PLAB - Earnings call transcript Q2 2020

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Photronics Second Quarter 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]. Please be advised that today’s conference is being recorded Wednesday, May 27, 2020. Instructions]. [Operator like of conference Investor now Dewar, to hand President Vice Relations. to would over the Troy I Please go ahead.

Troy Dewar

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

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

Peter S. Kirlin

good you Thank Troy morning everyone. and

challenges, our three second of in beginning continue our centric our have recent third extending attitude with last to expectations. enabled over dedication, few I quarter February months, outlook has like us customer operating employees results Before and commitment, operations in real that China discussion displayed to to the our beginning quarter to outstanding global to and their customer globally response and recognize would moments a take workforce for

and on support, key for sustaining evolve health, material areas four to game customer our All to plan a started critical implemented events supply, are operations. global we maintenance. employee raw quickly total these and developed As focus

in accordance and of the requirements. to our be actions, logistics personal equipment to small employees any service and direct able virus, health initiated best protective workforce contact internal Across sites our in of our use regular issues, we materials comprehensive proud raw a spreading with to and including we've as local Because practices adoption been segments impact customers’ its addressing with the from performance partners, been towards these of which suppliers, our photomask very and Effectively monitoring, and home implemented chain protect It's known monitor global continue to needs same with I to our our and response. policy, groups are the usual. visitor am We the newly our the effort and team true business operations. through to meet our enabling of OEM on global supply policies to all quality work accustomed. delivery of equipment they minimize meetings a

second results, the This benefited for year-over-year stronger year-over-year the more to demand as factory. higher us global your FPD Chinese quarter. quarter capacity revenue was from revenue as consecutive our on new driven by from achieve XXth growth Moving as to enabled we well

XX% felt are photomask The from a Year first and demand display the expanded and and even Chinese ahead last IC look We the footprint. the production. Photronics. was out the globe, corona and end foundry sequentially strongly push most of the our use and mix better subsequent global record to combat resulting can in FPD extent for New For a of optimized. realize product IC impact year we is high of in to ramp growth Revenues revenues our due demonstrates dropped factories. at with continue worldwide half China pace, first for lesser performance extended year greater a then to achieve shutdown virus. mobility to across was year's Chinese in our orders, in restrictions both the this which This future to

improve outlook is year. these Fortunately, of year’s in sales the while and the the this there market for overall beginning uncertainty we balance cautiously ahead, already fiscal are markets optimistic we regarding are

For deemed essential faced customers, been and of interruption. products IC operations our have not most have

to device large which of design more an verification often on layers. designs returned to to May, some order from adjusting to as teams today's pace in of conditions. loops appears slowed it customer’s office. seems that many setting have have and engineers and However, approval are multiple early home uptick releases April adjusted working remote or cases requiring design complex during But are the working our on of staff the the Based design have is teams engineers work difficult, remote

forward we believe anticipation moving devices are with that in course introduction generation next economic companies of environment. the a of recovering Of

far As factories concerned, entire is our of three during FPD fully booked as all quarter. were the

are instead leading May end business quarter. expect China to normal design the immediate in suffered do of line market However, ton but in back to bookings. to to third sight significant keen decline not a a eye Earnings impacted We're We were be keep in customers seeing of the due to up us pushing existing ran with of bookings decrease always more by GXX.X revenue. our the simply navigate by lost the mix products, share, in already Due our believe our we producer execute to new the well our releases. GXX.X+ We the as increasing rebound strategic growth cost $XXX as to to of believe period improved was quarter to status more on balance cost flexibility during $X.XX John uncertainty we will We of market balance of against low share. in no moments exception. and objectives. our few this focus quarter million. strength earnings to and this cash this a sheet per we we say as maintain but well-positioned delivered

maintaining our our what health in our working across disruption summarize while the with responded we well-being of second quarter, our operations To chain of partners the has saw means with well, team the and supply no to employees.

