PLAB - Earnings call transcript Q1 2022

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Operator

Good day and thank you for standing by. Welcome to the Photronics Q1 Fiscal Year '22 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 is being recorded, Wednesday, February 23, 2022. to President conference and like Jordan, to now Vice Executive CFO. would turn over the John I Sir, the floor is yours.

John Jordan

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

are a may of me material Investor our the our of earlier remarks, on based a are Relations which discussion Progler, documents for are statements of number Officer. implied be this factors Peter web differ Joining our non-GAAP risks, non-GAAP along Technology affect measures GAAP today's morning reconciliation Kirlin, section we Comments measures, Chief the any financial information. SEC page. our and risks and you Chief we future Executive The release I'll those At forward-looking These to filed that to over statements. difficult to Peter. press on to accompanies uncertainties on contains with this we are that our a turn The the We morning, available Chris forward Officer, found no and other predict. expressed refer the issued financial the update material, this presentation looking of to with forward-looking may time, at the of may may obligation from made materially call include assume the results. call also Actual results or the presentation. end presentation

Peter Kirlin

or elevated and activity a is the am seasonally our everyone. strong, in hard to first and morning, Demand you industries. strong mobile market I a for across pleased display row. remains record deliver quarter, another worked end team demand semiconductor soft John. typically good And and quarter to that Thank the fourth earnings global report as was period sales

capability positioned XXXX shareholders. confident in our achieved acceleration even seeing will from that have better are for to in and the and the grow customers, are We're that Photronics, of XXXX investments and our record that us performance an help market. our capacity and trends We clearly the drove be employees

see rewarding to see in great quarters. it last it's up growth several is to revenue, While the our step the over profitability even more

know to launched of IC the factories this Our revenues of larger in new we has than business of and ago initiative in slate in to past years a an fifth four XXXX. with investors that the nearly line repositioned existing and record build China, years result a FPD five company. long-term both the clear [ph] been for the any running, The facility

facilities. hand, these we the built where compressed, our pain manufacturing typical company financial as a executes. ramped profitability as team two the On a long other investor and long-term for scenario gains, short-term so traded was new We growth is experienced for

our in 'XX. I ramped Our And FPD Phase FY FY in a factory factory capacity did likewise 'XX. full IC

XXs teens, and With ramps target targeted set Investor the We view. of to set to long-term operating for financial the at 'XX three we year the complete, prior which now gross our high into Day. in Photronics. mid - in mid new initial three power peaks a December represent margins coming We model our the new high margin model is

in above it the recent the well have QX. were half operated of in ended we we the model and upper Our as obsolete 'XX, end December have results of range in the second

and business new this minutes. new in in announcing long-term the to current model. our more As targets a result, performance a leverage will about say I reflect our few we are

metric. continue in revenues cash balance and profit, in up profitable are investments pursuing return position enabling been over our a improving strategy, year. has In major objective operating and leadership strong flow growth addition and we this last was expand improve sheet, investment invested of XXX% progress our This This our to further growth on our to to capital. strengthened us on making our

strategic by of is and expansion investment exploration growth, supported three Our revenue pillars, margin partnerships. strategy

revenue expansion in China, time, faster strong are CAGR result the coupled relationships. the technology geographic has growing fast solid in having is right in growing semiconductors of years. with execution in with right for the most over market a rapidly growing success measurable Chinese depends customer right Our on three and this and customers XX% past One we our market displays. tools The the the which and growing the today are location with approach been at right the

