PLAB - Earnings call transcript Q3 2020

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Photronics third quarter full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers’ remarks, there will be a question and answer session, and to ask a question during this session, you will need to press star, one on your telephone. Please be advised that today’s conference is being recorded, Thursday, August 27, 2020.

If you require any further assistance, please press star, zero. to Dewar, conference Relations. Vice like speaker to now Troy today, President would hand over the your I of Investor you ahead, go and Thank sir. please

Troy Dewar

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

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

Peter Kirlin

into global margin recovered, mainstream good demand performed end up second in display our control into and which and the quarter revenue from third XX% leading for quarter, compared cost ability margins we in leverage a our our on China growth product with sequentially expansion. high Thank from quarter. focus our year-over-year improved morning achieving Product recovery to revenue the in and due relentless footprint strong notable everyone. dramatic results you market was well healthy underpins Also benefited growth with Troy business broad revenue with IC China strong to to shipped technology. returned was as and We in and offering, product normal, improvements the Design supply activity our markets. chains

operations profitable time first for China Our were the this quarter.

this significant financial were XX.X% cash a intensive and our significant is investments operating our the added the of business position. Given operate quarter, a investment, during to for Photronics. in Consolidated We balance growth. share. fortifying capital milestone our very for $X.XX We earnings that per were requires size margins

As their to customers our utilization, with term are engaged to purchase operations China agreements obtain are long well support provide way on full to incremental actively investment. for we

better our sheet revenues these stability balance date Our enabled without jeopardizing Year or to pursue were opportunities than strong XX% aggressively us year. financial last our shareholders. to diluting

consecutive year Cash We nine are year. of for towards tracking more has the generated than tripled. first XX% operations is income our Operating third by months of revenues. the record up

balance strategy is results higher working. XX% time year. Our is that last These than cash our validate this

a a to market solid followed while have generate a our with We places advantages. the that capital align and also when on disciplined allocation results financial profitable allowing competitive priority pathway organic growth, approach additional investments commitments to for customer environment providing us

quarter, creates is calendar suppliers investments designs, in generates readily is producers and reaction their important. discussions capital to exposure China ongoing rich increasingly which results aggressively is clear new to capital are apparent environment Beijing’s the to the mass Escalating have capacity customers further because is demand. sufficient. trade with an become that the U.S. semiconductor spurring turn it second their to self that accelerate efforts is the in is it As reported equipment Chinese and abundantly investing for their This

industry grow positioned develops. the the Our manufacturing with years to decision a few local as new market business has us building development through China efforts by two target it and to facilities

a XX% XX period. the multiple it Our in is IC China market which over last grown growth $XX integer since that were same growth spoke annual the months revenues decisions. impact on complete the installation those of compounded the the million additional at from our an ramp the quarter. rate quarter in is IC shelter-in-place over IC about about last rate business essentially is tool and directives We clearly Xiamen. as phase XXXX, anticipate growth benefiting notable pushing in we We one have of the our had out first business, anticipated

has litho out In activities, OEM sufficiently have skilled in addition impacted qualification installation a to delay an not the also anticipate This high of timing installation party the do to tool. lines. site and any the a to of to quarter our the ramp travel by the third the personnel begun do unable production been and one been delay. end That further added has we complex installing have tool additional we of of push our now issue work to the because of

have global running capacity efforts. market of end begin while XXXX. quarter all China should our benefited of we XX and are FPD the FPD in last our date, technical to nearly China capacity since our to revenues generate FPD New believe $XXX rate kept and has at a XX% in also second million photomask forecast to display our of not. up investment annual have months to grown is development XXXX. compounded our from due our leadership by revenue XX% many revenues Year were The in factories China. Furthermore, the has competitors grow to growth business X% over we business XXXX. at

of the market that investment next dramatically anticipate differentiated the rates well IC, We our as Moreover, above in maintaining we in as have captured underway. and have we outperformed growth technology Just recognize customers market have is well. XXXX as the share as FPD result. market we phase a

business largely of the are of challenges our market presently and external result not free we in display However, a soft, two factors. mobile is as

smartphone of map. has second, the XX% their temporarily de-Americanization new to product shipments and decline is First, of in supply XXXX, expected their to XX% Huawei’s number road chain paused

is the is which driven. market new impact phone mobile global back the was leader having material pull their market design Huawei in photomask on QX, that a Given

effect the networks and the market. the adoption current most rollout We way expect phone redesign as furthering as their XG the Huawei of for this is their of want displays advanced offer be product of sector premium makers the temporary to of completing line on to to AMOLED the is

term Given we in softness the to Hefei the have facility QX. decided PM near our demand, annual of pull mandated forward into legally