China. is behind those to bookings us. April but primarily to pushed uncertainty May. improved in worst our the regarding growth out We've too economic of Some and future state There's seen much customers were limited orders,

how I'm we pleased and encouraged trends. by However, current with responded extremely have

to Mycronics. of formal conditions in is writers is XXX lineup placed early will With this in During recently our already changed XXXX. of Prexision from growth. to is in the Prexision entail a uncertain two to to writer be our us. XXXX. will China broadest display. scheduled investing facilities phase enlisting order Investing growth three our dynamic market performing well our commitment to that the one thing calendar new preparing second for of strategy. machines has position, year technology period This fortify advanced investments for This scheduled in an portfolio targeted also mask not next We not We receive X were addition we're these leadership available. most The [ph] delivered tool and for

tools while that excess the these support the serve new range return. commitment any support million, three facilities have entered our optimizing install Total flexibility our to the million three best We mask FPD have depending annually. on investment $XX location of writer. location investment, this and of business each our purchase select in Asia, to in in of will into collectively $XX tools, we agreements in to including of multiyear To million $XX a represent be additional financial customers will the we any

ratify advanced Primary AMOLED are technology multiple them smartphones and strong is for XG There demand. driving of need market to are The premium have Most factors tools. among more the is technology. transitioned this these more transition. adopting models and the to accelerate and manufacturers growing expected AMOLED mid-range

to a Second, displays. high-end migrate -- period to of beginning are now AMOLED

layers continued mask increasing that per technologies resolution Well, increase, AMOLED A smartphones number layers. sensors. does XX of layers manufacturing mask has adopt with set. are the premium Not most Finally as innovative advanced basic we thereby more critical up more fingerprint to number the display further most provide. integrated features but complexity and enhancing can design value there layers. Discrete only greater XX the have such to of

technology our new and us growing serve leadership. Our will extending better enable market, leadership tools protecting to market our this

demand TVs. growing based move in intended process end to to applications, technology. high on for differentiation producers competitive mobile provide addition panel shifting of Korean This LCD AMOLED to is OLED screen In large production from the are for

with As makers maintain technology they partner their will them leadership, to enable to to objectives. these them innovate advanced display strategic their on deliver

PX are perfect especially Lite allow satisfy solution this the the new to tools, to us Our demand.

to Before of recent concluding, to rulings like the by I would Department speak U.S. the Commerce.

to compliance. and business to apply us of in are how order ensure to first Our we the understand rules is

our photomask not do apply. suppliers, touched technology Fortunately, or FPD not so by they U.S. are

able based should Regarding to our IC we work, that photomask comply we believe initial be without significant interruption. on

on that the not are profile not to do our time quarter is on and all performance second adapt business quarter in At outlook. and to outlook is our the We aligned our confident of trajectory the objectives we trends uncertain, to long-term changed. the underlying long But outlook. has remain it But and activity have growth such the we have strategic we with business changes exact currently XXXX been I'll implications. a the IC to ruling As commentary some over direction to fully anticipate in moving during takes The turn position of this to in provide time, both our that we with activity a believe our positive additional believe term their into and understand encouraging. businesses. and third significant FPD strong business deliver. John in call Current often our booking

John P. Jordan

from seen Good second compared performed year, well both than customers shutdown. our due indeed a Chinese year were comparison new We out as revenue X% last China, by IC variance our Revenue year. of declined particularly XX% the last very of compared the sequentially product the our sequential AMOLED. sequential China previous revenue were with some recover will On revenue in the favorable that impacted Hefei during FPD output. Peter. you, a same the as able to We facility business due expanded and FPD down improved managed Year particularly and revenue improving circumstances. pushed order orders, the albeit have was morning, quarter orders. top protracted More same their We trends capacity demand everyone. lower for customers to quarter capacity, IC pushed mix with was million full to we Thank rate keep in out to over in as already period quarter. operations challenging the in line. last quarter foundries plants as $XXX.X additional lower at third not running New and improved of albeit with GXX.X+ during the softer through demand as our and half China the believe

line operating in revenue and trends. moved with margin margin gross Both

year nearly due of from Overall year million in and revenue about a lower the we X.X quarter uncertainty, was resulting cost to was new percentage period challenging to dollars equal income control. on previous a the prior to the year China quarter. decreased this large half part XXXX. expense in XXXX X.X% OPEX in quarter. of accelerated fiscal in fiscal qualifications revenue as expenses. million from During prioritizing expense the cost nearly from operating year of the XXXX, to all economic half million programs spend just fiscal focus fiscal are than XX.X% on in properly first a XXXX of of Total expenses a of OPEX are perennial product SG&A fiscal to our XXXX. from increased declined to Year-to-date XX.X% reduced we our effect reduction percentage XX.X% we We in the first operations. global as ensure in the SG&A in R&D dollars second essentially quarter, several many intensified increased

