Earnings call transcript Q2 2023

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Operator

Good day and thank you for standing by. Welcome to Photronics Second Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Wednesday, May 24, 2023. I would now like to turn the conference over to Richelle Burr, Chief Administrative Officer. Please go ahead.

Richelle Burr

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

Joining our our Frank John are Corporate me morning this Accounting Chief Lee, and Rivera, Chief Officer. Officer; Controller and Officer; Jordan, Financial Chief Chris Technology Progler, Chief Eric our our Officer; Executive

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

our refer ongoing performance. course useful metrics and in evaluate to the our These is to management results for reconciliation analysts, presentation we of are financial metrics. financial of to A these numbers During provided non-GAAP investors certain discussion, GAAP materials. will

over time, Frank. I this the call will turn At to

Frank Lee

everyone. Thank you, good Richelle and morning

growth as all profit. achieved grew revenue and FPD regions. quarter products results Second were strong for in Demand and sequential we with our record revenue in IC both

global exposure single position and photomask – Our broad region. sector provides us to one or markets merchant less as the on any largest make us dependent any supplier

again the for the several deliver strong. IC XX growing in team. range Photronics especially talent sector for have performance we global mainstream portion record demand this the has last in for mainstream. especially to a of been This addition, results XX-nanometer Demand In quarter, to has QX. quarters. is advanced Their was strong dedicated enabled and

observed some high-end. hand, softness other On in the we

trend. a and two recover we the However, to reserve expect next in to one growth quarters this to

for demand grew FPD, Within AMOLED significantly.

Our for generation try market mobile new sequential stabilized Demand designs the to as smartphones, good next releasing and of has get PC. displays in with LCD growth. customers are tablets they share for

favorable across tight to benefited from organizations. margin operation quarter management and cost strike We continue. Growth trend the pricing again expect this and this

we year. This share per on a quarter a was result, non-GAAP excellent $X.XX per continue and after gain $X.XX earned share a an $X.XX As from to basis per basis exchange. foreign GAAP as another excluding share record see we on

Design follows demand demand Photomask starts. is designs. mainly or cycle wafer new by different activity often capital equipment driven than

low when and customers demand our into designs release new be products operations. introduce soft example, often utilization is could their a new time their For is and better that to

demand is condition new other photomask or which spent I sustainable countercyclical. driven photomask win. has either enhance organization factor expansion, to time Since in tends help The more This to fab to make a fabs. through X even lot [indiscernible] tools employees and the upgrading, named across and was existing I CEO capacity ago, drive with our demand new year of

for our know-how strategically enrollment. edge we working with customers, process product leading closely addition, technology fully their our to technology and able invested have solutions. develop In mask we support in and advanced By are

first continued including product mask of milestones, to achieving EUV a QX. important expand line in Our EUV number our shipments differentiated DRAM

manufacturing photomask by a all of photomask shipped approximately Tech recently sites. leading XX have we Based as supplier a Insight, position with published on market great located We data strategically XX% our photomask. of This and and confirms units exposure. panels leading to indication globally, broad our display diverse us the supply leading market providers of is their an semiconductors position and trust

see also we generation that have financial balance strong a provides to while in growth. demand. Through discipline, fund decline of and support flow sheet in sheet invest balance liquidity we should and growth, great a have a we built Finally, cash flexible providing

We future. to John is our and more another very optimistic provide Photomask our in guidance well. in our about record I’m strong market year on detail. are on Later track will QX demand team deliver XXXX. is performing

will call over I John. the turn that, to With

John Jordan

Good Frank. everyone. morning, you, Thank

remained China from production and robust releasing revenue a design X% over represented FPD, XX% second ninth quarter million and reflecting activity XX% record, within customers sequential products the quarter expanding Demand across That of growth. consecutive both of increase into was Shipments $XXX increase of another strong a quarter IC and capacity. our second revenue new revenue. Second year-over-year represented quarter. year’s and last

with us year. $XXX.X global objectives. XX% Pricing softness. more We market in their roadmap all outpace was to merchant revenue are strong the X% growth in product leader demand high-end than with up and of offset was customers million IC achieve some partner our and and Demand across remains photomask some increases growth supply. regions to compared last as continues favorable mainstream sequentially

strongest have made the demand with which IC seeing the the investments within the we are increase to We of aligns well mainstream higher capacity. end technologies

for of in doing demand the mobile revenue fuel orders teams of XX% record great trends to commercial in AMOLED job masks, in improving also sector. a also and demand. XX% healthy with positive in chain stable right grew winning capacity regionalization represented in a X% bringing used and and revenue displays are the quarter, Mainstream quarter-over-quarter high-end supply semiconductor driven capacity in the photomask LCD year-over-year. and continue of sequentially which will FPD designs was increased advanced long-term quarter. the new the drive panels believe continue by we those chip Our FPD increases revenue to

