Financial Data and Key Metrics Changes - Net income for the quarter was $36.3 million, or $0.58 per diluted share on a GAAP basis, while non-GAAP net income was $28.7 million, or $0.46 per diluted share after adjusting for non-operating FX gain [26] - Operating cash flow generated was $76.5 million, with capital expenditures (capex) at $20 million for the quarter, maintaining an expected total capex of $140 million for 2024 [26][27] - The company ended the quarter with a cash balance of $539.2 million, short-term investments of $20.7 million, and debt of $21.8 million, indicating sufficient liquidity for investments [27] Business Line Data and Key Metrics Changes - Second quarter revenue was $217 million, slightly higher than the first quarter, with IC sales improving quarter-over-quarter while LPD decreased [45][30] - Gross margin was 36.5%, similar to the first quarter but down from the previous year due to lower premium charges, resulting in an operating margin of 25.8% [47] - IC mainstream sales increased, driven by market share gains, while high-end sales were down primarily due to lower U.S. demand [39] Market Data and Key Metrics Changes - The semiconductor environment is gradually improving, with expectations for positive demand momentum in Q3 and Q4 across most IC segments and regions [39][40] - Demand for mobile display masks is expected to pick up in Q3, ahead of anticipated fall launches of new premium smartphones [46] - The company noted that the overall revenue remains around 5% below prior year levels, with a slower ramp in order rates following the Lunar New Year [72] Company Strategy and Development Direction - The company aims to address anticipated demand growth in both high-end and mainstream IC markets while increasing return on invested capital [26] - Long-term optimism is maintained regarding demand trends for both IC and LPD, with expectations that megatrends such as AI will drive chip design activity [40][41] - The company is focused on maintaining strong customer relations and leveraging leading technology to outgrow the photomask industry [42] Management's Comments on Operating Environment and Future Outlook - Management acknowledged unique challenges in Q2, including the impact of the earthquake, but expressed confidence in achieving solid results for the year [30][83] - The company expects third quarter revenue to be in the range of $221 million to $229 million, with non-GAAP earnings per share estimated between $0.53 and $0.59 [28] - Management highlighted that order rates at the beginning of Q3 are encouraging, providing confidence for the upcoming quarter [36] Other Important Information - The earthquake in Taiwan resulted in a $3 million impact primarily due to production lost time, but no significant damage to facilities or equipment was reported [24][71] - The company is investigating the impact of the earthquake on photomasks, with some potentially needing to be scrapped or serviced [82] Q&A Session Summary Question: What was the impact of the earthquake on production and guidance? - The earthquake had a $3 million impact, mainly from production lost time, but it was a one-time event and not expected to affect future guidance [24][34] Question: How is the demand environment looking for the next quarter? - The demand environment is expected to improve, with higher order rates entering Q3, particularly in the high-end segment [36][39] Question: What are the expectations for gross margins in the upcoming quarter? - Gross margins are expected to remain stable, with a focus on improving product mix to maintain profitability despite lower premium charges [47][63]

Safe Harbor Statement | --- | --- | --- | --- | --- | --- | --- | --- | |-------------------------|-------|-------|-------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | Q2 2024 Financial | | | | | | | | | Results Conference Call | | | | | | | | | May 22, 2024 | | | | | | | | PHOTRONICS, INC. 2 This presentation and some of our comments during this presentation may contain projections or other forward-looking statements regarding future events, our future financial performance, and/o ...

Exhibit 99.2 (in thousands, except per share amounts) PHOTRONICS, INC. Condensed Consolidated Statements of Income | | | April 28, | | Three Months Ended January 28, | | April 30, | | April 28, | Six Months Ended | April 30, | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 2024 | | 2024 | | 2023 | | 2024 | | 2023 | | Revenue | $ | 217,000 | $ | 216,334 | $ | 229,306 | $ | 433,334 | $ | 440,397 | | Cost of goods sold | | 137,749 | | 137,079 | | 140,904 | | 274,828 | | 275,918 | | G ...

BROOKFIELD, Conn., May 22, 2024 (GLOBE NEWSWIRE) -- Photronics, Inc. (NASDAQ:PLAB), a worldwide leader in photomask technologies and solutions, today reported financial results for its second quarter of fiscal year 2024 ended April 28, 2024. "Second quarter revenue and gross margin were in line with the first quarter as positive seasonality trends were offset by business headwinds primarily related to temporary soft demand following the Chinese New Year holiday and the impact from earthquakes in Taiwan begi ...