FPD a we revenues be expect As result, down sequentially. to

to they demand the business to front, as advanced mini backlights applications. are we LED On beginning see mainstream start penetrate display new [indiscernible]

doubt related industry OLED and a The matrix but emergence little of to display technologies version The OLED in is solid very increased LG’s the will between LED similar in landscape niche yet two to visual mini there these display backlit is these presently the is LCD example of plethora marketplace. to commercialization expanding find passive a Samsung’s of the backlight the formed LTDs is displays older displays photomasks offer need market screen of or of another new some products LED This the large state micro of stages innovative rapidly QD-OLED. in Within enables their mini displays, space. TVs. traditional technologies early of that support active LCD the the technology for the such as with performance White separate or TVs, and around sits OLED,

to the technologies. display to products the support Given our of leader, customers and/or as position development technology are and market new increasingly Photronics turning

board. advisor, plus as Research senior including board quarter, Corporation we serves company semiconductor bring of he his joining we With industry the took will Board strengthen now wealth His experience. Liao operations brings members will development that announced his principally as knowledge Daniel to we directors. Daniel our to During still our where have of step of our Directors. four Lam value be another independent appointment, with a technology with experience seven relevant the tremendous

We these align governance over addressing have last corporate continue diversity know we our and important have are us governance and you investors for and made discussions of improvements with I that corporate policies few best issues to the been that to be practices. years, will from with mindful crafting tenure. our

margin nine remain has on that will and of forward, momentum with of Looking capital. our expansion and we long first continue months performance pleased am improve. returns confident trajectory improving I term the we our a business revenue very to on are XXXX in growth, and

call proud presented together, of us a face the the all I challenge By of by John, we employees like enjoy the would while that in all. competition. personally of challenges am rising company you to thank for performance customers our of to I working coronavirus. turning are and each the to global multitude the very from our over the of Before other operating protecting separates service a

Now the on commentary to John turn call additional over our outlook. and performance to provide I’ll

John Jordan

XX% the equaling time last revenue Good quarter, Revenue growth consecutive million first and of everyone. than we third XXth Peter. growth. nearly achieved our record the sequentially morning you strong revenue increasing same in better levels quarter resumed $XXX.X was have Thank quarter. XX% year-over-year the of We year,

During quarter demand were reported improve. we our second trends call, to continuing that

to mostly recovered. demand a IC revenue quarter chains returned initially market mandates IC As essentially end High supply that the Asia. driven strong better recovery foundry to of progressed, flat. by XX% by were strong second third order million, mainstream and growth. in that end manifested Many the and quarter improvement in revenue than logic the was $XXX.X demand shelter-in-place in due improved impacted to normal

are on through of as latest improving in with Department signs too the to this ensure may are underlying demand across of Commerce supply announcement soon we industry, of against law impact forward, compliance. creates of to the trends our to detailed Looking across the the Huawei level along we, is while working be an specific we new still markets, see It regulation language restrictions business many the the chain. of of uncertainty do additional rest stable how

doubled addition as smartphones. second by to dynamic. up technologies, still Demand for by sequentially are million, The and FPD $XX.X the possible year, nearly our from health levels low demand potential sectors. designs In AMOLED very targeted very restrictions edicts. demand concerns. end address headwinds display with is mobile last market policy, from environment increased many revenue panel released improved makers government XX% LTPS including limited improved generation both and to high X% were that GXX.X+ new applications, quarter for of next driven shelter-in-place compared to trade from there also

capacity while to LED to is leadership Taiwan develop continues their GXX.X+ China As production invests further technology. expand and LCD away OLED AMOLED to mobile position space, AMOLED, LCD to penetrating in also ramping Korea differentiating the or from transition micro capacity

customers to are However, on Peter the Huawei an the against annual due a fourth revenue term, and quarter our their continue This decision all leadership the uncertainty reflected perform technology have is impact this will photomasks preventative product will our the to them mentioned, Long with to objectives. the our Hefei temporary as maintenance these dislocation help in guidance. to we quarter in restrictions in closely causing chain. development enable forecast our behind market, in that navigate of work with challenges display supply

both As seen and term of we the rates during high our just This demand continuing quarter across anticipate utilization presents for uncertainty we we is high cost returns. the and both have opportunities carefully facilities. rates fourth, and IC at to and the quarters. are high end relatively few all and maintaining cash running discussed, improve deliver optimum structure opportunity next the into utilization FPD flow near third over to profit optimize The manage our Notwithstanding challenges.