QX. China As a of XX% to months the our result, product XX of represented shipped at end trailing revenue

the AMOLED as leadership performance displays In in displays basic in are grow known more as becoming advantages our the across we premium our These display well phones, penetration and well to of are is AMOLED cost their leveraging and smartphones midrange down. comes addition, technology as business. FPD

for most the intensity functionality which the and us. stated its enable as in displays, touchscreen For increasing to advanced premium great fingerprint sensor, smartphones, displays mask is embedded is such

decades. time been historically. created least this ASICs should mid-XXXX. recently leverage of development in are agreements flat the legacy has the mask resurgence recent Looking regarding orders supply We we foundry growth these into has market rebirth for industry in XXXX feeding supply at the called as It tools with driven the be limited China. by and that Korea online is A support in customer come time demand FPD market. expected investments increased new more. in conversations view To this that FPD placed growth are XX% signed for have sector has placed photomask XXXX, This pricing demand. additional agreements to XX% capacity investments, in is as revenue, add forward, FPD in we semiconductor the with to expect to to investing our industry expand, and we sector, first in growth in We're the

in with the for coupled of in The as driving margin legacy We the this in pricing strength additional pillar our evident as growth, mask second implemented Taiwan incremental and Taiwan double-digit Sustained are to of well facilities room we is is invest several the and confidence we driver targets. growth capacity XXXX We one in this actively of increases say we foundry, and raise us leverage positions opportunity, intensity raising expansion, point in prices Korea. by of pricing which our foundry globally profitably in including to grow and investing Asia clean plus and sector was giving strong factories, pricing, strategy. sector. space the long-term improvement make have I expansion as China in believe sold of capacity segment, is installing legacy to exploit to investment revenue tools price better in expansion out these gross us tools. mainstream are in QX sustainable, Europe our margin believe of capacity this at our of in

business, we As in our margins operating the model financial further our leverage expand will and drive grow inherent performance. improved

that grow the our Finally, on by business to us capability pillar better to opportunities capacity position we are as partnerships This strategic inorganically. extend market customers. leader serve help our exploring focuses would our continually either bringing or

have successful can be M&A joint venture and a future history piece We and an of formation of important growth. believe this

model. I'd moment review John to call and present updated Before target our guidance, provide to results over to a like financial to take turning our the

well within I and heading, order understand now Due of market execution, providing are in mentioned year website. above strong model in slides operating them. earlier, XXXX. investors a to our to year one updated those December on dynamics and successful we targets supplemental we As help three are we where we targets In our target provided achieved elaborated company are the

we in continued to the revenue long strong ranges have operating investment mainstream anticipate benefits and growth lasting. the and higher pricing reflect We as to capacity. are demand IC at both increased Margins be level

demand transformational is by the and serve you expectations per of has this share the change to never I'd work by and business of should the financial right model. team established to creating new business a cash greater long-term take the our margins that shared margins XX% million our a and FPD, entire truly and the I accomplished reaching and value and model, and all EPS, the In to increase are for XXXX, to have raising took we line including for sight, in to company, and to mid-XXs in achieved view, made sustained here. honor have operating produce our free higher is flows elevating earnings represents customers. our This in of cash This effort five hard to our improvement humbled in your yet all above we for years. have emphasize continue am strong technology the our thank better it to sacrifices, our the level flow moment we profile of in past AMOLED End see lead We target of for So medal want by approaching the been employees an over like our to gold and ultimately our is outlook. long-term it to shareholders. market I moat get capacity with and you. mid-XXs. margin financial a incremental $X great start performance what and we gross conclusion, performing investing profitability strong, is $XXX annually, And

We to this call great turn right that are confident continues time, I'm At front will have best expectations, of I over and a our that us. team days exceed in to the John.