Photronics (PLAB) is set to report its second-quarter fiscal 2024 results on May 22. For the to-be-reported quarter, PLAB expects revenues between $226 million and $236 million. Non-GAAP earnings are expected to be between 50 cents and 58 cents. The Zacks Consensus Estimate for earnings is pegged at 55 cents, unchanged in the past 30 days and indicating 1.85% year-over-year growth. The company's earnings beat the Zacks Consensus Estimate in two of the trailing four quarters while missing the same on two occ ...

PART I. FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=6&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) Photronics, Inc.'s unaudited condensed consolidated financial statements for the quarter ended January 28, 2024, show total assets of **$1.58 billion**, revenue of **$216.3 million**, and net income attributable to shareholders of **$26.2 million** [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of January 28, 2024, total assets increased to **$1.58 billion** from **$1.53 billion**, driven by cash and PPE, while total liabilities decreased and total equity grew to **$1.35 billion** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Jan 28, 2024 | Oct 31, 2023 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $508,518 | $499,292 | | Total current assets | $807,677 | $785,450 | | Property, plant and equipment, net | $742,671 | $709,244 | | **Total assets** | **$1,582,836** | **$1,526,221** | | **Liabilities & Equity** | | | | Total current liabilities | $185,289 | $185,223 | | Total liabilities | $235,782 | $250,612 | | Total equity | $1,347,054 | $1,275,609 | | **Total liabilities and equity** | **$1,582,836** | **$1,526,221** | [Condensed Consolidated Statements of Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For the three months ended January 28, 2024, revenue increased to **$216.3 million**, gross profit rose to **$79.3 million**, and net income attributable to shareholders significantly increased to **$26.2 million** or **$0.42 per diluted share** Three Months Ended Income Statement Highlights (in thousands, except per share data) | Metric | Jan 28, 2024 | Jan 29, 2023 | | :--- | :--- | :--- | | Revenue | $216,334 | $211,090 | | Gross Profit | $79,255 | $76,077 | | Operating Income | $57,489 | $55,957 | | Net income attributable to Photronics, Inc. shareholders | $26,180 | $13,986 | | Diluted Earnings Per Share | $0.42 | $0.23 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For Q1 FY24, net cash from operations increased to **$41.5 million**, investing activities used **$42.2 million**, financing activities used **$2.9 million**, and cash and cash equivalents ended at **$508.5 million** Three Months Ended Cash Flow Summary (in thousands) | Cash Flow Activity | Jan 28, 2024 | Jan 29, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $41,508 | $27,680 | | Net cash used in investing activities | ($42,215) | ($30,170) | | Net cash used in financing activities | ($2,871) | ($9,714) | | Effect of exchange rate changes on cash | $13,026 | $27,499 | | **Net increase in cash** | **$9,448** | **$15,295** | | **Cash and cash equivalents at end of period** | **$508,518** | **$334,792** | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, business operations as a photomask manufacturer, consolidation of the PDMCX joint venture, revenue disaggregation, debt, and **$142.2 million** in capital expenditure commitments - Photronics is a leading manufacturer of **photomasks**, a key element in the production of **Integrated Circuits (ICs)** and **Flat-Panel Displays (FPDs)**, operating **eleven manufacturing facilities worldwide**[29](index=29&type=chunk) - The company consolidates its China-based IC joint venture, **PDMCX**, as it is deemed the primary beneficiary of the **Variable Interest Entity (VIE)**[48](index=48&type=chunk) Revenue Disaggregation by Product Type (Q1'24 vs Q1'23, in thousands) | Product Type | Q1 2024 Revenue | Q1 2023 Revenue | | :--- | :--- | :--- | | **IC (Total)** | **$157,589** | **$156,589** | | IC High-end | $60,875 | $48,003 | | IC Mainstream | $96,714 | $108,586 | | **FPD (Total)** | **$58,745** | **$54,501** | | FPD High-end | $50,616 | $45,691 | | FPD Mainstream | $8,129 | $8,810 | | **Total Revenue** | **$216,334** | **$211,090** | - As of January 28, 2024, the company had outstanding commitments for capital expenditures of approximately **$142.2 million**, primarily for **high-end equipment**[89](index=89&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 FY24 financial results, noting **$216.3 million** revenue, a **2.5% YoY increase**, improved gross margin to **36.6%**, strong liquidity with **$508.5 million** cash, and planned **$140 million** capital expenditures for FY24 [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Q1 FY24 revenue was **$216.3 million**, a **2.5% YoY increase** driven