of diluted in but our of quarter reasonably continue were provision Other in Margins share of and resulted U.S. for foreign interest the in enabling expense Tax business. books second with the on the $X.XX subsidiaries and a deliver quarter. assets impact exchange better dollars drive in foreign good liabilities us of from to line the costs and the primarily remeasurement to expense to million circumstances expect dollar together the do primarily China. were we'll denominated per we expectations, non-controlling interest of with out

and ample We strong debt, available line if that our a $XX million are needed. including with manageable in financial very position is revolving liquidity unused cash, sufficient credit

generated the repurchasing during XX of result from and CAPEX increased from a of we $XX balance million cash $XX million our investing and Our stock XX in $X of common the million million operations in million caution the and contributions and of repurchase of from uncertainty consideration the we government of the decision Earlier non-controlling the current second interests. subsidies terminate to our made in abundance program an quarter, environment. out quarter, share

resuming vehicle improving diminished desire in use we value and time anticipate a not future. the an of has Our appropriate activity as at to this this means shareholder

total that including at Our remain lease million for forecasts a $XX will will XXXX CAPEX million, about be financed. fiscal of approximately $XXX year for equipment

have conditions. CAPEX we on to exact us market to timing always, allow changing flexibility to As some of respond

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

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

or add to customers virus and therefore -- have suppliers, in impact industry an our in or geopolitical or demand resulting policy, end address may Lastly, risk to an our on adverse governments of results. operations corona changes the on restrictions our market as trade impact corona announce our operations,

we caveats, million. we those be we to trends IC third to the in well of quarter into expect and get third be to the anticipate revenue for market the to End trend million longer-term positive. Given remain $XXX demand quarter positive as and FPD range appeared $XXX

announced. developing were economic as we difficult withdrawing year macro as incorporate Further of fiscal our to year relates and to when have outlook. full fiscal quarter that attempted it it's the especially during targets fourth uncertainty result third uncertainty, this we our ignore quarter this demand to a XXXX previously However, are our

reduced is uncertain environment. the demand level While the we confidence so these targets, doing by may in still meet

being Based challenges on as quality during core execution and call cost high we range photomasks questions. of and quarter $X.XX strong to for competencies, periods expectation overcome to the now focus turn to times the needs. our serve us longstanding low will be these able better we estimate for evolving to delivering uncertainty the our with of and third Successful enable in share. These per financial $X.XX to of current and of model, certainly operating customers. on and leader these should technology strength earnings Photronics challenging our always, increase operator the combined competency flexibility, customers revenue to diluted our our your the emerge I over are

Operator

Thank you. [Operator Instructions].

comes first Our Diffely line Davidson. of with from question the Tom D.A.

Your line is now open.

Thomas Diffely

Yes, the good morning. for Thanks question.

for it quarter, million time was a the going expecting at drove the guidance little back to of about to curious a were impacts softer guess you So I the to gave little world? COVID-XX, bit what $XX from rest it being that of upside or April impact the you a was that, domestic China the

Peter S. Kirlin

Yeah, United contemplate Europe the rolling virus and through original did States. guidance not the the

not Europe look of gave the you was other China, the the about came quarter XX% our that and of if the loss from we So came XX% when U.S. and at from contemplated guidance in revenue it.

the more drop out. quarter that's -- the how less in split So or revenues

Thomas Diffely

your quarter? guidance have COVID in embedded Okay, to the the you for and quantify way any is there impact July

Peter S. Kirlin

of a you XXX we our QX were year, XXX so if at shy million, well, was just right at a look clip. Yeah

the you April million, at was a look so V was second million. was XX February million, had we If XX XX March and quarter,

our So determine came for doesn't a of quarter April you look you from. when imagination the look lot at and it to number, at guidance it current where the take

Thomas Diffely

outside disruption you the of the from in in you're market I Okay, design or not saw activity early the March the end and any demand timeframe? like sounds guess seeing it delay quarter

Peter S. Kirlin

was March Year originally and Plus, which Chinese saw right, extended we New that what say all know would the saw now, dig. I starting to We beyond be shut COVID-XX. still right our weeks from down, mid-single-digits dip big big a sit I the hangover of right, we hangover Where effect overall it's so down intended. the economic we U.S. demand a was of in that overall as several Europe think result from felt a the

