PLAB - Earnings call transcript Q2 2022

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Operator

Good day and thank you for standing by. Welcome to the Photronics Q2 fiscal year 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session.

As a reminder, this conference is being recorded Wednesday, May 25, 2022. to President conference and like Jordan, to now Vice Executive CFO. would turn over the John I

You may begin.

John Jordan

results. Thank you Photronics quarter of to our Tanya. Good morning fiscal everyone. XXXX Welcome review second

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

Frank Lee

of operations Printing operation I Since and into lead our strategy joint the you and am stating I CEO begin how Asia, as joining Thank geographic to our with of and ventures recent today would expansion honored the also in be morning have Company create helped Nippon XXXX, and Photronics. two John, formation China. in the this of good Dai including new everyone. the I to company like morning by with you

in quarter, we the record delivered X% the financial sequentially. to again once Turning second improving results, revenue

and strong the operations. production end Xiamen continuous up also segment, across further IC and market of Hefei realization our Our ramping price the the demand,

The the with end line generation which strong was top $X.XX. of and result expand in in opportunities. XX%. Cash the we million our net margin was Gross was growth, XX% year and ended operation $XXX operation continue to cash, margins. to margin EPS growth we addition also investing In profitable us gross positions as

the CEO, continue the keep As initiatives. and and growth expansion, margin exploring strategy, to commit we’ll growth also additional our revenue organic I growth fully

growth, revenue by For winning share is market the a right more growth growing achieved in now.

have been technology needs meet and to with [indiscernible]. closely customers our in We working capacity their

many our We make and very us LTPAs well partnerships This signed serves quickly several investment. it investments long get key approach us so-called we of building are critical to purchase key customers helps with on with agreements, and also customers. term kind our return to

Our and are operation recent very of this China good approach. APD into IC examples

partner As and trusted the has key both supplier leader, market Photronics and in APD. customers IC a our of become

achieved has our the mix the of been revenue management, profitability very to addition continuously. effective This the growth, product major three execution In and by optimization, is efficiency improving enhancement. operation key cost items:

our market growth have this My part Photronics. since implemented is to pricing been further strategies in new firm involved these strategies current explore commitment imbalance initiatives. process we actions, on based situation. As of adjust to supply-demand I’ve very some joining

We have with our good and various throughout partners customers, a very vendors relationship Asia.

very relationships in made and global such trend existing the experience USA, manufactured in localization strong supply and our our we in global be that our restructuring business. [indiscernible] Asia, in include solidify in chain [indiscernible] other certain of will footprint these emerging the will IC as Photronics I’m with With the successful geographies.

turn the team the at we XXXX. outperform proud first very you well I’d beyond to through very of and on to of company. very the will half to and together are XXXX performed call and year John. our track much, the in we have of have Thank best We the history I’m this time continue

John Jordan

Thank again you Frank. Good morning everyone.

was as quarter. record board XX% across Revenue quarter X% improved remained record the for quarter-over-quarter year-over-year Second and consecutive quarter demand fifth our strong. Photronics, another

by We’re that and tools us profitably executing term on customers drivers our maintaining purchase long growth existing while strategy by and establishing enable utilization investing with to aligned quickly in agreements ramp tools. on with partnering technology new high market

demand automotive, content goods another approach foundries High quarter to point photo XX% is driven increase. This continues by of such many demand as demand. infrastructure Advances applications, With on proof more are designs working. this proliferation IC driver photo Photronics. the of grew strong released satisfy masks. catalyst electronics, in and and demand mask and growth. that demand year-over-year U.S. in appliances, a XX% another of end and in that chips revenue This is rollout XG as to consumer communication chips was sequentially in for semiconductor new our more continue in being global Asia for is

was primarily mask detail was decline LCD. I’ll due higher applications offset in environment to proliferate continues thanks business demand. slightly continues discuss supply demand a Growth demand. change decrease pricing the As capacity to and growth quarter-over-quarter in is end it, us expand in primarily FPD down but also GXX.X High strong continued edge in use trailing later. which mobile high to a in margins, of a slightly semiconductors for mainstream to masks displays in larger beyond helping more mobile it creates end that the in to further