by high-end IC and FPD demand, despite a sequential decrease due to mainstream IC and FPD seasonality, with gross margin improving **60 basis points YoY** to **36.6%** Quarterly Revenue Changes by Product Type (in millions) | Product Type | Q1 FY24 Revenue | Change vs Q4 FY23 | Change vs Q1 FY23 | | :--- | :--- | :--- | :--- | | Total IC | $157.6 | -4.2% | +0.6% | | Total FPD | $58.7 | -6.7% | +7.8% | | **Total Revenue** | **$216.3** | **-4.9%** | **+2.5%** | - The decrease in IC revenue from Q4 FY23 was primarily due to reduced **mainstream demand in Asia**, while the year-over-year increase was driven by **high-end demand** offsetting a mainstream decline[113](index=113&type=chunk) - FPD revenue decreased from Q4 FY23 due to **premium smartphone seasonality** but increased **7.8%** from Q1 FY23 due to higher demand for **high-end AMOLED displays**[114](index=114&type=chunk) - Gross margin increased **60 basis points year-over-year** to **36.6%**, primarily due to **higher revenue** and a **favorable product mix**[116](index=116&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$508.5 million** in cash and cash equivalents, plans approximately **$140 million** in FY24 capital expenditures for IC capacity, and has **$31.7 million** remaining for share repurchases - Cash and cash equivalents were **$508.5 million** as of January 28, 2024, with **$494.0 million** held by foreign subsidiaries[124](index=124&type=chunk) - Estimated capital expenditures for the full fiscal year 2024 are approximately **$140 million**, aimed at enhancing **IC capacity and efficiency**[126](index=126&type=chunk) - As of January 28, 2024, approximately **$31.7 million** was available for **share repurchases** under the board-authorized program[127](index=127&type=chunk) [Non-GAAP Financial Measures](index=30&type=section&id=Non-GAAP%20Financial%20Measures) The company presents non-GAAP financial measures like Non-GAAP Net Income, EPS, Free Cash Flow, and Net Cash for clearer performance insights, with Q1 FY24 Non-GAAP diluted EPS at **$0.48** and free cash flow at **negative $1.8 million** GAAP vs. Non-GAAP Diluted EPS Reconciliation | Metric | Q1 FY24 | Q4 FY23 | Q1 FY23 | | :--- | :--- | :--- | :--- | | GAAP diluted earnings per share | $0.42 | $0.72 | $0.23 | | Effects of adjustments (FX, tax, etc.) | $0.06 | $(0.12) | $0.17 | | **Non-GAAP diluted earnings per share** | **$0.48** | **$0.60** | **$0.40** | Free Cash Flow (in millions) | Component | Q1 FY24 | Q1 FY23 | | :--- | :--- | :--- | | Net cash provided by operating activities | $41.5 | $27.7 | | Purchases of property, plant, and equipment | ($43.3) | ($31.1) | | **Free cash flow** | **($1.8)** | **($3.4)** | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces market risks primarily from foreign currency fluctuations, notably in KRW, JPY, NTD, and RMB, where a **10% adverse movement** could lead to a **$54.8 million pre-tax loss**, while interest rate risk is immaterial - The company conducts business in several international currencies, with primary exposures in the **South Korean won**, **New Taiwan dollar**, **RMB**, and **Japanese yen**[143](index=143&type=chunk) - As of January 28, 2024, a hypothetical **10% adverse movement** in foreign currency exchange rates would result in a net unrealized pre-tax loss of **$54.8 million**[145](index=145&type=chunk) - The company's most significant currency exposures are the **South Korean won ($13.8M)**, **RMB ($9.7M)**, and **New Taiwan Dollar ($28.4M)** against the U.S. dollar[145](index=145&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and interim CFO, concluded the company's disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the first fiscal quarter - Based on an evaluation as of the end of the reporting period, the **chief executive officer** and **interim chief financial officer** concluded that the company's **disclosure controls and procedures were effective** at a reasonable assurance level[148](index=148&type=chunk) - No **material changes** occurred in the company's **internal control over financial reporting** during the first fiscal quarter[149](index=149&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 12 of the financial statements for information on legal proceedings, which are not expected to have a material effect on the company's financial statements - For information on legal proceedings, the report refers to **Note 12** within Item 1[151](index=151&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the fiscal year 2023 - There have been **no material changes** to the **risk factors** previously set forth in the company's **2023 Form 10-K**[152](index=152&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase common stock in Q1 2024, with **$31.7 million** remaining available for future repurchases under the board-authorized program Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Shares Purchased | Average Price Paid | Value of Shares Remaining for Purchase (in millions) | | :--- | :--- | :--- | :--- | | Nov 1, 2023 – Jan 28, 2024 | 0 | - | $31.7 | [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) On January 11, 2024, Lucien Bouchard, VP of Global Sales, adopted a Rule 10b5-1 trading plan to sell up to **9,000 shares** of common stock, which have since been traded - On January 11, 2024, an executive officer, **Lucien Bouchard**, adopted a **Rule 10b5-1 trading arrangement** to sell up to **9,000 shares** of common stock[155](index=155&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and interim CFO pursuant to the Sarbanes-Oxley Act (Sections 302 and 906) and Inline XBRL documents - The exhibits filed with this report include **CEO and CFO certifications** (Exhibits 31.1, 31.2, 32.1, 32.2) and **XBRL data files** (Exhibits 101 and 104)[157](index=157&type=chunk)

Financial Data and Key Metrics Changes - Revenue for the first quarter was $216.3 million, up 2% year-over-year but down 5% sequentially due to seasonal trends and fewer operational days [42] - First quarter earnings were $0.42 per share on a GAAP basis and $0.48 per share on a non-GAAP basis, showing an improvement from the previous year [26][47] - Operating cash flow improved by 50% year-over-year to $41.5 million, driven by higher net income and effective working capital management [48] Business Line Data and Key Metrics Changes - Integrated Circuit (IC) revenue was $157.6 million, up 1% year-over-year but down 4% sequentially, with high-end revenue increasing due to strong foundry logic demand in Asia [43] - Flat Panel Display (FPD) revenue was $58.7 million, an 8% increase year-over-year but down 7% from the previous quarter, with high-end FPD revenue improving due to increased demand for AMOLED displays [44][45] - Operating margin was reported at 26.6%, with gross margin at 36.6%, slightly higher year-over-year but lower sequentially [46] Market Data and Key Metrics Changes - Demand improved through the quarter, particularly in the U.S. ahead of the Chinese New Year, with expectations for continued demand trends into Q2 [19] - The semiconductor industry is expected to transition to a new growth phase, leading to increased photomask demand in the second to third fiscal quarters [28] - The pricing environment has stabilized around mid to high 30s percentage gross margin levels, with expectations for gross margin in the 38% range for Q2 [51] Company Strategy and Development Direction - The company is focused on controlling costs to increase margins and cash flow to support growth investments [20] - There is a commitment to targeted investment and consistent execution to ensure continued success, especially in high-end and mainstream IC markets [40] - The company aims to maintain stable pricing in the mainstream sector while focusing on high-end products to offset any pricing pressures [57] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the rest of the year, anticipating a recovery in demand for memory and a stable pricing environment in mainstream products [28][51] - The company expects to continue growing market share and improving profit margins, with confidence in achieving another record year in 2024 [8] - Management noted that the mainstream business is stabilizing, particularly in the 40-nanometer area, which is consuming much of the company's capacity [34] Other Important Information - The company ended the quarter with a cash balance of $508.5 million, providing ample liquidity for growth investments [49] - Capital expenditures for growth were $43.3 million in the quarter, with guidance for the year remaining at $140 million [48] Q&A Session Summary Question: Health of the mainstream business and pricing outlook - Management indicated that mainstream pricing has stabilized, with no need for further adjustments as high-end demand is consuming capacity [34][57] Question: Impact of OLED strength on flat panel business - Management noted that OLED strength is beneficial, but the Gen 10.5 range remains soft, with a focus on AMOLED products being more profitable [59] Question: Update on EUV activity - The customer base for EUV is expanding, with demonstrations being conducted to compare yields between EUV and optical masks [12]

Exhibit 99.2 PHOTRONICS, INC. Condensed Consolidated Statements of Income (in thousands, except per share amounts) (Unaudited) | | | | | Three Months Ended | | | | --- | --- | --- | --- | --- | --- | --- | | | | January 28, | | October 31, | | January 29, | | | | 2024 | | 2023 | | 2023 | | Revenue | $ | 216,334 | $ | 227,473 | $ | 211,090 | | Cost of goods sold | | 137,079 | | 142,591 | | 135,013 | | Gross Profit | | 79,255 | | 84,882 | | 76,077 | | Operating Expenses: | | | | | | | | Selling, general and a ...