Thomas Diffely

Okay, great. And…

Peter S. Kirlin

been it’s… Yeah absent would sorry have it what relative Tom, to

Thomas Diffely

it your new your comments of really year COVID the full reading Okay, impact Department, any and the Department not the sounds a impact rulings? is then Commerce Commerce guidance on from withdrawal like

Peter S. Kirlin

the one no will mean, what I knows correct. absolutely fall That's hold.

thing the not only the think we I spotlight. will virus can definitively the left have say is that

will the Korea, China profile But you these in what Asia; what looks around So markets if significant fall Taiwan, I this like say guess. anybody's look is, for is are us.

coming XX% the of the compare very is West, Somewhere spring manage our you was versus to Asian revenue still from between And market. favorable. when their virus ability this the it

better with QX North because about well is significant will know spring, should they're very withdrawing -- of Don't is that were is lots current everybody Having it's the modest cautiously quite and the up year we we're revenue was the were so fall of of the our Europe We in we if said growth disappointment do and should ahead So, XX that this to we better quarter of be targets. step America, everybody why really quarters what effects Asia. a informed. replay year-over-year it we're be do we're full that, And, because a hit so the [indiscernible]. optimistic. being with the clear were fact -- plan in hopeful

Thomas Diffely

the Chris for question Okay, technology just And that how finally then does I me, guess, probably adoption mini impact photomasks? moves of the understand. for LED, industry I if to maybe

Christopher J. Progler

you thanks of thing. sure, of that dynamic with it's Linearly know, regular applicable Thomas. large and kind technology Hi, and displays. of very backlighting a applications, then sort that's signage, to TV size And as mostly larger OED, it's kind

for circuitry particularly They're to direct cases, and Same control on but from LEDs. still, a just you're drive you'll in circuitry organic they to need complicated voltage kind operate see similar pretty AMOLED, of as driver get the relatively displays, There the not profile to dynamic healthy operate using make like backlighting. need are and work, the LED but kind some LED, of operate have circuitry. to going to mask the is additional organic those LED linearly right to fairly we they micro both but the driver to So as surface LED, those OLEDs. are on the story easy complicated current

strong So schemes, higher. well. some micro from the and we even mask see as but Comparable counts demand of for profile of integration lithography perhaps kinds for LED mask pretty

Thomas Diffely

Okay, your for today. time great. that. I appreciate Thanks

Operator

Thank you.

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

line Your is open. now

Gus Richard

taking for thanks questions. the Yes,

quarter the is about the talk you in and and QX respect can of quickly, linearity QX? typical unusual that normal kind what linearity in Just in was

Peter S. Kirlin

QX business, a Yeah cardiogram year-over-year you deal the season of compare correlation our if the most for the has the right cardiogram, based has holiday on products.

if So is QX then see and up result season. of holiday we a the the normally at QX and definitive quarter, business you holiday typically just a is down look season steps a our profile step QX as down where for QX

even So products QX the QX QX not is and the more, lag pipeline. in being there's then more, there's the QX incorporates holiday. of

So a our that's for in year. business the normal cardiogram

but So to within there's January, relative to variation statistical quarter. have there month based always on typical December of some QX that, down should month normally it systematic been month variation being is no quarter, to the exception was with obviously not. that up, A month and February, a

Gus Richard

about by of you. the then just Department. the And entities the Thank Commerce list talking expansion

the that have those do you regulations? some low made do you just comments and get and you think don't you You wondering companies how guys exposure you to walked analysis you around impacting or was can where that through that I see

Peter S. Kirlin

to it's -- a quite step affiliated Then, in the them. the poster from you quite -- gauntlet so that's actually child mirror. companies regarding code with rearview already it it's there's you well away complicated AIR and far when is Right, run that -- the complicated. and the away or Yes, it's affiliate so have major

assessment. they and the sell require separate each So customer a products

we that side individuals this or at an company. So, of least several the is individual one really have in expert

right So If them. We're prior customers they've concern nothing through kind to is why only not is try now. still can take the been new that should the impact it so? two determine to to we're the And highest the all for to radicals really for of it working around building our do is and regulations do of there's the you we we what level, us relative can Well, that on why significant world. revenues. the have a so ones

a factories technology done. technology IC Asia, and where we use our giant factories, job to in get can the in Japanese partner in use Japanese that if and we China developed was Taiwan Our largely not have