John Jordan

good And everyone. Thank you, Peter. morning, again,

continued demand and be XX% quarter first for to and quarter-over-quarter display both X% improved revenue mobile robust quarter photomasks. year, as over semiconductor last First

is once IC XG, these the achieved might as proliferation logic. is electrification XX% Asia explosion driving in We and characterized the what number aligning improved benefits have day, in mainstream in electronics an market we new seasonally continued of saw applications, revenue soft strong of for typically end-use used operations X% in chips consumer including the trends demand with products period. had propagation in rollout an automotive, high-end The we investments devices. and sequentially what of increasing as of record a and the multiple of design notable the use our and again such as year-over-year, revenue every as be success of of

volumes, for mentioned, across driving QX quarter and mainstream masks. to as revenue FPD addition over action revenue. last In pricing growing industry, Peter X% pricing dynamic the over globally enabling revenue power is supply-demand year's increased the first XX%

was program underlying price an implementation factors XX% to million we December expanded $X.XX Resulting maintain the more among the QX income on and unrealized again XX% to and due discussed cash million our operating be targets. and of $XXX leader. to paying and capacity XX.X% the our market other $X.XX China. this leverage and net XXXX, a million of as and and and confident are of focus non-controlling the our increases operate. improved expansion the long-term million joint and remains debt that invested Below in expansion over year CapEx we market business increased first-class $XX was again Margins controls. Photronics clear line, earnings off, ability the and million, led spent for of million. and exchange. capacity ranges operating and $XXX to to Cash the initiatives CapEx China XX Peter last IC also earnings from earnings position the same operations in masks year-over-year. AMOLED $XX the in mainstream to quarter, for Gross products our in to the specifically income $X.X flow are primarily at both year. PLAB for in share mobile this LTPS the equivalents for XXXX, partner on applications market cost jurisdictions million China as and of income foreign Demand our above Demand to shipped XX.X% our share interest in Net $XXX enviable the China to to shareholders Diluted million strong the $XX for tax the margin to gain and during repurchase in of growth. our in delivered our for buybacks. target model. $XXX an continued We mentioned, quarter increases displays brings quarter, have ranges in in tax $XXX advanced IC new into and triple performance the Since through ventures in high than and $X.XX, the and with nearly provided increased stronger indicates We for cash in total a update margin XXXX. began and to strong per increased tools QX flow and which established shares in in to primarily Taiwan to we've margins million, cash for $XX volumes, the be impending in X% which adding on quarter-over-quarter last of repurchase Peter decision contribution $XX forecast free by as quarter the improving due their to the to was on increased communicated the increase and year $XX both of industry-leading of is we model, shares the this IC authorization we due We various where continues the important million photomask we're QX, end spend JV operating and cash deposits from million, returned deliver distribution mainstream was provision quarter GXX.X+ doubled technology increased operations. development due FPD million higher as current repurchased million. period flow EPS

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

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

continuation IC expect $X.XX we demand second per be Given FPD. million the and revenue to to our by $XXX those driven earnings in for caveats, range model, of current diluted mobile of expectations be per quarter the $XXX $X.XX trends adjusted revenue share a second quarter both to share. million, across market end in we Based favorable on and to range those the operating of estimate

term the fiscal questions. flow operator is expanding. in of quarter, I and model. second got quarter target will are longer start, the well our growing, call as First a turn performance XXXX margins in for indicated off see strong the to we your performance Revenues to increasing, as continuing Cash XXXX. the now we are as updated improving over

Operator

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

is line Your open.

Tom Diffely

target Yes, and our good morning. you the model. question for guidance, Thank new impressive

what support So a menu regards of question the new sustainability Peter, bit it purchase to pricing I in and capacity add perhaps space? of to I it the is in is guess talk equipment the more would where to maybe the of little that have take

Peter Kirlin

Yeah.

quarter, there'd XX few down a in years our about So result mainstream run business you Korea ninth our that, stable. out revenue regain, and running few can and be we're Leading We're we're annually, and done. that the of the at right, $XXX prices market a Asia. Europe. top nearly $XXX was in of prices. price percent percent a see, inning million in historically, Tom, We're million We're at rate, is half we're for share. of mature a the market, raising really sold of remarkably in throughout And as raising

around us, three US, the have increases two exception we Typically, So backlog of with hear everywhere. were months. you two weeks price now, the worth the backlog. basically is place right in one with to Mainstream of now globally, we double-digit to