Part I [Business Overview](index=7&type=section&id=Item%201.%20Business) Photronics is a leading global manufacturer of photomasks for integrated circuits and flat-panel displays, operating 11 facilities worldwide and focusing on both high-end and mainstream technologies - Photronics is the world's leading manufacturer of photomasks, critical for manufacturing integrated circuits (ICs) and flat-panel displays (FPDs), operating **11 manufacturing facilities globally**[19](index=19&type=chunk) Key Customer Revenue Concentration | Customer | 2023 (%) | 2022 (%) | 2021 (%) | | :--- | :--- | :--- | :--- | | United Microelectronics Corp. | 14% | 15% | 17% | | Semiconductor Manufacturing Int'l Corp. | 13% | 5% | 3% | | Samsung Electronics Co., Ltd. | 10% | 11% | 12% | | **Top 5 Customers (Aggregate)** | **51%** | **45%** | **43%** | - Research and development expenses were **$13.7 million in 2023**, a decrease from **$18.3 million in 2022**, with efforts focused on advanced IC and FPD photomasks[28](index=28&type=chunk) - The estimated total addressable market for IC and FPD photomasks is approximately **$7.5 billion**, with key competitors including Dai Nippon Printing and Hoya Corporation[37](index=37&type=chunk) Revenue from Non-U.S. Operations | Year | Percentage of Total Revenue (%) | | :--- | :--- | | 2023 | 86% | | 2022 | 85% | | 2021 | 84% | [Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including industry volatility, customer and supplier concentration, substantial capital needs, intense competition, rapid technological change, operational complexities, and regulatory challenges, particularly with international operations [Concentration Related Risk Factors](index=13&type=section&id=Concentration%20Related%20Risk%20Factors) The company's business is highly dependent on the volatile microelectronics industry, relying on a limited number of key suppliers and a concentrated customer base, with the top five customers accounting for **51% of 2023 revenue** - The business is highly dependent on the historically volatile microelectronics industry, with demand for photomasks linked to design activity rather than semiconductor sales volume[53](index=53&type=chunk) - Reliance on a limited number of suppliers for specialized manufacturing equipment and raw materials poses risks of operational delays or quality issues[54](index=54&type=chunk)[55](index=55&type=chunk) - A significant portion of revenue is concentrated among a few large customers, with the **top two accounting for 27%** and the **top five for 51% of 2023 revenue**, posing a material risk if a major customer is lost[56](index=56&type=chunk) [Financing Related Risk Factors](index=14&type=section&id=Financing%20Related%20Risk%20Factors) Operating in a high fixed-cost, capital-intensive environment, the company faces risks that future cash flows may not cover projected **$140 million in fiscal 2024 capital expenditures** or that favorable additional financing will be available - The company's liquidity is highly dependent on revenue volume in a high fixed-cost environment, potentially leading to inadequate cash flows for capital expenditures, operations, and debt repayments[57](index=57&type=chunk) - Manufacturing leading-edge photomasks necessitates substantial and continuous capital investment, with projected capital expenditure payments for fiscal 2024 estimated at approximately **$140 million**[58](index=58&type=chunk) [Industry and Competitive Related Risk Factors](index=14&type=section&id=Industry%20and%20Competitive%20Related%20Risk%20Factors) Success depends on retaining key personnel and adapting to rapid technological changes in the highly competitive photomask industry, where failure to anticipate market needs, protect intellectual property, or continuously invest could be detrimental - The photomask industry's rapid technological change requires continuous investment and adaptation to smaller semiconductor geometries and advanced FPDs to maintain competitiveness[60](index=60&type=chunk) - The business faces a high risk of cyberattacks that could compromise intellectual property and sensitive information, potentially disrupting operations and causing financial harm[61](index=61&type=chunk) - The highly competitive industry, where customers often use multiple suppliers, emphasizes product quality, delivery time, price, and technical capability as key competitive factors[64](index=64&type=chunk) [Investment Related Risk Factors](index=16&type=section&id=Investment%20Related%20Risk%20Factors) Investment risks include potential joint venture partner failures, substantial operational risks in China related to intellectual property and geopolitical tensions, and potential charges from facility closures or acquisition integration difficulties - Joint ventures involve shared control, where disagreements or a partner's failure to fulfill obligations could adversely affect operations and necessitate additional resources[65](index=65&type=chunk)[66](index=66&type=chunk) - Operations in China, initiated in 2019, expose the company to significant risks including intellectual property protection challenges, U.S.