So, we're the think right shape. what there's still a wording way, exactly But by now I in to on going lot the the good pretty means. dialogue rulings clarify in of

say the in still, industry, So working on my along with to quite wording prepared we that's what careful were remarks, complete we're others clarification to means. in why specifically get

Gus Richard

or of of just then remind your be, And IC X% big couple basis? on an it. me say, they top would how on annual Got revenue they customers, are X%

Peter S. Kirlin

high revenues if do more top Oh, number in know a But varies, typically that look a you out we but, break than our XX% in have of more customer customers we if our at that typical year we quarter, that than IC tell five XXX have, concentration. they're and don't I'll business customers. a our at you the of I top right.

base top, broad, and we have of So very customer very concentration. customer but significant there's a at the diverse a amount broad

Gus Richard

mostly by IC? opposed to dominated is clear I customers imagine it's be would as to FPD that just And

Peter S. Kirlin

They're correct. XX customers full FPD IC, in that's the than top

Gus Richard

thanks it so alright. Okay, That's for much. me,

Operator

you. Thank

comes of line question next Patrick the Our Ho with from Stifel.

line is now Your open.

Patrick Ho

question prepared to how rules you some your from April or of can a July of where very the social you impacts is a quarter, up now distancing that, up your lost all much the do quarter? couple glad is revenues you core you make And quarters remarks, July it pent Thank over up manufacturing of started do your that well. that back just made the and come lost second how the the up believe and is situation maybe to revenue much of follow of demand part everyone believe all guess in capabilities? as and you as with from new of it how hear much that that discuss does I a it in carry and maybe Peter,

Peter S. Kirlin

Yes.

manufacturing as the we to had community if with, concerned in you So but right. knowledge that use as This operations fortunate, want don't are far is power the the that and know word standpoint Asia, use I word not would our from is -- of is I XXXX There has the was there's right. six East in three SARS, Since Middle Asia. right. Swine virus Asian to virus Respiratory corona Flu, the deal there there been significant and -- was corona was first the Syndrome, epidemics

So to there Taiwanese best in infected were a the known already corona particularly three. And or practices were health community virus operate operation. in to our

and that before So out months playbook took out that we that. the was output it So today is same as or playbook three the as three ago, it months we manufacturing was right? rolled it around world, rolling

have that. still were we to global but dispersed of manage as a really So disruptions we footprint. result through, ourselves we but again, line actively had have any to we top degradation virus. we seen small had able We not of a -- a think do supply our And the in company, a of lot we're chain as

having in So we we when in particularly would re-export buy them are buy and we them them another problems -- and would location, materials all one with ourselves.

nothing. manufacturing have zero, acting flexible disruption, being by as not nada, team, a and we any So global did

ready. happen, do be So we're to the is -- what. we just and don't we going not But be for going preparing fall. were to know foolish what know We we is would know to we already, something because

our So output same always. revenue yeah, as so

additions mean changes. it Of we -- as they impact. course capacity I as as add always, no from But, aside our tools

next as the seems pandemic, anyone is As far of push as to demand we out like major expect outlook the that months economic overall result from no economic dislocation now I now. right three and think the quarters, was goes there looks what over what few don't a there knows

really on. do think And there's said everyone predict. to to that I good demand that the likely the a virus But difficulty, that's hard better will to knows, is that have the where chips. significant a majority really for firm hard are as managing bound And the job having footprint have that's in I think I that Having countries of global a impact grip our fall. hard, represents say done of fortunately, resides. that's job again to West right, we are economic amount that, of some a be also if

know do, our what we've our got execution to up extent managing things can hands we're We're sure doing the we're down, on we can term the focused with us. to our get fall. we're We're So we for we're head we that from well we deviating strategy control. always long costs, set making with not hold that customers

time. So we're control outside on uncertain it's we're hyper focused what vigilant it's happening is what and on -- an But uncertain we can us. of

Patrick Ho

fair Now, much. you Thank enough. very

Operator

call back for to session. now like to Thank Ladies the I over concludes you. Ladies our question-and-answer Peter Kirlin and gentlemen, that the conference turn closing call. and gentlemen, remarks. concludes that would

Peter S. Kirlin

your once Thank in you interest Photronics. for again

creating caused recover the to all the daily look its to throughout understand rest of current for this routines, updating forward is environment us demand encouraged progress you that and XXXX. of despite disruptions to has uncertainty of our are If all we see

Operator

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

Photronics (PLAB) 27 May 202020 Q2 Earnings call transcript