XX%, XX% year. XX% capacity won't get to back So we're to at our add the we be - get we'll given about most They get intelligently end our back to to deficit that. We're - hope this market even - of a going the demand. to operating given able in of tools - by back we can add the year, try

market. we'll for in Our hole one a year see start, expectations we in what same is we than end bigger that's the growth or and demand the the

market prior we if right, calls, about concentrated the XX% The silicon are still right. I photomask to revenues look China and have that X% XX%, about running at - was revenues we when back photomask market at closest we leading China X%. And today that market, can booming, you to to at the where semiconductor now, revenues ASIC market in a as get XX% most this was of about the us running is And said today, year-end. look see up revenues. we business when is deficit So capacity see right

content given the is what market. our now, see right so market growing rate now and we silicon the double, have the double about So photomask about of the growth the years global it's semiconductor X%. in last photomask see estimates run Right we for photomask, the double, China XX the at X%, industries that's China running XX% market. in

the the they're So and more to more through. are you think that the we - kind forms view put where trying we be raising see any at same to mosaic our our don't are They and competitors, we than at all doing of together those when see any things And we look point that's market going them we tools, capacity. add thing. effective that -

to though the there's investments the XX% a tools going of likely XX% at XX% year, point trying deficit cobble together all XX% Even raise what to kind we're There's today. to deficit So to output. a of see. to we be end that's

Tom Diffely

Thanks. the helpful. is it but about, you're certain strength? driving Okay. the certain is on Or I or side hear couple the across segments? curious, a it I'm really that like That's a board? are mean of lot things it And seeing very segments is that power strength a we segment is mainstream

Peter Kirlin

view it and it XX, is driving there's the And really - is moving XX. way what the lens XX - technology shift to - it's some lens the it XX which is Well, more we through XX, we really nodes. of and through

XX and is end and really legacy to XX or spot it's But are strong. and is guess. debate, whether the you a call that right Now I XX now, high a sweet XX up or mainstream note

business So bulge in that's the where concentrated. is the

Tom Diffely

then. then last question And Great. just Okay.

the the to adding two materially point tools these change next for years? you expect On one capital side, CapEx the does spending

Peter Kirlin

No.

million, about been $XXX Our running CapEx right. has

to We - – course, the this your that's what to expect as continue business at John million growth. operating it's And $XXX spend. did so earnings know, to some we of going year grow, and you run cash look flow grows

that cash million right, this quarter, creates you $XX flow. So it level, free more cash free at flow. of And it $XX can of cash see spend operating million flow,

this quite is all So good.

Tom Diffely

your you for Thank Okay. time.

John Jordan

Tom. you, Thank

Operator

question comes of Investment Martin [Operator Thank AIGH Instructions] Our Aaron Partners. you. next from

open. is line Your

Aaron Martin

capacity, just with we year, model a the great hoping you annualized guidance significant little there a I which Good I morning. the end still QX already and target the the trying quarter, especially And run I'm I talked into in from the great of and past of But adding this of at exiting a are understand demand line. you heading of on a market. look point these and puts and a appreciate year add a and long-term target being quarter, the top fluid. deficit strong then QX to things the top Congratulations over understand, the to updating the if then QX your to half and and low long-term end XX% execution industry you model, second about kind the seasonally model. weak tools, to rate

So target with with those there stuff - year already that today trying a it like model? reconcile with two, like with three we're that this in being mind, sounds to I'm - almost

Peter Kirlin

Yeah.