XXXX. the there capacity improve be productivity incremental catalyst and increases, revenue initiatives next significant growth should for the while chances be with to planned will mix However,

quarter bottom margin the beyond. to the Third follow leverage quarter profit. Gross positive XXXX should and quarter quickly come line and the next Xiamen us assure the online XX.X% our revenue in to and as phase closely, above and investment made $X an management in XX.X% of growth than the by cost more a last revenue margin run to XXXX. end with will contribution $XXX annualized to of top expanded of second line, allowed reflected improved piece in The which operating our million FPD investment revenue rate our operating operations continued China million operating grow to

subsidiaries. $X.X continue to focus resolute cost usual XX% expect million target importance. require we the our the included items in and effect progress our with unrealized line operating the in sheet towards other non-controlling $X.XX line, foreign expectations, XXXX, re-measurement for our were which Below operating will quarter. and fiscal always of resulting expense diluted U.S. share provision making to the dollar forward per of Looking balance margin of interest expense primarily of interests denominated Tax of primary reduction, on

from we $X cash increased activities Xiamen million. and part our a received end at $XX cash expenditures million. Total capital JV Our of debt investment. $XXX $XX was quarter. the cash million in balance funding million, $XX generated Capital million the quarter during and $XX partner We were quarter the contribution our million nearly net from operating in was upcoming of as

capex We timing have year changes million of revised our payments for for due to cash tools. forecasted total to in $XX the certain the

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

risk. that situation the is financial liquidity the remains sufficient generator to consider position by cash management has of will When business debt. on reinitiate strong revisiting we and capital that cash the The share return a geopolitical the our of Our we and repurchase strong combination and to with determine disciplined collectability manageable base mitigates customer strong uncertainty brought subsided, and financially the working coronavirus decision shareholders.

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

an fourth end sets health have concerns and actions the earnings. quarter days our the grows, Additionally, the on demand, may segment are our our one fewer last significant adverse a or market quarterly risk our of customers operations in the of impact orders trade high impact business end address government than our a as five resulting suppliers, that end ASPs also than therefore results. policy point to quarter on an day Geopolitical for of high mask on high can year. have or quarter to would this and out operations, fourth related I low and industry revenue the number has less of relatively third impact or and our

as and to policy range revenue million to planning Given earnings PM of revenue quarter to for estimate those quarter, soften to $X.XX IC however, our and be we also U.S. fourth in discussed, of Based also be share. per in strong that FPD; trade across caveats, demand new we operating current are the of on the our both we and during the related demand Hefei. we fourth million. market may $X.XX there is expect the the in end $XXX signs annual There expectation diluted $XXX regulations to are likely quarter range uncertainty model,

We the with through performance are pleased nine first XXXX. our months of

going challenging few strength us to have position questions. us we enabled navigate outperform environment last market believe turn over the over and for to forward. leading market now the financial to help the continue I Our and quarters your call will will the the Operator

Operator

of [Operator instructions] line Our Tom first from Davidson. Diffely with question comes DA the

Your open. line is now

Tom Diffely

quarter? quarter taking Yes, any you disruptions on is projected good potential there, during in thanks the the fiscal morning, first and Huawei and Peter, all you see disruptions are for or the disruptions this seeing--did fourth the question.