reliable strong some AMOLED to mainstream LCD from applications, expect Revenue in record shipped and achieved product China continued to and for displays. increase We LTPS another sequentially used XX% X% displays remain demand mobile quarter, for improving customers year-over-year. GXX.X, demand in and

growing this market clear the are We in region. leader

and Our well We we the Gross this operating of February. operation term within margin in keeping costs environment both well well low. expect high the of continue operating and and during benefiting the long into quarter, past future. leverage in margin ranges our anticipated. to XX.X% communicated fully are in improved discipline development model second business XX.X% margins we operating from expansion Gross benefits and the the demonstrated reaping initiatives are business

that investment sustained expectation We be the increased to have based anticipate limited that capacity. will margins edge the we on and trailing by due imbalance demand-supply our plans

been XXXX, to slides new included to take has morning. model, opportunities into target posted supplemental these us this is updated Our the our and in website which fiscal reflect will growth

to exchange conditions in suggested approach consistently models target be the the without model photo mask although be that in have business is the improving to and ventures our million rates other increasing. performance a retrospect execution at with strong Changes aggressive, realistic increased these by income earnings being resulted layers the Our space to approximately investments, equivalent to should into business that, the updated. tax The years target joint capex the the from target Taiwan. environment semiconductor the of opportunities in anticipated downturn business gain current our with increased China continuation and due planned low increased consideration model updated the $X.XX in Income net provision income revenue $X increments share. only the an interest is of in to in strong and cycle, provided our and the pricing of three risk at a foreign currently end of non-controlling in

result, net of capacity operations and total the capacity a from and capex decreasing $XX with generated to for expansion a $XX government $XXX We $X.XX. we We over for expect equivalents earnings quarter received IC China. in our to our JV million. still net facility We This in IC as increasing of from Asia. increase million Capex and was received cash mainstream the in in subsidies a during our QX balance for the in little million investments sheet resulting in $XX strengthened XXXX subsidies As Taiwan. $XX $XXX contributions our we debt were and year in in our to cash size cash partner million, in $XXX million increase million and brings diluted of $XX share capex of million million. per million

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

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

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

now strong to our support deliver market end strong team expansions, further we’re Frank execution will with As model questions. and to demand, in and model target projections. across value the conditions the your the shareholders. company’s deliver new growth on for of the capacity new strategic for higher organization target and best initiatives. continue Operator that a brought previous sheet within Achievement said, Business call ranges by balance turn to over us history our I’ll and profitability, track the more year of support create our to the

Operator

first Our instructions] Patrick from question of [Operator Ho Stifel. comes

Your line is open.

Patrick Ho

market to much; that and the region, of voice continued and first good off, the demand - high healthy term of on forward Frank, the Chinese looks of environment very demand strong or moving still hear first Maybe very China? you in best it’s potential IC changing forward. on in both in IC. your market the least outlook, your you terms at going in seeing obviously job, Thank near congratulations that and luck and any a in in recent Are the end volatility mainstream pull-backs question are

Frank Lee

especially order, however we and some lockdown slow so new all has Thank I recovered you short however activities the Patrick. in recently China, initially, in, be do Shanghai been the there’s see to product The and think we Shanghai has fully gradually should an down Though already. recover [indiscernible] the area. slowed new [indiscernible] impact, come new see start initially down city business it in the it’s situation

Patrick Ho

margins, was that’s a confidence, never growth margins, gives we’ve obviously you numbers was excellent see improved Great, model. were the well of this a metrics over pricing driving more the What new model for mask new helpful. that’s from leverage or industry as the as as aspect quarter the margin this it gross the and it a target seen XX% just looking whole. John, pleasant photo leverage? revenue operating the demand target follow-up to operating Is as is you surprise XX% at because question nice Maybe some

John Jordan

opportunity we year, never and are and I a provides Patrick, yes that the were continue we where to some lot haven’t--we’ve than so for got--as we’ve as some lot question purchase for outstanding one renewal, they above. up year, the others well our capacity, with continue but is increases. by are A of mentioned, of renegotiated, and environment coming environment, Frank are we’ve know, price have then which Good for still of up we many renewal, expect one opportunity call and kind created there locations those pricing come agreements customers, is to prices--you improve pricing, the all of of some from longer opportunities the term to and long business at to it essentially the operating before, there it the had us the locations into future. leverage the business the

most I and what read, think you’ve read assumption. that read the same you supports things we’ve that of

Patrick Ho

thank Great, much. very you

John Jordan

you Patrick. Thank

Frank Lee

Thank you.

