every goes, supplier equipment set. As is

excellence to are do a engineers to guide lot actions one said and self-maintenance, that, we video as location that, a company Some order allow of developed, do cowering. we've of of technology service to another. centers in service in Having in and them

deployed to tool have sit one of in get manufacturing because them major we world right down to the there those the a chutzpah up up So, who cannot the we're because problem it to is as tools. no seem And we suppliers can't when now, anywhere facing it I single show a in to. fix actions the when with is need with there that is supplier network get it for our to here

go, it's suppliers been as as we'd care smooth the we've it. as but far as like, taken not of So,

base. customer the onto moving Now,

in projects being releases. out product I As we see for new my actively remarks, mentioned pushed

into the very from for shouting truck drove FPD in done. came when for go in delivered We Now, aggressive extent, we're business. actually that the taking we're operating. marketplace. We're we've the highest mountain We're example, in quarantine top be We're in that Wuhan. person gotten the to they but who we've the to days, has XX the the reticles be jobs [indiscernible]. back Happens

are think, Right? covers moving no right So, But are. on of full guys kind know jobs, I that adversity, that we're doubt publics. investor them. be along. answer them pushing. of And done. it our we we're today always But can guidance the company the is the three of, you to I first particularly letting And what So, people where course, done. that call of be there some will with are four phone this with would therefore, is is of is pushing public high-complexity accustomed and It the

And the stuck. been so answer has far, the that first answer has

So, so so far, good.

Tom Diffely

to is No, looks the in period very a you it Hefei finally, that What Gen second helpful. roughly install? a the start When what going that's look to we Okay. phase to require? take And to long-term then going like capital what type think of question. payback How long is? is out XX.X facility, for do

Peter Kirlin

in proud $XX clipping is to we'd of ramped said rate. and has to pretty come It's here years thought, happen. here FPD the For exactly would make amongst guys at me, the us business remarkable along revenues You the to to we're the started. what before darn will what? and exceed years when a Well, million we guess three expect in China ago, the number you do that sitting Three I'm of see but level. our revenues Kind of breached Right? close. that was it's very in And breached $XX that now little not anyways, the the million you a know $XXX in the later, right, Hefei million all team revenues work what? Right? million. that what $XX would you FPD call we quarter the we were level, result And almost slide, China conversation having look had

that on done And the head investment we up. years ago, good of So, a wave in think do your going you the to I steam would is And we'd by question have AMOLED begin that. by what we market. told answering focused I un-equivocatingly three clear saying it's we Hefei of have next that be

very a Again, do aggressive, as thing. in very mobile are aggressively, said right customers. displays. willing to my activity, we're aspire and with successful being We good are remarks, contracts is we're govern with same likewise in it we now will China I position the And that or will on working make. acting how to that moderate we to depending in in get investment

be exactly business meeting at So, what have investment in with I by we'll wrapped think you the the effort up time, the shareholders with the May, we And that we'll time looks capital the development customers. tell like.

Tom Diffely

job you, Okay, well thank and good in a tough environment.

Peter Kirlin

Thank you.

John Jordan

Tom. Thanks,

Operator

you. Thank

comes line with question of next from Securities. the Richard Northland Our Gus

is line open. Your now

Gus Richard

it Yes, thanks the see? Could push Just the you you Wuhan? out give you IC? Is provide. that bit Is questions. me can FPD, color a little on for Is Korea? any it color taking of

Peter Kirlin

affects But to were, So, our it's the single the full. will what of confident in it both quarter IC. and topline factories our a of that of of reticle in during the course, affects we'll FPD we FPD very case top value GXX.X, business, And pushing be happen how FPD I we'll is line, able a because shift mix. In see all think, the set. our business keep particularly

FPD, have outside countries, as of effect factories those certainly the three the least, will we see seen said, of No effect So, into IC, guidance full, now. less but I ideal. won't in business three. within is there'll all an baked right the in be definitely that actively in it But And all three given. expect we seeing We're markets. China, those at through most what three that them. but tape-outs In Taiwan, we mix be and quarter impacted Korea, we've

Gus Richard

days cost? to And to be province. the in Is after had you into way? Hubei material for driving adding quarantined impacting XX or it driver that coronavirus the it. Is Wuhan your mentioned Got then any costs

Peter Kirlin

-- good some of only is I've you've doom. of on all so, coronavirus and a some It's not deaths. the written couple comments. There seen gloom news. what It's

two been Xiamen, last in se, I diagnosed night been until within the I not morning, in XX Xiamen of case home, per there new look So, a this and if single one. went there haven't days, has the checked past at coronavirus in we least up the when weeks, last has

in locations we're of fruit. government actions be the bearing China anyways, So, the to, operating in seem

So, with improve, only starting to sort is looks tentatively on that of But China our repairing we affected? situation customers It's of tools, some it's really where some in and of of the to the inefficiencies line. material. at are really the it's like us seeing and and cost kind affected our too. time not present That's

an So yes, much of not effect.

aggravation. Just more really. Operational aggravation,

Gus Richard

color give And do to the then you, Sort new start just Got you China? me and you [indiscernible] of one to qualification me. that from in fab little a getting profitability? are the Could expect on of close IC where it. last when

Peter Kirlin

I as Yes, the think reticles facility. we out said, there for first of we shipped the so the of July in startup

end So, I seeing ought we as but XX on to in months, said more it nine strong expect expected. think revenue we're of of on months full we proceeding trajectory, year. be half along material did, production end the coming path the less, year. of That's we Kind with second you're or the the next the the factory come to year. at at right? the We revenue year, that to the FPD Right? so reaching QX we're toolset like installed on the of Maybe of far.

go. any our reason I quickly think change to view see of how we to don't going we're

Gus Richard

challenging Got in Excellent environment. what Thanks. a execution is very it.