Peter Kirlin

effect Yes, in we really see quarter. started the of the month to last the

We’re seeing it now.

into a one-third and little the two-thirds happening QX, be will dislocation on we But QX quarter, We’re it’s quarter we maybe see complete clarity a it. about we thinking what’s spread have it behind us there. sooner, don’t the over exit as so way

Tom Diffely

just the is maybe handsets, I TV more could with those business, a items. the Huawei maybe sounds GXX.X was that side facility you so the square the but the issue impression then on of clarification, much Hefei and was like Okay, under the two it panel

Peter Kirlin

build a there. is around the maximize FPD focus lot to also panels we revenue profit. critical AMOLED but and so Yes, We at heavy our look of and it our Hefei, layers large you our global non-critical yes, if footprint business of move

reason of in demand the minimum sitting is the the mix PM even was We’ve facilities, the our don’t--first our full, or and/or PM the all at at dropped cardiogram business, so science we the do quarter mandated We where at the normally in quarter when includes QX that at given that’s but rather--not product, those of demand. but at because an weakest. a of the this market in PM look see year. capacity, all so the Hefei be a in is at a don’t why of do you As factories it annual all, demand we revenue will because this minimum, been for a park is the we science do of sit our like running way forward our million. the that mandated when believe by end you that, a we’re Asia pulled industry it. get revenue are to $X.X is and when the we minimum. doing Anyways, nadir, December all quarter were out profile normally--so we in generally factories don’t activity The to every We’d the government, market know, way if dropped though parks PMs nadir the we’ve that them markets we its

Tom Diffely

Is to two-week typically Okay. one that a event?

Peter Kirlin

will three, China it’s Xiamen government but and us and require be lose to in about--everything do week’s everything again on year The earlier the PM. to or will for so up we as we four to two days, so the these Yes, already re-warm the the off takes cold PM been output varies, it, turned a about we to the in for time minimal things turned profit. It result of be adjustments off. way worth in revenue of the make have impact year, they so a try try has done the

Tom Diffely

sense. mainstream what or is? first the reflected was that the over think strength makes demand the quarter it Then market business, saw, end in rate the closures you to that pent-up Okay, calendar moving run from natural that you do

Peter Kirlin

we a the snap business was there second tone think in QX. that in see some back and additional demand QX, largely related the back we normal seen snap the in mainstream would fiscal plus the driven so have the was in our what to in it didn’t China, I quarter, was

Tom Diffely

Okay, is ongoing about expand as you just something when margins control Then margins, question your a look that related product comments makes sense. that that final is help you cost or would your John, here, there just well? expanding or at mix efforts

John Jordan

the Yes, of the improving a reduction margin like but I cost and all answer, revenue and China’s mix giving don’t above, performance. and Tom, of it’s combination

Tom Diffely

queue. hop I’ll in back the thank. Okay,

Operator

Thank you.

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

line is open. now Your

Patrick Ho

quarter, quarter, much. Maybe talked traditionally is regarding results any just wondering out market maybe year, come October have because the trends. demand you the posted that those Tom’s the October pull-ins you quarter question following the very off potential XQ Thank the boosted strong of quarter of any about may XQ. Peter, that strongest so environment, very your of the at you might I’m Did third see just of your saw of dynamics whether expense have but in

Peter Kirlin

expect far the one so LCD see OLED that No, quarter, we we to in it into is bunch concern, see QX market the quarter, capacity word capacity under their QX, fact, one to if all sequentially customer’s pick year, the coming current current We look use. think It’s off. current not. fourth the and in in the know, our very Korea’s indigenous, we’ll a begin--you LCD projected typical market. right will we mobile That’s shift, to off, of dynamic in unlike up for offline, a effectively a same market word, in for our market, expect did know, from you shifting LCD fluid in see TV at and as shifted, very--the quarter, see the OLED the feet. shift the capacity, turning the phenomenon do demand the [indiscernible] dynamic know, least Korea. being very is as forecast, right QD-OLED our--you likewise We to fact turning first is is business It’s now. FPD you to the the at as

the Another mobile dynamic of under our feet is demand displays. the bottoming for

not they and so third is Huawei Apple, the specifically turning global--not trade underneath and were year dislocate typical so expect leader we current product take say second between we household to improving the they Huawei, and of this market utilization impacts picking name the you but as it China, quarter global but We pleased through would it what the you are road so in our at The the do the with dynamic of again, in mid the we of quarter. going as and are it factors of business. we’re Samsung the continually demand profile. second the think We now screw see just - as see in I same see this map, probably the of those the reflective year, quarter feet right how rattle we’d three all also market to blend about again up. war typical they if the even see of ran or saw, the not to bottom the say half we end its I’ll U.S. the capacity quarter quarter, doing. mobile the running with Anyways, is are of current we the moving XX% seasonality, in not at of Chinese, competitors it’s market handsets their the in worsening, believe were the as