question. you So that thank for

business all, the is the now of $XXX capacity million is right mainstream run first alone, So rate. which that on add

look end right FPD guess, the last is line, the said our describe having is segment on XXX, XX% years, having that if apply you But it. top anyways, to high at right, we've for Part you do the also deposits, clarification, the of on CAGR. So way business. the I in for we're and that math to been a year four business. when investing to - the you also the But of this have math, CapEx made

the quarters to to several to is that the anything is project other last just $XXX of which that in forward run easy you chart And million XXXX, that this model making several hit nothing on you business rationally performance numbers likewise projection $XXX operations, million. on, years than it just number. see improvements a and focused it's If to to we're target forward very our takes the the of

of just million we this last of same the four the way the of So kind $XXX is it's look years. at is more but more

tremendous XXX a don't of to in downturn credibility. ought is could and amount but expect years, of it have says, sort in two a kind get well, we XXX So happen. of XXXX we aspirational that

kind So into itself model of the that's the reflects market. how

John Jordan

trends. of that standpoint, Aaron, location pricing this we by assuming And is in we and It's expect bottom-up wind additional accountant certain an expect just maintain. not thumb the model from the revenue just to generate a continuation an the to CapEx what a of operating

bottom-up out, between a with there's it's be that XXX as we've expect four almost there we generated accomplish. a And And should years, the that current if maintain So XXX big model well pointed performance. done we be you CAGR XX% XXX. to we to just that assured. over could stretch and able our fairly But last be

Aaron Martin

way. into was how numbers want how And what of that? I the the end four is got would then if some disappointed maybe - term, not more even what that add the commitments to this that you've to model make be XX% And But up visibility? been can long and different turn the to unusual there, it what? backlog. - call different that and conditions to we that I being know don't a you maintaining. you I market can current with just I the you times line, down take personally have the to we right years upon a back the customers. where sure XX%, - can three, would going term I parlaying into both how from lead longer let's think then don't fair about analysis, be know you going how now it That's talk bottom-up guys - guys be

Peter Kirlin

that years think, last of let what, I You out. running that so answer that capacity tale our is been there the and it two widely think, because so is miss, investors, sold a markets, I has several right? our is construed, is for know FPD me really yes, - So something

think, reality [ph] largest which XX%, our FPD, - investors, the is a up sequentially our market So down in investors strong. X%, the I XX% that's were were is competitor they assume The we is swing. SKE

competitor I they them. empty, which, we second so have largest hear market unutilized company, lots the But course, won't nothing, of a is Our mean but have it what doesn't they're means public name from in capacity. is they of

the second just So into XXXX, FPD, we're be for installing half commitments the going XXXX. ramping we for they're of in contractual entered in tools to

So XX% have we in the bag.

The other XX%, the conversations are very mature.

So disappointed I'd if don't wrap March. the of be we very end up disappointed, by them all

very we're to So XX%. sealing close other the

capacity have more strong we'll is hand business, strong. shortly, now right is the despite that of in the XX% So for What not is generally commitments our FPD AMOLED. market fact

We hung three two, technology contractual because cannot. that technology. there allowing to three are and But our it's two year there, - customers it's and competitors our here importantly, of of our commitment moat commitments out to more fill year and strength us factories a when another the the on multiyear a year making have a between end there's of

So that's - last XX% the the on commitments at it's quarter million run a that running that's business are. where was is the the rate, where $XXX

way the guess, typically, the business As it. concerned, high is And business we I would we is the mainstream is IC the high and describe behaving have far the have end. I as end

mainstream, Tom's like believe the be seeing downturn worth - answer is question, weeks' along demand months it's $XXX more clip, have we of capacity. to We we're backlog two when backlog. happens, to hard XX% three but kind have in going to We with I it worth And of again, a running don't that XX% backlog. which to of is, there. way million one typical a the than and to And next two have market if the of we the continues know, levels

a rose typically a to XX% downturn, business that's XX% in typical number. over Our

because if that Photronics, is we're the mainstream doesn't sold be will have when photomask just that be share industry, will So will gain out. the which given we be stick demand case, lower we market where typical won't have to And that capacity. and operating change, for you downturn next in more because stability if you're the more no pricing price can't anyone will than still now, reason there'll

So that's current... our

Aaron Martin

What AMOLED LCD in displays? AMOLED relative the Right. share difference other share, your or what market of market you and you estimate to other terms in do do - which generations, in