Peter Kirlin

proud I of like our said, very Well, I'm Yes. team.

our And new the new We how some have are ones China. -- managing the we accustomed are have ones of that lot old pleased there, with old employees, I'm But old the they there responded. very and adversity. leadership have in of a to employees very with

Operator

Patrick Stifel. the with question next [Operator Instructions] of Thank Our line from Ho comes you.

open. now is line Your

Patrick Ho

Thank whenever are you picking is starts about facilities? the Peter, but starts in given stuff it, of potential running getting ramp situation, pulled much. do the obviously it get scenario terms of relatively now. the the particularly and looking right to other snapback your process you comes? the up How normal. Obviously, again? demand you do that have How situation when ramping. in to on phase, coronavirus Hefei is that resolved, Both and on you new off, at maybe two gets ability in, up very feel in feel side things a operations the of up do first that back once that How still overall

Peter Kirlin

So, may Hefei said, as describe was capacity Hefei operations. a all really, long. full right, It normal. I in face, as a the other had for basically the being all as really team not as normal normal. tree quarter is local now with -- it's I be It's to it's of yet that But mode It's has tested. our quite strong would some factories. challenges

far going snapback qualified that concerned, which along when at as the in by Xiamen processes that we be to respond speed to number really As Xiamen is moving gated, in the And business qualification have the the my can of is we're ramp. mind, takes a place. snapback

there be some in bumps Now, the road. will

or be, material what expenses. scrap. heard the John's remarks and remarks qualification would I gross my for and quarter this it had it hoped wasn't We some was our Hefei profitable. we think we But had margin is reason you that expected in that

progress, quite yet, but outstanding. So, at is I XXX% not think, it's

able going the a be two, to manage with not I'm if problems. confident to it of quarter we're snapback's So, pretty a lot in or

we operation of Asian was was we've -- -- The as recall was there finally gated, that it we plant, of the kind been quick one of that -- built our humanly lot FPD as I also, our network there been our more between a the and may you that would growth I gate reasons IC cross-qualification manufacturing just customer say little a China possible. done it could has base. and think

there's expect, network in geography are customers the in our which manufacturing business but globe. than never you So, across know, even our in Chinese any struggles our don't if Xiamen, more I qualified broadly IC some other

later. and good there, we're when shape. there But know I we're we'll think that in I sooner I we're rather hope think than So,

Patrick Ho

Maybe some procure building follow-up the in from you issue you. thank secondary Great, noted China How is are a challenging do your regions supply you question; as impacted disruption that from this inventory and more handling that suppliers? specifically. period? supplies remarks within Asia mitigating But there. other I my and suppliers, chain both are in lot of prepared guess itself there terms How you of the during you isn't alternative

Peter Kirlin

something a business suppliers of cross-qualification every of as is we activity. day normal do The course that

that going where you not sheet, strong we're done have think is is And the nothing there than But a we levels have we we a that created we and materials of single a is good potential what more typical So, inventory of That's any drill. threat to we we -- ensure we have and a all and leveraged meets point I the of and -- have have think grasp There extraordinary enough. failure have is there disruption. team on we we really what critical have we more have done. need, than we've team, a where global fire weekly. a it a balance

Patrick Ho

thank much. Great, very you

Operator

follow-up Diffely Thank of do a have line with D.A. the Davidson. from you. Tom We question

open. now line is Your

Tom Diffely

morning. Good

quick follow-up Xiamen a the ramp. here Just on

all business business tariff had replacing for your through customers then new of Xiamen potential Taiwan into much some in facility impacts? how China, the So, does China? to of versus that is be the facility eliminate with going And actually you just

Peter Kirlin

quarter quarter, entire XXXX, this sales our first $XX.X XXXX. QX, in year In into million Tom, Well, was and our of shipped China, we China. during of right, equal

at almost $XXX million So, into run we're of rate China. shipments a

it of that clearly is much it it share old, new the the new already is we the with off of you completely quantify majority my is and I but business. years. of Lines new, head, new some is customers but is, can't have, for three shared over it is of Now, lion's top versus the how more last

you off head. China on my the quantify in million of the rate run incremental probably for business it up that's We top relative I best XXXX. So, a basis to way $XXX of can

Tom Diffely

you've then, topic, then you've that seen Okay. any tariff And on through same the impacts seen? any impacts just HiSilicon, and

Peter Kirlin

but think everybody I broadening it's their that the pretty Well, right? -- TSMC, line of if trade the largest to fully of use domestic extensively they're product that war, vernacular, because of to customers their you manufacturing product support one B., extensively, accelerated the diversify efforts want initiatives, and knows And base. has is own A., internal the their their to broadening line

of kind that both cuts pulling is clearly and of slowdown. more this boats a more even China extent all is in business, it's to So, sword Taiwan, The for that ways. the and us. extent trend there positive to the term, is there But a both long happens,

Tom Diffely

you. Okay, thank

Operator

ladies there the turn you, Peter further to at to I no Thank call gentlemen, would for Kirlin over now this time. questions comments. and closing are like

Peter Kirlin

updating joining I us for progress. to objectives start as a our morning. year. great you on We you in forward this Thank we look remain made to XXXX, hit this and track

Operator

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

Photronics (PLAB) 4 Mar 202020 Q1 Earnings call transcript