-China geopolitical tensions, and potential restrictions on operations or investments[67](index=67&type=chunk) [Operations Related Risk Factors](index=17&type=section&id=Operations%20Related%20Risk%20Factors) Operational risks include significant fluctuations in quarterly results due to order timing and product mix, operating leverage risk from high fixed costs, and challenges in non-U.S. operations, which accounted for **86% of 2023 revenue**, including currency fluctuations and political instability - Quarterly operating results fluctuate significantly due to short order-to-shipment cycles, high fixed costs, and variable demand, rendering quarter-to-quarter comparisons unreliable for future performance indication[71](index=71&type=chunk)[72](index=72&type=chunk) - Non-U.S. operations, comprising approximately **86% of total revenues in 2023**, are subject to inherent risks such as currency fluctuations, political and economic instability, and trade barriers[73](index=73&type=chunk)[74](index=74&type=chunk) - The capital-intensive nature of the business results in high fixed costs, meaning a decline in sales volume could lead to underutilized capacity and significantly impact operating margins[77](index=77&type=chunk) [Regulatory and General Risk Factors](index=19&type=section&id=Regulatory%20and%20General%20Risk%20Factors) The company faces various regulatory risks, including changes in tax laws, U.S. and foreign export controls, and environmental regulations, alongside general risks such as ESG matters, internal control effectiveness, global catastrophic events, and stock price volatility - The company is subject to U.S. and foreign export control laws, such as EAR, which could prohibit product sales to restricted entities or regions, especially amidst trade disputes involving countries like China[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk) - Global catastrophic events, including pandemics, wars (e.g., Russia-Ukraine), and political tensions in operating regions like Taiwan and China, could adversely affect the business[86](index=86&type=chunk) - The company's stock price is subject to volatility influenced by financial results, customer or supplier changes, industry developments, and broader economic conditions[96](index=96&type=chunk) [Item 1B. Unresolved Staff Comments](index=23&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[98](index=98&type=chunk) [Item 1C. Cybersecurity](index=23&type=section&id=Item%201C.%20Cybersecurity) This item is not applicable for this reporting period - Not applicable[99](index=99&type=chunk) [Item 2. Properties](index=24&type=section&id=Item%202.%20Properties) The company operates photomask manufacturing facilities globally, with owned properties in the US and Korea, owned buildings on leased land in Asia, and leased facilities in Europe and Taiwan Manufacturing Facilities | Location | Ownership Type | | :--- | :--- | | Allen, Texas | Owned | | Boise, Idaho | Owned | | Brookfield, Connecticut | Owned | | Cheonan, Korea | Owned | | Hefei, China | Owned (Land Leased) | | Taichung, Taiwan | Owned (Land Leased) | | Xiamen, China | Owned (Land Leased) | | Hsinchu, Taiwan | Owned (Land Leased) | | Bridgend, Wales | Leased | | Dresden, Germany | Leased | | Hsinchu, Taiwan | Leased | [Item 3. Legal Proceedings](index=24&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings involving the company is detailed in Note 15 to the consolidated financial statements - For information on legal proceedings, refer to Note 15 to the consolidated financial statements in Part II, Item 8 of this report[101](index=101&type=chunk) [Item 4. Mine Safety Disclosures](index=24&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[102](index=102&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=25&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NASDAQ Global Select Market under **PLAB**, has never paid cash dividends, and has **$31.7 million remaining** under its **$100 million share repurchase program** as of 2023, with no repurchases in fiscal 2023 - The company's common stock is traded on the NASDAQ Global Select Market under the symbol **PLAB**[104](index=104&type=chunk) - The company has never paid cash dividends and plans to retain future earnings for business operations[105](index=105&type=chunk) - A **$100 million share repurchase plan** authorized in September 2020 has **$31.7 million remaining** as of the report date, with no shares repurchased in fiscal 2023[106](index=106&type=chunk) [Item 6. [Reserved]](index=25&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information - This item is reserved[109](index=109&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal year 2023 saw record revenue of **$892.1 million**, an **8.2% increase**, driven by growth in both IC and FPD segments, with improved gross margin, increased operating income, and strong liquidity, while projecting **$140 million in capital expenditures** for fiscal 2024 [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Fiscal year 2023 total revenue