Operator

Our question of Chung Hans from DA next Davidson. comes

open. Your line is

Hans Chung

John. results. on and question. strong my you Frank Hi taking the Thank for Congratulations

the now question, during can what we forward? further pricing like and magnitude, across in kind increase how adjustment of terms was on quarter, the going can it where or the first then board to of elaborate much are room we Our more pricing, you the

John Jordan

just information, the able Hans, about it as pricing chips you, been of technology amounts we’ve continue forward. the we’ve primarily able for much also we meet without the there’s limited to expect such the the But but adjustments prices talk high because and don’t or question. the answer of Hi because take in very of our for the about to our question? leadership, mainstream so edge hope--did end talking to amounts is to in environment use specific non-leading is and ubiquitously expanding we it’s thanks everything we’re generally capacity opportunity do. increase and competitive of and and really specific demand mainstream it, because nice advantage so increase We of to percentages, I there because well had pricing similar that reasons going

Hans Chung

how margin, and follow-up that we to target with be to degree a guess move increase captive also over options? our helps, is to customers moment, Then what [indiscernible] you. model like that a so to our turning give time, can we get Yes, our if to to higher are would just I a we that [indiscernible] know we this see the price terms pricing there, further new this just sense, as I in be sense, further to thank of that may assuming to at keep start consider might far model start but margin. trying target might

Frank Lee

issue Yes, will reason main right long The last least. same believe the is fab now the into the at lead wafer time we capacity of of year next equipment, equipment. course as

has next a continue side however equipment the it it the there’s the high lot, customer, become time very increase, believe Our capacity into very, provide some a the long, demand time the delivery so supply increased photo price will mask we will to on take to to market, so year. very possibility

Hans Chung

thanks. Okay,

John Jordan

captives as I photo might mask business about also comment supplement well. that with the a

understand invest edge capacity of that start also--we days, to in chips the also mainstream of inclined and more photo captives amount reluctant resources mainstream the With mainstream business. leading for the mask they’re are the they’re to demand, and outsourcing these investment required

that our also an We haven’t that model, upside but be fully incorporated any of into expect the we model. to to

Hans Chung

this what Got of be that’s as this in revenue the of capacity capacity in the assuming, then we rate just capacity be and last capacity, level expand terms so market [indiscernible] just year? helpful. guess year, would by it, Then would demand let’s end continue of well, regarding by what year, the I to our end run the to say, [indiscernible] this question

John Jordan

is next out those--this capacity. capacity my based year, in in I that next be That expand are that revenue, fourth tools. that increase of the come continue There plan capex not but tools additional those so additions, next model. quarter, mentioned the locations, full most then guidance and at might which operating and capex have demand this this next extent our year’s and will term delivered point our no an our online, target our or those in incorporated operating based on into expect incorporated assume--we to for not from forecast the from year year, capacity draw but high they’re to the point so into budget, at to to new there about we essentially quarter, add on would already and tools so but can locations additions capacity, it so that’s What capacity expectation one year those the capex what’s into can for increasing ordered year it we our for for the geographic and mainstream comments, into guidance Okay, incorporated on assumption the we’ve is in XXXX, year will our addition capacity model. we’ve incremental guidance, end only target are tools are revenue some based but those as don’t next have we into that’s that and it. for I tools, to to is year and profile; one give is capex year, we’ll already we of target budget as want our those again this long model some

Hans Chung

guys. it. Got Thank you

John Jordan

you Hans. Thank

Operator

Our next Gus from of question comes Northland. Richard

Your line’s open.

Gus Richard

taking to for thanks Is Great my sequential price a component little just that? revenue? Could some questions. there give you was color increase quarter. volume or in on that Yes, mostly the

John Jordan

volume. price some It was mostly both, but

Gus Richard

long it still is the business? into starting term of terms that in IC then FPD out and the or primarily is Okay, purchase spread agreements, to

Frank Lee

IC FPD years, so we because base kind and customer moment both at Actually for covers but foundry to expanding started this are sign right agreement the certain of it customers do customers. have it the contracts, IC with we now with key this several the

Gus Richard

Okay, got it.

how long your revenue much term purchase under is roughly, of Just agreements?