Peter Kirlin

our share end Yeah, business numbers, - of that end it's dominated but XX% high give see can the we AMOLED. FPD is market you don't and typically high is by

So right. what that's basically sell, we

We obviously our tools full. keep have to

it's mature layers. because set So and balance - end has to mid-end high and mask layers, a our layers constant typical lines the challenge

factory optimized So as we make - but really can. we right There's - we have can't now our AMOLED build to much business more. - as any

Aaron Martin

again. very you job. Thank okay. Yeah, Incredible much. Congratulations,

Peter Kirlin

you. Thank

John Jordan

Thanks, Aaron.

Operator

comes question Richard Thank Our next you. Smith. [Operator of Instructions] Greenberg from Donald

Your line is open.

Richard Greenberg

Thanks.

And flow done it buyback you even all assuming model I not or end, did additional possibility what in answers that think think recession. of the this you're you've potentially a like previous that sounds any seems part model so though for? it use that. question cash you answered acquisitions. previous sort your this I was, like of built my assuming question in a the questioners. that's my second really But But are the lower remember with in of you mean I free I

So there free cash with is revenues no or outstanding shares growth assumed either incremental further correct? Is that or flow. less that

John Jordan

- the that maintain allocation we've we our capital So strategy Richard, had.

is First organic priority growth.

opportunities, is be then share repurchase. would whatever partnerships, et third alliances, allegiances, cetera. the M&A And Second

still strategy. authorization and maintain we $XXX of million have So that We million our allocation that's ongoing available, our $XX strategy. capital

Richard Greenberg

Right. right? I'm I that understand model would just but you that, all show saying be here, incremental that to the

John Jordan

you that. for Richard. right, exactly Thank That's

Richard Greenberg

And do concern do capability have you will produce me that more it to competition with ramp masks? find guess to point, more is, will they the I the of And my to second that of from kind seems the a at this Okay. that? merchant in-house. will for their expensive like to is how semi and them question bring some manufacturers What Peter, go this much themselves just margins manufacturers much up

Peter Kirlin

most, or don't and actually, not the all mainstream Intel focus photomasks. Yeah. for of they're Well, their - most the of will, them end build example, the is Samsung, captives, some high captives,

they guess what to build the I Intel a and to do we do, Rich, used owned Samsung. mainstream tools be of So which we're expand could to into have, economically way capacity is find the try trying to people that But photomask like sector. by a lot mainstream

so So tools. out they was got business, the of the

getting is in be So going very expensive. the back business to

So current that. said, we've I as think doesn't support pricing

upturn, raising with be no the I downturn, think through loss if the price way described it I of again. the we'll we leverage, next go pricing

able power, through acceptable So point upturn a price of I And generating the needing happens go no new to that will be this appearance lines other think you. won't question. may we unique another if that we're worry and an downturn have a a to adding to us. from view what financial I we're But to germane pricing, tell merchants reaching think kept upturn with really then, It returns. be we're your pricing with be then - really with cycle away I can't erosion, about

Richard Greenberg

a Thanks guys. great. lot, Okay,

John Jordan

Thank you, Rich.

Operator

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

Peter Kirlin

costs of you the have keeping morning. Thank proud joining maintaining quality. elevated while to worked I as they customer organization this and entire demand for hard meet us am Photronics low high

forward. model. about we all. updating as to updated optimistic on a track Bye are deliver target to are Have we We our against forward believe move great our that Look day. you and future

Operator

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

John Jordan	Executive Vice President and Chief Financial Officer
Peter Kirlin	Chief Executive Officer
Christopher Progler	Executive Vice President, Chief Technology Officer, Strategic Planning
Tom Diffely	D.A. Davidson
Aaron Martin	AIGH Investment Partners
Richard Greenberg	Donald Smith

Photronics (PLAB) 23 Feb 222022 Q1 Earnings call transcript