points, margins in reported mix were but from in basis XXX respectively, percentage sustained Gross and of leverage, and power, lower and revenue. disciplined which than XX.X%, expenses XXX management. by operating XXX were more revenue volume a the increased more strong favorable last increased margins XX.X% points margins cost the quarter-over-quarter Operating second year. quarter as at and benefited and than XXX to pricing The of X% X.X% by basis

in This the a is balance $XX $XX.X the from the the $XX of company functional changing of the primarily most to quarter, due unrealized gain sequential quarter with dollar-denominated foreign in loss U.S. rates. into million resulted million recorded $XX.X ever tailwind a our compares million first gain income million a The operations. operating in from remeasurement of Second in non-operating has of quarter resulting FX the items of sheet local quarter. currencies

and compared last adjusted Similar the the EPS to year. tax last eliminating quarter, $X.XX EPS exclude $X.XX for that related quarter same the provided on of we results. comparison effect non-GAAP last share. minority foreign of $X.XX in operating exchange interest, a EPS foreign with was for QX and income of results was After better quarter $X.XX exchange adjusted the effects GAAP

in net working outstanding quarter, management CapEx from We strong tight cash income and in million. produced performance operating million activities. The $XX to an year-to-date capital in expenditures capital $XX $XX bringing the invested million

Our forecast approximately million for XXXX CapEx remains IC capacity. $XXX primarily increased

quarter, additional Our the $XXX held end of short-term the million cash and an we million at investments. in $XX was balance

We remaining have consisting leases. low-cost $XX of million debt of almost entirely equipment

short-term and under combined investments provide uncertainties funds our agreement, cash credit with the for face growth ample available the and in future. liquidity Our investments against we could resilience

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

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

on and caveats, our the We share. will those well. million grown the those be current is our operating our expect Based XX% continue the basis Year-to-date, to Demand we the we current remains revenue well $X.XX we million. continue have team revenue we environment, position. Given per third $XXX revenue in in strong, operating range photomask and demand semiconductor quarter range to be in third will expanded quarter of expectations diluted strive $XXX earnings in increase $X.XX by do to to and believe to estimate of share per to model, margins performing non-GAAP XXX for points. to market-leading

our sheet strong is of our that on design continue value supported and positive strong shareholder outlook continued long-term creating can achieve confidence Our activity. and balance by targets level execution, we

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

Operator

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

line Your open. is

Linda Umwali

letting Diffely. for morning. of good on question. Hi, you Linda Tom This behalf is for us Thank

on great quarter. all, a congratulations of First

guess in I – I continued this after you China, the U.S. we past the of restrictions coming into few in I XX% first seen geopolitical quarter. terms China controls days, the have to by issues think So my tightening export believe this question, mentioned export had shipments now Japan you And

it that next you and if any the wondering China just in quarter? I’m could Japan maybe guide headwinds macro of to development headwinds like seen you’ve your the terms quantify and So then for compare from

John Jordan

Administrative morning. Richelle, Good Yes. will Thanks question. for who’s that, comment Officer, that Chief our Linda.

Richelle Burr

a control to because received respect tensions, we have and with geopolitical our impact material – so quarter, going in the regulations not and Hey, have are Linda. Yes, date the export the we U.S. China geopolitical on that between had issues to not the of

of cognizant the the the again, we controls very Japan tightening, controls are monitor carefully. We

working suppliers. are closely our with We

in our the get tools China. need they that operations or either licenses suppliers with to working licenses are our for so get We we can continue or parts the we that

Linda Umwali

guess That’s then of side Okay, And demand in second I Richelle. of things. my the helpful. question thanks, terms

impacting And the your noted remains you but well. memory memory maybe up You your holding on What strong margin demand are seeing the pricing dynamics how mature for as quarter, this as profile? and discuss sluggish in guys? is demand as you well front

Chris Progler

Hi, this is Chris.

get particularly your demand Did and the I of the in look quarter, that the think memory what related I was correctly? like question kind mask to dynamics. market

Linda Umwali

Correct. Yes, correct. that’s

Chris Progler

Yes.

bit and particularly as strong and customer some bottom, as but doing recovery of the still and the cycles Maybe of a markets. So three most in part stabilize. still. maybe it’s cycles, It have pretty memory is more to unfold advanced like DRAM we in memory on the year, second R&D of looked seem they were those to we development has might of primary memory market pricing a product but or been seeing quarters, previous we’re about to XXXX at two cycles map the the strong calendar have customers road started what customers development pretty and exposure fairly be haven’t for our preparing half strong optimistic not, strong

that changed. So hasn’t

latter quarter, optimistic of not the like in it the are half was bit XXXX. we a serve getting more about least but it looks customers strong So at

Linda Umwali

then thinking for for maybe and the I have CapEx my in Maybe but give this IC? missed you year question what are us John, for FPD terms on is this it, last could and And you for color. CapEx. Thank of year, you please

John Jordan

is which the is well significantly CapEx our high the because year. we’ve planned for Linda seems of Most the past $XXX million where in it demand really we’ve the end this mainstream year – IC. in targeted we’ve And as of that Yes. the that business, invested in got though is

Frank Lee

some tools. efficient life, And end certain replace of with old planning and to call are our tools, update also we of so more we tools

So, CapEx replacement. spending the end-of-life tool IC in on some

Linda Umwali

Got you your Thank it. for time.