increased **8.2% to $892.1 million**, driven by **9.8% IC growth** and **4.0% FPD growth**, leading to a **2.0 percentage point gross margin expansion to 37.7%**, despite a decrease in non-operating income due to foreign currency impacts Fiscal Year Revenue by Product Type (YTD FY23 vs YTD FY22) | Product Type | YTD FY23 Revenue ($M) | YoY Change ($M) | YoY Change (%) | | :--- | :--- | :--- | :--- | | **Total IC** | **$651.3** | **$58.3** | **9.8%** | | High-end IC | $195.0 | $(0.4) | (0.2)% | | Mainstream IC | $456.3 | $58.6 | 14.7% | | **Total FPD** | **$240.8** | **$9.3** | **4.0%** | | High-end FPD | $200.8 | $13.9 | 7.4% | | Mainstream FPD | $40.0 | $(4.6) | (10.3)% | | **Total Revenue** | **$892.1** | **$67.5** | **8.2%** | Fiscal Year Revenue by Geographic Origin (YTD FY23 vs YTD FY22) | Geographic Origin | YTD FY23 Revenue ($M) | YoY Change ($M) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Taiwan | $316.9 | $25.5 | 8.8% | | China | $245.4 | $32.8 | 15.4% | | Korea | $162.2 | $6.1 | 3.9% | | United States | $128.9 | $2.7 | 2.1% | | Europe | $36.6 | $0.2 | 0.5% | | Other | $2.1 | $0.3 | 13.5% | Gross Margin Performance | Period | Gross Profit ($M) | Gross Margin (%) | | :--- | :--- | :--- | | YTD FY23 | $336.2 | 37.7% | | YTD FY22 | $294.2 | 35.7% | - Non-operating income decreased by **$10.3 million in FY23** primarily due to less favorable foreign currency transaction impacts, partially offset by increased interest income from higher cash balances[141](index=141&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with cash and cash equivalents increasing to **$499.3 million** in fiscal 2023, supported by **$302.2 million in operating cash flow**, and plans **$140 million in capital expenditures** for fiscal 2024, with **$31.7 million remaining** in its share repurchase program Cash Position | Metric | Oct 31, 2023 ($M) | Oct 31, 2022 ($M) | | :--- | :--- | :--- | | Cash and cash equivalents | $499.3 | $319.7 | | Net Cash (Non-GAAP) | $474.7 | $277.3 | - Capital expenditures for fiscal year 2024 are estimated at approximately **$140 million**, aimed at high-end and mainstream tools to increase operating capacity and support customer demand[150](index=150&type=chunk) Cash Flow Summary | Cash Flow Activity ($M) | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $302.2 | $275.2 | $150.8 | | Net cash used in investing activities | $(101.5) | $(147.8) | $(103.5) | | Net cash used in financing activities | $(18.5) | $(38.7) | $(53.9) | - Free Cash Flow (non-GAAP) increased to **$170.9 million in FY23** from **$162.9 million in FY22**, driven by higher net cash from operating activities[155](index=155&type=chunk)[164](index=164&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is foreign currency exchange rate fluctuations from global operations, where a hypothetical **10% adverse movement** could result in a **$52.0 million pre-tax loss**, while interest rate risk is considered immaterial - The company's primary market risk stems from foreign currency exchange rate fluctuations, with key exposures including the South Korean won, New Taiwan dollar, Chinese renminbi, Japanese yen, and euro[173](index=173&type=chunk) - As of October 31, 2023, a hypothetical **10% adverse movement** in key foreign currencies against functional currencies would have resulted in a net unrealized pre-tax loss of **$52.0 million**[175](index=175&type=chunk) - Interest rate risk is considered minimal, as a **10% adverse movement** in interest rates on variable rate borrowings would not materially affect the financial statements[176](index=176&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=39&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for fiscal year ended October 31, 2023, including balance sheets, income statements, and cash flows, with an unqualified opinion from Deloitte & Touche LLP on both financial statements and internal control effectiveness [Consolidated Financial Statements](index=42&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements for fiscal 2023 reflect a strong financial position, with total assets growing to **$1,526.2 million**, total equity reaching **$975.0 million**, revenue increasing to **$892.1 million**, and net income attributable to shareholders at **$125.5 million** Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 31, 2023 | Oct 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $499,292 | $319,680 | | Total current assets | $785,450 | $644,652 | | Total assets | $1,526,221 | $1,315,830 | | Total liabilities | $250,612 | $253,741 | | Total Photronics, Inc. shareholders' equity | $975,008 | $831,527 | Consolidated Statement of Income Highlights (in thousands) | Account | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Revenue | $892,076 | $824,549 | $663,761 | | Gross profit | $336,162 | $294,213 | $167,044 | | Operating income | $253,050 | $211,866 | $94,554 | | Net income attributable to Photronics, Inc. shareholders | $125,485 | $118,786 | $55,449 | | Diluted EPS | $2.03 | $1.94 | $0.89 | Consolidated Statement of Cash Flows Highlights (in thousands) | Account | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $302,176 | $275,187 | $150,772 | | Net cash used in investing activities | $(101,545) | $(147,757) | $(103,494) | | Net cash used in financing activities | $(18,493) | $(38,689) | $(53,903) | [Notes to Consolidated Financial Statements](index=47&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail significant accounting policies, including revenue recognition over time, asset and liability composition, the consolidation of the PDMCX joint venture as a VIE, share-based compensation, income tax details with a **26.0% effective tax rate**, and customer concentration, with **three customers exceeding 10% of 2023 revenue** - The company recognizes most revenue "over time" for custom photomasks, as products have no alternative use and contracts ensure payment for completed work[220](index=220&type=chunk) - The PDMCX joint venture in Xiamen, China, is consolidated as a Variable Interest Entity (VIE) for which Photronics is the primary beneficiary[260](index=260&type=chunk) - In February 2023, the PDMCX joint venture repaid its **RMB 26.4 million ($3.9 million) Project Loans**, and the Corporate Credit Agreement expired in September 2023 without renewal[273](index=273&type=chunk)[275](index=275&type=chunk) - The effective income tax rate for FY23 was **26.0%**, higher than the U.S. statutory rate of **21.0%**, primarily due to foreign tax rate differentials and uncertain tax positions in non-U.S. jurisdictions[307](index=307&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=77&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[346](index=346&type=chunk) [Item 9A. Controls and Procedures](index=77&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of October 31, 2023, management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective, a conclusion supported by Deloitte & Touche LLP, with no material changes reported during 2023 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of **October 31, 2023**[347](index=347&type=chunk) - Management assessed the company's internal control over financial reporting as effective as of **October 31, 2023**, based on the COSO framework, with Deloitte & Touche LLP issuing an unqualified opinion on its effectiveness[350](index=350&type=chunk)[351](index=351&type=chunk) - No material changes to internal control over financial reporting were reported during 2023[352](index=352&type=chunk) [Item 9B. Other Information](index=79&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[360](index=360&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=79&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[361](index=361&type=chunk) Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=79&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Definitive Proxy Statement - Required information is incorporated by reference from the 2023 Definitive Proxy Statement[363](index=363&type=chunk) [Item 11. Executive Compensation](index=79&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2023 Definitive Proxy Statement - Required information is incorporated by reference from the 2023 Definitive Proxy Statement[365](index=365&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=79&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership and related stockholder matters is incorporated by reference from the company's 2024 Definitive Proxy Statement - Required information is incorporated by reference from the 2024 Definitive Proxy Statement[366](index=366&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=79&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2023 Definitive Proxy Statement - Required information is incorporated by reference from the 2023 Definitive Proxy Statement[367](index=367&type=chunk) [Item 14. Principal Accountant Fees and Services](index=80&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's 2024 Definitive Proxy Statement - Required information is incorporated by reference from the 2024 Definitive Proxy Statement[369](index=369&type=chunk) Part IV [Item 15. Exhibits and Financial Statement Schedules](index=80&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed with the Form 10-K, with all financial statement schedules omitted due to immateriality or inapplicability - This section lists the financial statements and exhibits filed with the report, with all financial statement schedules omitted as they are not applicable or immaterial[371](index=371&type=chunk) [Item 16. Form 10-K Summary](index=84&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - Not applicable[378](index=378&type=chunk)

Photronics, Inc. (NASDAQ:PLAB) Q4 2023 Earnings Conference Call December 13, 2023 8:30 AM ET Company Participants Richelle Burr - EVP, Chief Administrative Officer Frank Lee - Chief Executive Officer John Jordan - EVP, Chief Financial Officer Chris Progler - EVP, Chief Technology Officer, Strategic Planning Conference Call Participants Tom Diffely - D.A. Davidson & Company Operator Good day and welcome to the Photronics Q4 FY ’23 Earnings Call. At this time all participants are in listen-only mode. Later we ...