Patrick Ho

few again, there negatively a lot quarters? are impact What gross getting margins from prospects absorb basis? is that underway an that, I’m that your as for do quickly at facilities of - not things in the coming will of feel mix, agree side Fair in enough. the I investments confident of margins, several help and you absorption that and get there both fixed you they’ll a all demand from of but new lot given that confident there’s cost a absorbed over for of the costs got least China, parts pretty moving revenues pieces are question but you’ve that Maybe fixed next moving for a John, gross are follow-up

John Jordan

as new to related coming new mind in ramps lines, and we able as got will couple that there those make have tools, that a commitments past be calls, quarters in and before a new we’ll qualify don’t of absorption want capacity, up the so but hence, assured keep we’re commensurately. to time, we be mandate pretty we’ve good customer our fixed there sure new are demand in I to in costs invest quickly the say Patrick, the in well ramp, so we pretty we’ve

Peter Kirlin

XX% to Yes, quarter. I is Patrick, kind see margin of, John’s out you us you’ve there our That’s the time, would adding this we was operating continue because been business but very China of, add of time comments, settling right our sort had fixed we competing period, expect positive the model, to variable through of, is kind work you the time, sort it, existing income a prepared first at combined finally. said and hard drop business, in we’re out there’s business the to said, as a--as of usual, business I would into for so operations of way the long costs with remarks, the what so is we efforts, right? One out same of pull now as my costs,

has we historically We and it revenues expect I [indiscernible]. to it perform on line, think layer through the we’re as like top the on

Patrick Ho

Great, you. thank

Operator

Richard and conclude the answer Northland. line time. have today’s and one Ladies at question Thank does with of I Actually, question this from you. this do gentlemen, session Gus

Your line now open. is

Gus Richard

squeezing in. taking thanks Yes, for my me questions,

still market, or been? changes? of any on the pricing that terms In Is market in seeing are its how you trajectory it mature normal IC has

Peter Kirlin

No, it’s pretty its trajectory. much on normal

was yes, in nothing the stable, mainstream really really business. in pretty in is so foundry As mainstream that the there is logic snap of Asia. we back out describe in the Pricing market really ordinary or the reinforced,

Gus Richard

any Chinese terms then new and start-up impact forming of activity Okay, China, products? are from quote-unquote, you companies in de-Americanize seeing to,

Peter Kirlin

all. Huawei order I don’t I - how suppliers that’s in see selling know, customers a shift buys the from the and the Huawei our the we really first business de-Americanization we’re Huawei what effect at that see have mentioned to. is we in We affects think--you semiconductor earlier. What where

being but of in see ICs one In business the replaced, same the reasons de-Americanization the a IC we of the is snap because displays Huawei’s are phone. are supply in chain the fact, the our back still

life, Our in demand their business. I customers so see still in That’s be to see enabling continues, presently the Europe obviously shifting result but fine; our the as that think as to long from in impacting that us. us how going China as of we’re a China mission we de-Americanization U.S. is and as

Gus Richard

Just as is analog, or on color a for is to point, mostly it that of of give can what market? any part color that final you the bit logic,

Peter Kirlin

mainstream, the mainly above. is mainstream right now where mainstream, would sweet the the the and is resides. China spot question. it’s I Yes, and the way of all It’s answer of any that’s capability mainly It’s in

Gus Richard

XX XX nanometer so Okay, above? and or and above, nanometer

Peter Kirlin

Yes, the way and categorize above. so we--XX, we as end, high it’s XX

Gus Richard

it, much. Thanks Got okay. so

Operator

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

Peter Kirlin

support. with us appreciate We and your Thank you some this for choosing interest time morning. spend to

updating facing challenges working another financial on and we to markets. value. year, as I you advance. is hard demand we we’re and obvious look by XXXX forward we trends Photronics encouraged year track in our are record shareholder are enhance to for our be this are there our While and performance returns maximize to

Operator

this today’s for Thank and concludes you participating. conference Ladies gentlemen, call.

now You may disconnect.

Photronics (PLAB) 27 Aug 202020 Q3 Earnings call transcript