John Jordan

Linda, by… is not IC geopolitical like are add relate well because FPD only the just business they and to situation, Richelle’s the comments on placed to impacted

Richelle Burr

Yes. those FPD control is not FPD. controlled, yes, not IC, impact so regulations

Linda Umwali

Thank you it. time. much so Got for your

John Jordan

Thank you, Linda.

Operator

[Operator Instructions] Northland. Gus comes with question Richard from next Our

Your line open. is

Gus Richard

Yes. Thanks for taking my question.

John Jordan

Good morning Gus.

Gus Richard

you that about Real seeing side, activity a Good could you has mature slowed? expedites, or still are morning. in quick, it. those bit Appreciate the little talk

Frank Lee

Thank Okay. in slowdown The been Hi has a side you. Gus. premium Taiwan.

will we or and premium continue year. those agreement of for agreement long-term However, the some long-term the this the years, and for And signed period have charge years. is X some certain X agreements, which early still through is last been has year in defined agreement agreement, we

So, this and maintain will year next in charge we certain premium year.

Gus Richard

China, it it in side remains that over capacity, of I how it is And things, industry-wide in years? you you tight Can evolving across then globally. particularly talk am industry the as tight, terms look mature, is just regions it the certain like seems IC couple it. the tight just Got next and on see wondering, about of like you or of

Frank Lee

to start China. qualification new are expansion, in And very new a In stage, and a our see we some manufactures some players, [ph] local industry, some get early these market. customer enter the in some do

it that on end also start will believe will for these we impact years. low the competitors the several scale, new to take business However, of economic achieve and the certain

the we our in China, business of the focused So, end higher basically, on mainstream. are

merchant, end-of-life some not differentiation expansion new mentioned, not photomask CapEx, only capacity we will we with every competitors. spent to of for are have expansion, of of some China, this is significant. Outside of the as of those, happen capacity And actually course, is just to And kind for IC but situation portions end-of-life some and part replacement, we us. those so

So, every but CapEx, even merchant will doing with end-of-life. tool is some be

still capacity the overall, limit. So, increase

Gus Richard

Okay. Got it.

incremental overall tight you for just longer and no to capacity all remaining replacement that kind the of supported. is basically, the of are see the tools summarize So CapEx

Frank Lee

Correct.

Gus Richard

years, then the And into sustainable confidence am rarely over margins gives you level, kind it. just Got the the XXs, gotten given industry? have and IC that, of just what last of the a history that’s XX I photomask the curious

Frank Lee

I photomask are A semi player focusing attention industry. is you fab supply. think mentioned, of in in to past, as a the companies photomask the yes, paid on capacity expansion and little big lot wafer not

on So, than side, demand. other the the supply supply was more demand, of course,

However, making not make merchants because investment. most enough are photomask to money

wafer of the years, of trend supply past a shifted IC expansion. and lot a has new application lot the demand, X gradually, between new So the and in fab especially created

photomask side, on side lot of expand do wafer and the not a demand. of So, new of new demand supply the combination product

and So, pricing situations, some such getting worse. profit we demand balance also of we in is terms have the on And margin. believe and supply leverage

Gus Richard

And one last it. point guys, you Got times? for lead for an or at just markets extension of times, stabilized the you lead in they this seeing have mature Are your me.

Frank Lee

Yes.

lead very the XX time shortage, the year. long much, And was days. have days, lead this it time time the as as before at is low than XX improved. And year, time And days, longer is lead like lead before. still, lead was Our moment, last last the But the much normal some time X longest.

long – time different lead is but seeing has still time very certain lead nodes, Certain improved. So, this and we the from remain node-to-node. premium nodes charge and some lead time are

Gus Richard

Got it. so much. Thank you

me. I think that’s it for

Frank Lee

Thank you, Gus.

John Jordan

much. very Thanks

Operator

Instructions] like would Frank. at [Operator back not And I time. the this questions turn I call over further to am any showing to

Frank Lee

your chosen us appreciate you We are interest and this join in glad Photronics. to morning that have

continue our proud of to and to and our half performed Thank customer have expectations. you. long-term the progress on we team and is the our serve to through are our to a good look contribute demand again are day believe achieving to way XXXX our our performance Market first exceeded you of metrics Our We achievements. way has financial strong our I forward update am improving. and has everyone. target

Operator

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

Photronics (PLAB) 24 May 232023 Q2 Earnings call transcript