John Jordan

really number, report we Gus. substantial Yes, pretty especially don’t It’s that a amount, Asia. in

Gus Richard

mention Then you two catch of and is about mature, up IC improving. in got the you it to segments price end correct, Is think time talk I with Okay, this they’re beginning how can and first those it. heard high the pricing is end I’ve or behaving? high that beginning--the increases

Frank Lee

to shortage and increase this situation the a the IC negotiations with into mainstream Yes, key so started started in area also, at however, high year, IC market; become effective to the price new started the actually the capacity of end we customer migrate started price beginning in QX. year last high end

Gus Richard

helpful. of capacity mainstream? I in understand, of terms thank or capacity mature flat you. are incremental That’s in utilization mainstream, versus both have basically Then do very in IC you now those running the you out

Frank Lee

step; the by capacity has as but the to the at quarter by building incremental lead so be is I issue, are mentioned, We incremental not an same time done the becoming time. capacity step however, quarter tool

Gus Richard

last in break what outsourcing, busy and foundry about are the I’m out EUV do the the sure of they Then where above, they merchant XX see. outsourcing into what so they nanometers the is terms outsource of me, they on I with point market? sort one and from they’re put masks, how think

Frank Lee

amount the of increased by growing are do strategy. are end year, short a We the kind customer agreement, and middle the outsourcing of high about to outsourcing kind The and year talking also so demand of outsourcing in from about term in this customers end, long the have mainstream with talking captive of has captives we process capacity. some of

John Jordan

also--we mind, not And the outsourcing keep to There limited work high by foundries Gus, also end in is for the is do mainstream. foundries.

Gus Richard

there--you trying that their I wondering was at, capable know, get think outsourcing I I’m level? XX of up and Right. is to is you’re to What nanometers,

John Jordan

Yes.

Gus Richard

XX doing or mask internally think no, it. I layers? certain set, there any of plans to that’s or--? the--or Got Is be nanometer capable a

Frank Lee

Chris?

John Jordan

to want that? you respond to Chris,

Chris Progler

among IDM, will those starting into outsourcing commercial I nanometer maybe year, and healthy node we some so Gus, is just capability Yes X qualification pretty initiative, for as foundry to making. some this continue logic like the nodes I comment. the well. say mask that node XX a placed year, would so the and make look started is well will pretty is last have can X, captives

Gus Richard

you do or EUV as Can the the just layers? masks other well,

Chris Progler

IBM New EUV those a Photronics through which XX an a they process. XXXX, full capability but we York, all have development demonstration, month. yield is of mask, front go with we’ve in nanometer pitch, Since That’s every line, a numbers, pilot have higher and device but we kind EUV down we’re agreement their had We admittedly and masks. joint nanometer full delivering node so build higher I solid, in in would end not so units to huge say, in class EUV X masks of

as on to EUV mask still far I As years commercial at transitions a think away. really making couple that’s large,

the the still of fairly still putting kind they’re EUV now EUV unit designs, TSMC, starting everybody for number to small in become it’s big it’s large--the two, systems, are Intel, tools more to but course most mean and tier building their EUV of in a two a little three second internally. seeing confined We’re narrowly put so mass adopters of by knows, tier people - I Samsung single of and pervasive all

closely we’ll the market there. probably we’ve least watch the evolved We I goes I get before and at think IBM thanks partnership, out the think years commercial. our full it’s capability EUV three to but

Gus Richard

so makes complete That sense. Thanks much.

Chris Progler

sure. Yes,

Operator

this there gentlemen, closing comments. to are would further questions I Ladies turn the and call over Lee time. for like Frank to no now at

Frank Lee

our great long in continuing will goals. employees move joining are very you to a of for to we outstanding confident delivering helping speaking I’m and much. exceed world will Have we you position the expectations am to forward targets. many you future. Photronics products is long Thank and and near the morning. and you. a our in continue to looking quality us by across meeting great term achieve very Photronics term day thank that Thank this and achieve forward, I service, with

Operator

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

Photronics (PLAB) 25 May 222022 Q2 Earnings call transcript